Transocean (RIG) Q1 2023 Earnings Call Transcript

Transocean (RIG -3.89%)
Q1 2023 Earnings Call
May 02, 2023, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to Q1 2023 Transocean earnings call. At this time all participants are in a listen-only mode. Later you will have an opportunity to ask questions during the question-and-answer session. [Operator instructions].

Please note this call is being recorded. It is now my pleasure to turn today's program over to Alison Johnson, director of investor relations. Please go ahead.

Alison Johnson -- Director, Investor Relations

Thank you, Gretchen. Good morning and welcome to Transocean's first quarter 2023 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, chief executive officer; Keelan Adamson, president and chief operating officer; Mark Mey, executive vice president and chief financial officer; and Roddie Mackenzie, executive vice president and chief commercial officer.

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 current expectations and certain assumptions and therefore are subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for forward looking statements and for more information regarding certain risks and uncertainties that could impact our future results.

Also please note that the company undertakes no duty to update or revise forward-looking statements. Following Jeremy and Mark's prepared comments, we will conduct a question-and-answer session with our team. 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 -- Chief Executive Officer

Thank you, Allison, and welcome to our employees, customers, investors, and analysts participating on today's call. As reported in yesterday's earnings release, for the first quarter, Transocean delivered adjusted EBITDA of $217 million on $667 million in adjusted contract drilling revenues, resulting in an adjusted EBITDA margin of approximately 33%. Our overall performance was supported by superb revenue efficiency of nearly 98% and is representative of our commitment to operational excellence. During the quarter, we booked nearly $900 million of contract backlog, disrupting the first-quarter lull observed in years past.

In fact, this is more than doubled the backlog added in the first quarter of 2022 and more than seven times what we added in the first quarter of 2021. We believe that this is another clear indication of the sustainability of this constructive market environment, particularly in light of the record backlog we booked last year. Turning to the individual fixtures. In Lebanon, the Transocean Barents was awarded a one wealth contract with total energies at a rate of $365,000 per day.

The approximately 65-day contract is expected to commence in direct continuation of the rig's current program and provide for up to three option wells at rates between $300 and $75,000 per day and $390,000 per day. As discussed on our fourth quarter 2022 earnings call, in January, the KG2 was awarded a 910-day contract in Brazil at approximately $439,000 per day, including integrated services. The contract is expected to start in the third quarter of this year. In Australia, the Transocean endurance was awarded a multi-well contract for plug in abandonment work with an independent operator at a rate of $380,000 per day.

The contract also provides for up to five option periods, the first of which has already been exercised at the same-day rate. The remaining four options are at a rate of $390,000 per day. The contract is expected to commence in January of 2024 and including the exercised option firm work now extends through February 2025. If all options are exercised, the rig may remain in Australia through at least the fourth quarter of 2025.

On the Norwegian continental shelf, the Transocean enabler was awarded a 19-world contract with Equinor for work on the Johan Castberg field in the Barents Sea at $377,000 per day, as adjusted for currency exchange rates. The contract, which is expected to commence in April of 2024 also provides for up to eight option wells at $420,000 per day. Also in Norway, the Transocean Encourage was awarded a nine-well contract with Equinor at a rate of $350,000 per day as adjusted for currency exchange rates. The contract is expected to start in direct continuation of the rig's current program.

And finally, in Norway, Wintershall Dea exercised four one-well options on the Transocean Norge at rates of $338,000 per day, $358,000 per day, $358,000 per day and $408,000 per day respectively, again, as adjusted for currency exchange rates. Following our latest fleet status report, Wintershall Dea exercised a fifth option well at $358,000 per day, keeping the rig working through the third quarter of 2024. Also subsequent to our latest fleet status report, the Transocean Endurance was awarded a two-well contract in Norway at a rate of $385,000 per day. The contract is expected to commence in July 2023.

These harsh environment fixtures and the KG2 award complement the prolific ultra deepwater fixtures we announced in the second half of 2022 and keep us on track to deliver yet another strong year of backlog additions. Moreover, these harsh environment fixtures highlight the predicted tightness in the supply of higher specification harsh environment semi-submersibles that we have anticipated for some time now. Of note, The Endurance is the sixth semi-submersible to depart the Norwegian continental shelf in the past 18 months, joining most recently the transition Barents, which is now operating in the UK. With the departure of the Endurance, there are now just 13 active semi-submersible remaining in Norway that have the certifications required to participate in petroleum operations.

And we currently expect at least two more rigs to leave the region within the next 18 months. As we've discussed on previous calls, demand for rigs capable of drilling in harsh environments is no longer solely dependent upon geographic regions that have historically utilized harsh environment rigs. Rather, demand is increasingly coming from other areas including Australia, the Mediterranean, and Namibia. As we see multiple upcoming upcoming long-term developments on the horizon in Norway, the departure of these assets from the region is meaningful.

If demand continues to materialize as we expect, by the end of 2024, we anticipate that future projects in Norway will require several of these assets to return, and to lure them back, significant mobilization fees and higher day rates may be required. Perhaps the most interesting new market for our harsh -- high specification harsh environment semis is Australia. With numerous programs planned for overlapping operational windows, there appears to be strong competition among operators to secure the best and most capable rigs. As a result, we are observing an increased willingness from our customer base to pay higher mobilization and other contract preparation costs.

And if current tenders proceed as expected, we could see one or two new contract awards in Australia by the end of the second quarter. Turning to the benign environment rig market. Over the last year, we've observed a marked increase in day rates for ultra deepwater drill ships, which are now predominantly between $400,000 a day to $450,000 per day across the global fleet. We believe that this demonstrates a more widespread understanding by all market participants of current market rates.

Sixth and seventh gen drillship utilization remains at nearly 100%. We expect these utilization levels will be sustained as drillship demand is anticipated to rise throughout 2023. And we believe that as a result, day rates will continue to trend upward, especially for the higher specification ultra divorcement. In fact, by the end of the year, we expect leading edge rates to exceed $500,000 per day.

Additionally, we've recently observed a change in the behavior of several of our customers due to their recognition of the increasing scarcity of high specification assets. The shift is occurring mostly behind the scenes through direct inquiry and negotiations as they seek to secure rigs for longer terms, in some cases in excess of three years. We anticipate this trend will continue for certain customers as access to available desirable rigs becomes more difficult. Looking closer at each region, based on current activity and the open and plan Petrobras tenders, we believe Brazil will continue to be a large consumer of available rig supply.

We anticipate Petrobras will secure six or seven floaters under the pool two and tenders, including up to three from outside the region. If these awards materialize as expected, access to active and warm stacked rigs for use in other regions will be further constrained, likely resulting in increasingly favorable contract terms for qualified floaters. This has already occurred in India following the award of the KG2 under the Petrobras pool tender in early January. We believe that the departure from the Far East further highlights the limited available local supply of assets to meet the requirements of upcoming drilling campaigns, such as ONGC 221-month opportunities in India.

Consequently, we may see assets mobilized from other regions for this work. In West Africa and the Mediterranean, floater demand is expected to trend upward over the next 18 months with multi-year programs expected in Angola, Egypt, and Cyprus. Additionally, incremental work is emerging in Namibia following recent discoveries by both Shell and Total energies in the Orange Basin. Activity in the US Gulf of Mexico has kept regional supply and demand largely in balance over the last several quarters.

We're highly encouraged by the results of the lease sale concluded in late March in which the number of deepwater blocks receiving bids increased by 30% from the last lease sale held in 2021. We anticipate the region will continue to have strong activity for the foreseeable future. Year to date, 34-rig years have been awarded for the global floater fleet, as compared to 22 riggers this time last year. The quantity of programs awarded with a duration of one or more years has also increased with 11-awarded year to date up from five last year.

The outlook remains strong for the foreseeable future as over 80-rig years of work are expected to be awarded in the next 18 months. In fact, industry analysts report estimates the offshore sector will experience its highest growth in more than a decade with, according to Rystad Energy, more than $200 billion of new project investments during the next two years with offshore activity comprising nearly 70% of all sanctioned conventional hydrocarbons in 2023 and 2024. As demand continues to improve, we will ensure that Transocean is differentiated from our competitors by providing the highest value for our customers and developing and deploying innovative technologies that further enhance our already safe, reliable, and efficient operations. Just last month, utilizing a combination of various automation technologies, which we previously deployed within our fleet, the Transocean encouraged drilled an entire whole section for 21 consecutive hours in a fully automated mode.

This achievement is an important milestone for automation technologies. We believe automation will further improve our operational performance, improving the quality and consistency of the wells we drill for our customers, further enhancing the safety of our personnel while also reducing emissions. As we continue to deploy automation technologies, we plan to aggregate and analyze the data to gain new insights into the performance of our equipment and processes to improve our overall operations. Congratulations to our team in Norway for the significant accomplishment.

As we progressed further into the sub-cycle, we will continue to deploy our portfolio of high specification ultra deepwater and harsh environment rigs to maximize value for our shareholders. Throughout the downturn, we practice a thoughtful approach to contracting our assets and place the right rig on the right opportunity at the right time. We utilize different asset classes and were patient so as not to lock up our best assets on long-term low-day rate contracts. We continue to believe this is the correct approach, and moving forward, we will continue to remain disciplined when contracting our fleet.

With 12 total cold stacked assets, we have the most operational leverage within our peer group and significant upside potential in a rising market, particularly given the quality of our assets. There are only 13 remaining sixth and seventh generation cold stack drill ships in the industry and eight are in our fleet. Three of these, the Athena, Apollo, and Milos are seventh generation ultra deepwater drill ships that are well preserved in a relatively mild climate offshore Greece. We expect the economics of reactivation will be cost advantageous as compared to acquiring a stranded newbuild and preparing it for an initial contract.

Recent stranded newbuild purchases suggest between 200 and $250 million to acquire the asset plus the cost to reactivate, versus our current estimate of 75 million to 125 million to reactivate one of our existing cold stacked rigs. In summary, our outlook remains unambiguously optimistic, reinforced by increased market tightness in various regions around the world and the continued upward trajectory of day rates. Our industry leading backlog increased for the fourth consecutive quarter to currently about $8.6 billion. Additionally, the average day rate on our working benign environment is beginning to reflect the high-quality backlog we booked over the last 18 months and is projected to cross the $400,000 per day mark later this year.

As more of our rigs transition to higher day rate contracts, we will begin to utilize cash generated from our fleet to fulfill our commitment to our broader deleveraging efforts. Our focus remains on delivering safe, reliable and efficient operations. With our strong year-to-date fleet uptime and revenue efficiency of nearly 98%, We continue to take positive steps toward ultimately strengthening our balance sheet and generating value for our shareholders. I'll now turn the call over to Mark.

Mark Mey -- Executive Vice President, Chief Financial Officer

Thank you, Jeremy, and good day to all. During today's call, our briefly recap our first-quarter results, then provide guidance for the second quarter, as well as an update on our expectations for the full year 2023, and our liquidity forecast to the end of 2023. As reported in our press release, which includes additional detail on our results, for the first quarter of 2023, we reported a net loss attributable to controlling interest of $465 million, $0.64 per diluted share. After certain adjustments, as stated in yesterday's press release, we reported adjusted net loss of $275 million.

During the quarter, we generated adjusted EBITDA of $217 million. Looking closely at our results, during the first quarter, we delivered adjusted contract drilling revenues of $667 million and an average day rate of $364,000. This is above our previous guidance, mainly due to strong bonus conversion on the Conqueror, Endurance, and Spitsbergen, higher than expected revenue recharge at earlier than forecasted commencement of operations for DD three. Operating and maintenance expense for the first quarter was $409 million.

This is below our guidance reflecting the delay of in-service maintenance on our working fleet and other service maintenance on rigs we are preparing for contracts commencing later in 2023. Partially offset by increased costs related to the early commencement of operations for the DD three. Turning to the cash flow in balance sheet. Cash flow from operations was a negative $47 million, resulting from lower collections from customers reflective of reduced revenue due to certain rates completing their contracts during the previous quarter, disbursements incurred in preparing civil rigs for our next contracts, and the timing of tax and interest payments.

A free cash flow of negative $128 million in the first quarter reflects the contract preparations above and $81 million of capital expenditures, which are largely related to each generation drillship, the Deepwater Atlas and Deepwater Titan. End of the first quarter with total liquidity of approximately $1.7 billion, including unrestricted cash and cash equivalents of approximately $747 million, approximately $175 million of restricted cash for debt service, and $774 million from undrawn revolving credit facility. I will now provide an update on expectations for our second quarter and for full-year financial performance. As always, our goddess would reflect only contract related activations and or upgrades. For the second quarter of 2023, we expect adjusted contract drilling revenue of approximately $735 million based upon an average fleet wide revenue efficiency of 96.5%. This quarter-over-quarter increase is primarily attributable to a full quarter of utilization of the transmission balance and DD three which started contracts in the prior quarter, and the contract commencement of the Deepwater Titan and Transocean Norge during the second quarter, partially offset by in between contract idle time for the Transocean Endurance in Norway. For the full year 2023, I am reiterating prior guidance of adjusted contract drilling revenue of between 2.9 and $3 billion.

We expect second quarter expense to be approximately $490 million. This quarter-over-quarter increase is primarily due to higher utilization, increased other service maintenance incurred on the KG2 two and Deepwater Orion in preparation for their contracts with Petrobras, and the timing of in-service maintenance activities. Expected full year 2023 operating and maintenance expense remains unchanged from my fourth quarter call at approximately $1.9 billion. We continue to see some upward pressure on salaries and wages and vendor pricing. Observed inflation appears to have moderated to around 6%, which is reflected in our guidance. As a reminder, the influence of inflation on our maintenance costs is largely tempered by our long-term care agreements with our largest suppliers.

We also have protection on the revenue side as our legacy long-term contracts with our customers contain cost adjustment mechanisms for ongoing and future contract negotiations. We will continue to insist on provisions to protect our margins against cost increases in day rate and terms as appropriate. We expect G&A expense for the second quarter to be approximately $49 million and around $200 million for the full year. Net interest for the second quarter is forecasted to be approximately $118 million, including capitalized interest of approximately $12 million and excluding any non-cash fair value adjustment of the basic exchange feature embedded in our exchangeable bonds issued in September of 2023. For the full year, we estimate net interest expense of approximately $479 million including capitalized interest of approximately $31 million, and excluding the non-cash loss of 133 million mentioned above. Capital expenditures, including capitalized interest for the second quarter of forecast would be approximately $100 million, which includes approximately $70 million for newbuild capex and approximately $30 million of sustaining and contract preparation related capex.

Cash taxes are expected to be $15 million for the second quarter and $35 million for the year. As expected, our expected liquidity in December 2023 is projected to be between 1.2 and $1.3 billion, reflecting our revenue and cost guidance and including the $600 million capacity of a revolving credit facility and restricted cash of $215 million, which is primarily reserved for debt service. This liquidity forecast includes 2023 capex expectations of $285 million, of which $167 million related to our new builds, and $118 million for sustaining and contract preparation capex. We continue to focus on deleveraging our balance sheet and reducing interest expense and simplifying our capital structure and maintaining financial flexibility. As discussed in the fourth quarter core earnings call, we have addressed substantially all material maturities until 2025. Consistent with our deleveraging objectives, one of our large holders of exchangeable bonds recently agreed to convert its exchangeable bond to equity, reducing our debt by $213 million. We may look to address a portion of the remaining $618 million of outstanding exchangeable bonds should other economic and prudent opportunities present themselves.

Given our current contracting activity and strong direct environments, we expect to utilize available free cash flow to continue reducing debt and interest expense. Concurrently, we will look to continue to evaluate opportunistic financing transactions to address medium term maturities and optimize the balance sheet and reduce the cost of debt. This concludes my prepared comments. I'll now turn it over to Alison.

Alison Johnson -- Director, Investor Relations

Thanks, Mark. Gretchen, we're now ready to take questions. As a reminder to the participants, please limit yourself to one initial question and one follow-up question.

Questions & Answers:

Operator

[Operator instructions]. We'll take our first question from James West from Evercore ISI.

James West -- Evercore ISI -- Analyst

Good morning, guys.

Jeremy Thigpen -- Chief Executive Officer

Good morning, James.

James West -- Evercore ISI -- Analyst

So, Jeremy, we're talking about day rates for non-harsh environment in the $500,000 day range by year end, which I think is probably consistent with where you're negotiating contracts now. Would any of these -- these rigs that would achieve that type of day rate actually start this yea, or are we talking about rigs that are going to be coming out of cold stack given that we're in May now would probably take it till next year to really kick off campaigns?

Jeremy Thigpen -- Chief Executive Officer

Right hand it over to Roddie.

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

Hey, no problem. Yes. So I think that would be the case. Yes, you would see that coming next year and there's been a lot of discussion about this magical 500 mark, but I wanted to give a couple of statistics on that just real quickly.

We don't know what our competitors bid except when they bid into public tenders. So we use the Petrobras tenders in Brazil as an example and the pool number one tender that happened last year, there was only two rigs were bid above the 500 K a day, and the pool two tender that just completed this week, it was nine. So that's like a marked change and not -- of course you see lots of folks across the board saying that the expectation is that it will be this year for the five hundreds. And I've seen a couple of projections that say it will be mid 500 by 2025.

James West -- Evercore ISI -- Analyst

Right. OK. That is kind of our expectation as well. The -- I guess the follow up for me is on consolidation in the space.

We obviously have had a good amount during the restructuring phase that we saw. There are still some companies that were aware of that are kind of up for grabs here and there's some assets up for grabs. How are you guys thinking about I guess one, the need for consolidation and two, transition role in that consolidation?

Jeremy Thigpen -- Chief Executive Officer

Yes. Thanks, James. Good question. We -- you know we have seen a lot of consolidation in the space.

We've dramatically improved industry structure for offshore drillers, far fewer players, far fewer assets due to retirements. So it's much far more disciplined behavior as a result. So we're going in the right direction. I think there's still room for more consolidation, especially now that that most of our competitors have gone through Chapter 11 and merger with clean balance sheets. I think and all of us have digested our own acquisitions over the course of the last couple of years.

So I would expect to see some -- some more consolidation through this year. We certainly look at every opportunity out there, and we get pitched every opportunity that's out there. Mark smiling at me. And so we'll continue to look. But again, you know we're going to kind of follow the same blueprint we followed so far.

It's got to be ultra deepwater and harsh environment, high specification assets, so fleet matters. And we can't do anything to compromise the balance sheet and so we look through those that lens really at every strategic opportunity.

James West -- Evercore ISI -- Analyst

OK. Got it. Thanks, guys.

Jeremy Thigpen -- Chief Executive Officer

Thanks, James.

Operator

Our next question comes from Thomas Johnson from Morgan Stanley.

Thomas Johnson -- Morgan Stanley -- Analyst

Hi. Congratulations on this strong quarter. First one would be helpful to kind of go back to the harsh environment outlook. You know you guys mentioned a handful of rigs have left the European space which is clearly supportive of utilization there.

You mentioned 500 K per day leading edge by year end. On the benign side -- but maybe if you could kind of add some color around how people should think about the potential range for leading edge rates and the harsh environment outlook over the next 12 to 18 months? Thanks.

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

Yes. I think I'll take that one. So, yes, as we think about another kind of eight to 10 rigs potentially leaving Norway that pretty much leaves you a fleet of maybe 12 or 13 rigs. What we see in the expected demand in the 24 into 25 timeframe is about 15 to 18 rigs. So you're suggesting that there's probably a deficit of four to six rigs in that time frame. That's that in my view is going to have a step change in direct, right.

I mean we've seen that we're consistently now in the upper three hundreds. I would expect that the next fixtures are going to be solidly in the fours and who knows where that may lead to, but certainly we're at this kind of 13 AOC compliant floaters in Norway just now. That is historically the lowest number ever, and I think just in the context of an improving global market that has consistently delivered quarter over quarter, you're now seeing this kind of mass exodus to rigs moving to places that they can, not only be active and have work, but also get pretty high evident margins, comparatively speaking, to staying in Norway. So I think that's going to be the key hurdle. It will be the rigs that have to come back to Norway that will command a super premium.

Jeremy Thigpen -- Chief Executive Officer

And, Thomas, the other thing I would mention in addition to having [Inaudible] firmly in the four hundreds, if not higher, customers are paying mobilization fees as well up front. So you layer that as well and it looks pretty lucrative for that market.

Thomas Johnson -- Morgan Stanley -- Analyst

Great. Thanks. Then just the last comment still related to supply, thanks for the range of 75 to 125 on reactivation, but can you maybe update us on the timeline to reactivate a cold stacked drillship in the market? Obviously aware that there's going to be a range depending on the assets, but just kind of broad strokes, reactivation timeline ranges and then maybe an update on how you see supply chain, whether there are major hurdles to reactivating rigs potentially based on equipment availability? Thanks.

Jeremy Thigpen -- Chief Executive Officer

Yes. Keelan, can you take that one?

Keelan Adamson -- President and Chief Operating Officerb

Yes, Thomas, I think our guidance on that still hasn't changed since the last time. We're still looking at 12 -- anywhere between 12 and 18 months to get a coal stack reactivation effective door to door into operation. Largely probably around the 15-month side. The supply chain side is improving as capacity is getting better across the supply chain. But we still facing some long lead issues, particularly on heavy steel forgings and obviously on electronic components that there's a reliability probably issue in terms of delivery in the supply chain from Europe in that regard.

But I think we're still seeing 12 to 18-month range on our coal stack reactivation at this time.

Thomas Johnson -- Morgan Stanley -- Analyst

Great, thank you very much. I'll turn it back now.

Operator

The next question comes from Eddie Kim from Barclays.

Eddie Kim -- Barclays -- Analyst

Hi, good morning. So he announced a contract -- good morning -- handful of nice contracts for harsh environments this past quarter, but but notably absent were contracts for the Invictus and the Inspiration especially given their near-term expiration of their current contracts. Both of those rigs are also in the US Gulf of Mexico which is effectively a sold-out market. So could you just talk about the future prospects for those two rigs specifically and when we should expect them to get back to work?

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

Yes, sure. Yes, so obviously I can't tip my hand to these precise opportunities we're exploring. But yes, we're in active dialog on both the rigs for different things and we expect that fairly shortly, we'll be able to add some more backlog to those. And kind of as a reminder on that contracting philosophy, we are purposefully keeping a couple of rigs available in the near term to take advantage of this improving market for us.

So you did see and thank you for noting the prolific contracting that we did on the many of the assets over the last couple of quarters. So we maintain that balance of, yes, it's nice to have the majority of the fleet on long term contracts, but we certainly also want to be able to capture the upside in this improving market.

Eddie Kim -- Barclays -- Analyst

Got it. Got it. Understood. It's a bit of a kind of strategic negotiation going on there.

Understood. And my follow up is just on kind of the pace of reactivation we've been seeing. There's been one major contractor who's been reactivating a number of cold stack floaters as I know you're well aware. Does the pace of reactivation concern you at all in terms of the day rate progression, your expectation to see contract announced with a five handle by the end of the year would suggest you're not very concerned at all, but any thoughts here would be appreciated.

Mark Mey -- Executive Vice President, Chief Financial Officer

Good. Yes. If you look at the results from the Petrobras contracts was announced last Friday, the two rigs that won the first one were both in the mid fours, and they are stranded new builds. So very similar to a reactivation of coal stack rig.

These are the rigs that are coming out and as Jeremy mentioned in his prepared comments, you're paying about $200 million for these rigs, then you're spending another 150-ish to bring those rigs to market. So to see that those investors are bidding in the mid fours, I don't see them dragging rates down at all. I think it was a very good high watermark for Brazil. So I don't think that's a challenge for us this stage.

Eddie Kim -- Barclays -- Analyst

Got it understood. Thank you. I'll turn it back.

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

Actually, I may add on top of that, the interesting thing against pool one versus pool two, which is kind of seven months apart is we saw a 17% increase in the average bid rate. So you kind of went from 350 K day average to 408 K. I mean, that's a pretty substantial increase in just a few months 58 K a day on average.

Operator

Our next question comes from David Smith from Pickering Energy Partners.

David Smith -- Pickering Energy Partners -- Analyst

Hey, good morning. Thank you for taking my question.

Jeremy Thigpen -- Chief Executive Officer

Good morning, David.

David Smith -- Pickering Energy Partners -- Analyst

Two interesting agreements y'all announced in the past three months, the first dedicating the Olympia for subsidy mineral exploration, and then the second converting up to two floating vessels for floating wind turbine installation. Am I just wanted to make sure I'm right to understand those two vessels would be coming from your stack fleet?

Mark Mey -- Executive Vice President, Chief Financial Officer

That's correct. Yes.

David Smith -- Pickering Energy Partners -- Analyst

So I was just hoping to get your thoughts on removing up to three tax rigs for alternative uses and kind of how you think about the trade-off for increasing exposure to the energy transition versus the option value of eventually having the last incremental capacity before new builds would be needed, and maybe if you're considering dedicating any more stacked rigs for alternative uses.

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

Yes. I'll take that one. So, look, I mean if we do consider using some of our stacked fleet for these opportunities, the logic is pretty simple. We basically have a good crop of available cold stacked units for raiding.

The upside of this increased activity as we expect floaters to go from kind of like the 140 level committed rigs to  up to 150. We've got plenty of room to grow on the drilling side of the business. But the assets that we might consider for something like this would happen to be the lower specification of our stacked assets. So it's really a very interesting way to get into the energy expansion to be not just one dimensional in our outlook, but also to take assets that otherwise might be stacked for many, many more years and making good use of them in the near term. So I think it's an extremely interesting opportunity and a smart use of our fleet.

Mark Mey -- Executive Vice President, Chief Financial Officer

And let me just add to that, we've been talking about the pace of reactivation for the industry and for Transocean specifically. We believe given the current constraints, especially on the supply chain side, it's about two a year. So if we have 11 and you take those two out now it's nine, that's four and a half years of reactivation. Do we believe the cycles in the last four and a half years, five years, six years? I'm not so sure. We do believe it's going to last three years.

So we certainly can get through the majority of our stack fleet by reactivating them. And if day rates support reactivating, the rest of it will clearly do that. But we're targeting these rigs into markets that we believe will generate returns for our shareholders over time, as well, as Roddie said, helping us as a company to move into the energy expansion a little more forcefully.

David Smith -- Pickering Energy Partners -- Analyst

[Inaudible]. Thank you and that's all I had.

Operator

Our next question comes from Kurt Hallead from Benchmark.

Kurt Hallead -- The Benchmark Company -- Analyst

Hey, good morning.

Jeremy Thigpen -- Chief Executive Officer

Good morning, Kurt.

Kurt Hallead -- The Benchmark Company -- Analyst

So, Jeremy, I think as you referenced here earlier, there's something along the lines of 13 gold stack rigs. I think on prior call you indicated that Brazil might see incremental rig demand of order magnitude 20 rigs over the next two to three-year period. I think is what the time frame was. And I just wondering if you give us an update on overall demand dynamics. As you see, it may be updated relative to how you saw it versus the prior call.

And I guess the context is it seems to me that Brazil could absorb a vast majority of the available idle capacity in the market leaving West Africa and other areas scrambling to compete for, for what's left. So just want to get your perspective on that.

Jeremy Thigpen -- Chief Executive Officer

Yes. Sure.

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

Sure. Sure. So yes, with regards to Brazil, yes. If you think about just a larger context before you go to the details of that, the drillship market is effectively 100% utilized at the moment for assets that are available.

Yes, certainly Brazil has more to add. There's no doubt. So I think you're going to see, as those two stranded assets are going to come to satisfy the pool two tender, we think there's still plenty more cold stacked potential for satisfying Brazil and other tenders that may also come out. So, yes, Brazil really is putting a draw on pretty much everything that's available. But as we go around the world and we think about the different markets. I mean, every market is up if you view it on a 12-month basis, every market is up.

So that simply means that we're going to continue to book the rigs that are coming available and have to reactivate other ones. So again, as I said, the kind of numbers are supposed to be heading to 150 active floaters as we get into 24 that would suggest that we've got ten to add. So that's a tall order, but certainly in good shape for that. And I think as the guys had had articulated many times, you know we've got 12 cold stacked assets at the moment. We could dedicate a couple of those to alternate purposes, but we'd also be optimistic about reactivating a couple of those over the next year or so and new opportunities.

Kurt Hallead -- The Benchmark Company -- Analyst

That's great. I appreciate that color. So follow up here with be again, on the harsh environment side where you're moving these assets from Norway to Australia. Just wondering if you can just give us an update on what's the cash margin differential, if any, between what you could have earned in Norway versus what you're getting in Australia?

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

Yes. I'm not sure I comment exactly on the margins, but it's -- there is a better margin to be got in Australia. There's a substantially better margin to be got in West Africa. So you've seen the exodus of the rigs.

There's currently standing at six of them. So if you think about just where we are in Norway in terms of like the rules and regulations for not only the equipment but crews and a number of people on the rigs, it's going to be a pretty substantial hurdle to pull those rigs back. Particularly, if you're already making more evident where you are, and the demand for the rigs in the new countries appear set to continue for several years.

Kurt Hallead -- The Benchmark Company -- Analyst

OK, great. Appreciate the color. Thank you.

Jeremy Thigpen -- Chief Executive Officer

Thanks, Kurt.

Operator

And our last question comes from Fredrik Stene from Clarkson Securities.

Fredrik Stene -- Clarksons Platou Securities -- Analyst

Hey, guys, thank you for taking my question. Hopefully you can hear me OK. So I have two questions for you. I would like to kind of to add a bit to the coal stacked acid discussion here.

As you mentioned in your prepared remarks, you have the majority really of the cold stack assets here. And one thing is talking about where these assets can go and who can absorb them. But I think another part or dimension of that discussion is the strategy in the way of how to employ them. Because we've seen some of your peers taking out their stack capacity at lower rates or being more aggressive in taking out their stacked capacity. But at some point, I think that could leave you as the only price setter really of incremental capacity into the floater market, but that also gives you a bit more risk on your side. So do you have any color or thinking about how you're approaching that right now or if the way you're approaching it has changed as we've seen rate levels move higher?

Jeremy Thigpen -- Chief Executive Officer

Yes, I don't think our approach has changed. I think we've been pretty clear that the customer has to pay for the reactivation and so we're going to continue to follow that strategy I think going forward I know going forward. So we're happy to continue to push rates on our existing fleet as they become available. And then when the customer is willing to pay for a reactivation, we'll certainly do it.

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

Yes, and I think as we think about what it costs us for those rigs to remain stacked, it's really de minimis. So choosing the right time and choosing the right contract is really what the strategy is about and showing some patience, not -- we certainly do not value utilization over that generation. So I think most of our competitors see it that way. Maybe one or two don't, but we'll certainly continue to push that. That mantra we will not reactivate on spec.

Fredrik Stene -- Clarksons Platou Securities -- Analyst

Perfect and the last one, turning to the harsh environment markets, again, I think you've -- you said that you'd like to -- or you would prefer to keep your assets in Norway, at least the Norway compliant assets. But obviously, you and some of your competitors have now started to take those assets out. Have there been any change in that preference for your side that you're seeing that the economics are just too good to kind of give up the optionality of keeping the assets in Norway? Or do you think that you have a balanced approach to that, some optionality in Norway and then some hard cash in other parts of the world right now?

Jeremy Thigpen -- Chief Executive Officer

Good.

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

Yes, I was just going to say no, I mean, it's pretty simple. I think we've showed an exceptional amount of patience over the last few years of keeping rigs in Norway. We've -- we've had rigs idle in Norway for some time. We've talked to all the major customers about this and been, I would say, very competitive in our attempt to keep the rigs busy in Norway, especially during 2019 to 2020 and so on.

But now we're really at the point that the demand elsewhere is so substantial. It's always our preference to keep the rigs where they are. There is no questions about that, but the economic challenge is now overwhelming when you compare how accretive the contracts are elsewhere.

Fredrik Stene -- Clarksons Platou Securities -- Analyst

All right. Thank you so much. That's all for me. Have a good day.

Jeremy Thigpen -- Chief Executive Officer

Thanks, Fredrik. You too.

Operator

It appears you have no further questions at this time. I will now turn the program back over to Alison Johnson for any additional closing remarks.

Alison Johnson -- Director, Investor Relations

Thank you, Gretchen, and thank you everyone for your participation on today's call. We look forward to talking with you again when we report our second quarter 2023 results. Have a good day.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Alison Johnson -- Director, Investor Relations

Jeremy Thigpen -- Chief Executive Officer

Mark Mey -- Executive Vice President, Chief Financial Officer

James West -- Evercore ISI -- Analyst

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

Thomas Johnson -- Morgan Stanley -- Analyst

Keelan Adamson -- President and Chief Operating Officerb

Eddie Kim -- Barclays -- Analyst

David Smith -- Pickering Energy Partners -- Analyst

Kurt Hallead -- The Benchmark Company -- Analyst

Fredrik Stene -- Clarksons Platou Securities -- Analyst

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