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Date
Friday, Feb. 20, 2026 at 9 a.m. ET
Call participants
- President and CEO — Keelan I. Adamson
- Chief Financial Officer — R. Vayda
- Chief Commercial Officer — Roderick J. Mackenzie
- Director, Investor Relations — David Kiddington
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Takeaways
- Adjusted EBITDA — $385,000,000 in the quarter, nearly 20% higher year over year at $1,370,000,000 for the full year.
- Free Cash Flow — Quarterly free cash flow reached $321,000,000, with a full-year figure of $626,000,000.
- Debt Reduction — Retired about $1,300,000,000 in debt during the year, lowering annual interest expense by nearly $90,000,000.
- Cost Base Rationalization — Achieved $100,000,000 in cost reductions and targeting an additional $150,000,000 cut in 2026.
- Operational Uptime — Achieved record performance just shy of 98% uptime, with zero operational integrity events and zero lost time incidents.
- Contract Drilling Revenue — Generated $1,040,000,000 at an average daily revenue of approximately $461,000.
- Operating and Maintenance Expense — Reported $605,000,000 in operating and maintenance costs, with G&A expense at $50,000,000.
- Free Cash Flow Margin — Reported a margin of 31%, the best quarterly free cash flow in several years, attributed to lower cash interest expense, execution of cost initiatives, and working capital management.
- Total Liquidity — Ended the quarter with $1,500,000,000, including $620,000,000 in cash, $377,000,000 in restricted cash, and $510,000,000 from the undrawn credit facility.
- Backlog — Holds approximately $6,000,000,000 in current backlog, with the pro forma combined backlog expected to be nearly $11,000,000,000 post-Valaris acquisition.
- Definitive Agreement to Acquire Valaris — Announced a transaction with more than GBP 200,000,000 in identified cost synergies, aiming for 1.5x leverage within twenty four months of closing.
- Guidance for 2026 — Guidance assumes periods of idle time for the KG2, Deepwater Proteus, and Deepwater Skiros; even so, free cash flow is expected to meet or exceed 2025 results.
- Debt Payments in 2026 — Already made $130,000,000 of approximately $380,000,000 in scheduled 2026 debt obligations, including capital lease payments.
- Anticipated Liquidity at Year-End — Estimated to end 2026 with $1,600,000,000-$1,700,000,000 in liquidity, excluding further potential debt reductions.
- Market Outlook — Company expects deepwater utilization to exceed 90% through 2027, citing increasing tendering activity and multiyear project visibility worldwide.
Summary
Transocean (RIG +1.57%) announced an acquisition agreement with Valaris, anticipating a significant increase in cost synergies, backlog, and market reach. Management pointed to rising global demand for offshore rigs, detailing new awards and tenders across major regions expected to drive utilization higher. The company indicated that its 2026 outlook factors in some rig idle time but projects stable or improved free cash flow, continued deleveraging, and the possibility of opportunistic refinancing. Customer response to the Valaris transaction was described as “overwhelmingly positive,” and the company expects Petrobras blend-and-extend renegotiations to add several years of backlog by the end of the quarter.
- Chief Commercial Officer Mackenzie stated, “We are actually tracking, I think, at 32 open tenders that are expected to be awarded over the next few months,” with longer contract lengths compared to the previous year.
- The ONGC tender, described as “twenty to twenty five rig years in one go,” was noted as an unexpected, incremental addition to global demand.
- Chief Financial Officer Vayda confirmed, regarding Petrobras negotiations, “I would not consider it to be significant incremental upside with respect to the blend-and-extends” within current guidance.
- The company is leveraging the combined Valaris fleet to optimize global rig placement and meet emerging demand in Africa, Asia, and the Mediterranean.
Industry glossary
- Blend-and-Extend: A contract renegotiation model commonly used in offshore drilling, where a rig’s day rate is adjusted (“blended”) and the contract term is simultaneously extended (“extended”).
- Sixth-gen/Seventh-gen Rigs: Refers to sixth-generation and seventh-generation floating drilling rigs, designating more recent and technically advanced units.
- Jackup: A type of mobile offshore drilling unit with extendable legs that rest on the seabed, primarily used for shallow water drilling.
- Backlog: The value of future contracted revenue to be earned under signed agreements for services yet to be performed.
Full Conference Call Transcript
David Kiddington: Thank you, Nikki, and good morning, everyone. Welcome to Transocean Ltd.’s fourth quarter earnings call. Leading today’s call will be Transocean Ltd. President and CEO, Keelan I. Adamson. Keelan will be joined by other members of Transocean Ltd.’s executive management team, Chief Financial Officer R. Vayda, and Chief Commercial Officer Roderick J. Mackenzie. In addition to the comments that will be shared on today’s call, we would like to refer you to our earnings release and fleet status report filed yesterday that contain additional information, all of which is available on Transocean Ltd.’s website www.deepwater.com. Following our prepared comments, we will open the conference line for questions.
Please limit your inquiries to one question and one follow-up as this will allow us to hear from more participants. Before we begin, I would like to remind everyone that today’s call will include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. With that, I will hand the call over to Transocean Ltd. CEO, Keelan I. Adamson.
Keelan I. Adamson: Thanks, David, and welcome, everyone, to our fourth quarter and year-end 2025 conference call. We appreciate your interest in Transocean Ltd. I will cover several topics today. First, I will recap our key accomplishments over the last year. Next, I will cover our 2026 priorities. Third, I will quickly recap the highlights of our recently announced definitive agreement to acquire Valaris and why we are excited about this transformational combination. And lastly, I will close out with some market updates from around the world. Let us get started. 2025 was an important year for Transocean Ltd. The company executed very well both operationally and financially.
Yesterday, we reported our fourth quarter results including solid adjusted EBITDA of $385,000,000 and free cash flow of $321,000,000. Year on year, our results improved significantly, with adjusted EBITDA of $1,370,000,000 up nearly 20% and a significant increase in free cash flow to $626,000,000. During the year, we materially strengthened the balance sheet, retiring about $1,300,000,000 in debt. We executed two key capital market transactions to delever and improve both our liquidity and the timing of our debt maturities. These actions and the additional debt payments made in 2025 reduced our annual interest expense by nearly $90,000,000, enhanced our financial flexibility, and increased the value of our equity, ultimately enabling the recently announced transaction with Valaris.
We sustainably improved our cost structure by removing $100,000,000 in costs and are on track to decrease our costs by an additional $150,000,000 in 2026. We took the difficult but necessary steps to rationalize shore-based support around the world, reduce G&A costs, and restructure the organization to drive efficiencies without adversely impacting our operational performance. Today, we are leaner, more efficient, and more profitable. The operational performance of our rigs and, more importantly, our people were superb. Once again, we demonstrated why Transocean Ltd. is an industry leader. We achieved record uptime performance just shy of 98%. We had zero operational integrity events and zero lost time incidents across our entire fleet. Our process and occupational safety performance was exceptional.
We completed five major planned out-of-service projects on time and on budget, and we continued to rightsize and high-grade the technical capability of our fleet. We recycled six rigs in 2025, with one more completed earlier this year. We entered 2026, Transocean Ltd.’s one hundredth anniversary year, with strong momentum across the business. Now let us review Transocean Ltd.’s key objectives. Our first priority is to optimize the value of our differentiated assets. Transocean Ltd., through our people and fleet, has unparalleled capabilities. We strive every day to deliver best-in-class performance, with the most experienced and proven team of professionals, maximizing the capabilities of our high-specification fleet.
We have an exceptionally capable drillship fleet and a high-spec fleet of semisubmersibles capable of executing in the harshest environment. As the technology leader in the offshore rig business, we continually innovate to improve the safety, reliability, and efficiency of our operation. Second, we are focused on generating industry-leading free cash flow. We have roughly $6,000,000,000 in backlog that will efficiently convert into cash, the key measure of value in our business. The more we generate, the faster we can reduce our leverage, which will materially benefit our shareholders.
And third, as we continue to reduce our total debt, we will establish a stronger, more simplified capital structure that provides financial resilience and the ability to weather the cycles of this business. Moving now to our recently announced definitive agreement to acquire Valaris. We are incredibly excited about the capabilities of our combined business. As we head into what we anticipate will be a very constructive period for the offshore drilling business, we believe that this transaction is well timed and know it is perfectly aligned with all of our strategic priorities.
It positions us to be a leader, combining the best fleet with the best team, working diligently every day to provide our customers with the best, most disciplined execution in the industry. Our geographic footprint and customer base will expand. Wherever our customers go offshore to find and develop reserves, we will be able to provide a rig solution to fit their requirements from a broader, high-quality asset base. We have identified more than GBP 200,000,000 in cost synergies, on top of our ongoing cost reduction initiatives. Our pro forma combined backlog of nearly $11,000,000,000 and cash flow generating capability are expected to accelerate debt reduction, resulting in leverage of around 1.5x within twenty four months of closing.
We strongly believe that this combination will enhance returns to shareholders and create an exceptional opportunity for investors desiring exposure to the offshore rig business. We expect to close the transaction in 2026, and we look forward to sharing more information on our progress in the coming months. I will now provide a brief market update. While we had seen some near-term moderation in tendering activity, the underlying outlook for deepwater offshore drilling is strengthening. In fact, tendering activity is growing, with opportunities developing in most major basins. In this market environment, we expect deepwater utilization to move meaningfully higher, and to greater than 90% through 2027, setting the stage for an increasingly constructive business environment.
Looking regionally, in the U.S. Gulf, long-term demand remains robust driven by the Paleogene plays and the new lease awards with improved fiscal terms. Any apparent short-term softness will likely result in preferred assets repositioning to other increasingly active markets elsewhere. In Brazil, we expect rig activity to remain stable. Any reduction in Petrobras’ projected fleet count will be small and temporary, offset by increased demand from international operators. We anticipate that Petrobras will conclude its blend-and-extend renegotiations by the end of the quarter, which will add multiple years of backlog. Africa continues to exhibit considerable growth potential. We expect the region’s rig count to increase from roughly 15 today to at least 20 over the next year or two.
In Mozambique, we anticipate three multiyear program awards from each of ENI, Exxon, and Total, all scheduled to start in 2027 and 2028. In Nigeria, Shell has already awarded its two-year program, with additional awards expected shortly from Exxon and Chevron. In addition, Total is preparing to tender this quarter. Collectively, this implies four rig lines from 2027 onward. In Angola, activity remains solid, supported by anticipated and announced extensions for rigs currently operating with Azule, Total, and Exxon. We also understand Shell will reenter the basin for a material exploration program in 2027.
In Namibia, we are now seeing the first results from recent exploration success, with Total launching a major tender for the Venus development: two rigs, three years each, beginning in early 2028. We also expect further development activity as operators assess their recent discoveries for commercial viability. And in the Ivory Coast, we understand ENI is preparing to issue a one-rig tender for three years of work beginning in early 2027. In the Mediterranean, activity has returned to pre-COVID levels, driven by strong regional gas demand in Egypt, Israel, and Cyprus. Rig count is expected to increase to around eight units. In Israel, we expect two rig fixtures to support the recently sanctioned Chevron and Energean developments.
In Egypt, Shell and BP will add new programs starting this year. And in Cyprus, ENI’s Kronos development is expected to begin drilling in early 2027. Moving now to Southeast Asia and primarily Indonesia, we anticipate incremental demand of three to four rigs between ENI, Harbour Energy, Mubadala, and INPEX. In India, momentum is building with the government’s objective to drill 50 deepwater wells per year going forward. In addition to the recently awarded one incremental fixture in the region, ONGC have just issued a new tender for three drillships and two semisubmersibles with contract durations of four years each, beginning in 2027. In Australia, the deepwater Skiros will commence a minimum one-year development program in early 2027.
We see stable activity from all our semisubmersible customers with programs currently out for tender by Woodside, Santos, and INPEX. In Norway, utilization of the high-specification harsh environment semisubmersible fleet will remain robust through 2028, supported by recent awards from Equinor and Aker BP. Other operators are also seeking high-spec harsh environment units for 2027 starts, which is expected to drive utilization of these units to nearly 100%. In closing, tendering activity is increasing. Multiyear opportunities are now in the market, and visibility into 2027 and beyond continues to improve. As operators move ahead with new developments and meaningful exploration programs, we are well positioned to capitalize on improving demand.
I will now hand the call over to Thad for some brief comments on the quarter and our guidance. Thad?
R. Vayda: Thank you, Keelan. And good day to everyone. Our performance during the fourth quarter and for the full year 2026 was very much in line with our expectations and the guidance ranges that we provided to you in November. In the fourth quarter, we generated contract drilling revenues of $1,040,000,000 at an average daily revenue of approximately $461,000, which is generally consistent with the average daily revenue achieved in the last several quarters. Operating and maintenance expense and G&A expense was $605,000,000 and $50,000,000 respectively. Adjusted EBITDA was $385,000,000, implying a very healthy margin of 37%. And cash flow from operations was approximately $349,000,000, a sequential increase of 42%.
Free cash flow of $321,000,000 reflects $349,000,000 of operating cash flow net of $28,000,000 of capital expenditures. Our free cash flow margin was notable at 31%. I highlight that this is the best quarterly free cash flow we have generated in several years. It is a direct result of excellent operational performance, execution on our cost savings initiative, lower cash interest expense, and effective management of our working capital. We ended the fourth quarter with total liquidity of approximately $1,500,000,000. This includes unrestricted cash and cash equivalents of $620,000,000, about $377,000,000 of restricted cash, and $510,000,000 of capacity from our undrawn credit facility.
In addition to now issuing our fleet status report concurrently with our quarterly results, we have slightly changed the presentation and content of our press release. Going forward, in addition to some format and tabular modifications, the release will include our guidance ranges. This report provides guidance for the first quarter and full year 2026 for Transocean Ltd. on a stand-alone basis, as will be the case until the Valaris transaction closes, expected later this year. The guidance ranges provided include the effects of our cost reduction initiatives and reflect slightly lower levels of activity versus 2025, specifically assuming some idle time on several rigs, including the KG2, the Deepwater Proteus, and the Deepwater Skiros.
I note that the potential to achieve the upper regions of the revenue guidance range relates mostly to these rigs being extended beyond their contract end dates or commencing new contracts earlier than anticipated. Even with the assumed idle time on these rigs, we expect free cash flow to be in line with or better than that achieved in 2025 as we continue to reduce cost and interest expense and make additional improvements in the management of our working capital. We also intend to continue to utilize our free cash flow to opportunistically reduce debt in excess of our remaining 2026 scheduled obligation of approximately $380,000,000, which includes capital lease payments.
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