Diamond Offshore Drilling Inc (OTC:DOFSQ). (DO) reported a robust finish to 2023, surpassing its financial guidance with fourth-quarter revenue of $298 million and adjusted EBITDA of $72 million. Despite a net loss of $146 million for the quarter, the company highlighted a transformational year, securing $485 million in new contracts and delivering five shipyard projects.
The outlook for 2024 remains positive, with strong market conditions expected to support an upcycle in deepwater drilling. Diamond Offshore has already secured $362 million in new contracts year-to-date and boasts a $1.6 billion backlog.
Key Takeaways
- Diamond Offshore reported fourth-quarter revenue of $298 million and adjusted EBITDA of $72 million, beating its own guidance.
- The company experienced a net loss of $146 million in the fourth quarter but secured $485 million in new contracts.
- Positive market conditions are anticipated to drive a longer duration upcycle in deepwater drilling.
- The GreatWhite incident is under control, with recovery efforts ongoing and an expected repair period of 90 to 100 days.
- The company has a strong contract coverage of 91% for 2024 and expects to grow EBITDA and cash flow while reducing leverage.
Company Outlook
- 2024 revenue is projected to be between $940 million and $960 million, with adjusted EBITDA anticipated to be $230 million to $250 million.
- The first quarter of 2024 may see lower revenue and EBITDA due to the Patriot being off contract for part of the quarter.
- Diamond Offshore aims to deliver growth in EBITDA and cash flow while reducing leverage and focusing on the safe restart of the GreatWhite.
Bearish Highlights
- The net loss for the fourth quarter stood at approximately $146 million.
- Negative free cash flow of $22 million was reported, along with increased contract drilling expenses due to higher charter costs.
Bullish Highlights
- The company has a robust backlog of $1.6 billion, with contract coverage of 91% for 2024.
- New contracts worth $362 million have been secured year-to-date.
- Improving market conditions in the UK sector of the North Sea and increasing demand for plug and abandonment work are positive indicators.
Misses
- The financial impact of the GreatWhite incident includes an expected reduction in revenue of $24 million to $27 million and additional costs of $20 million to $25 million, although it is anticipated to be covered by insurance.
Q&A Highlights
- Diamond Offshore is confident in securing higher day rates for their rigs as contracts renew and is focused on covering 50% of the gap in revenue, particularly in the summer months.
- Clients are seeking longer-term contracts averaging over a year, with some going up to three to five years, to mitigate future rate risks.
- The average day rate for contracts in the current year is projected to be $4.50 to $4.90, factoring in lower day rate contracts.
Diamond Offshore Drilling Inc. closed the year with strong financial performance and a positive outlook for the future. The company's strategic positioning in the market, coupled with a substantial backlog and favorable market conditions, set the stage for continued growth and financial stability.
Diamond Offshore's focus on operational excellence and strategic contract management underpins its confidence in maintaining momentum through the next year and beyond.
InvestingPro Insights
Diamond Offshore Drilling Inc. (DO) has recently caught the attention of investors and industry analysts, as reflected in the latest data from InvestingPro. Here are some key metrics and tips that could provide additional insights into the company's financial health and stock performance:
InvestingPro Data:
- The company's market capitalization stands at $1.14 billion USD, reflecting its current market valuation.
- With a P/E ratio of 25.52 and an adjusted P/E ratio for the last twelve months as of Q3 2023 at 22.62, the stock is trading at a low P/E ratio relative to its near-term earnings growth.
- Revenue growth for the last twelve months as of Q3 2023 was significant at 30.08%, highlighting the company's ability to increase its revenue streams in a competitive market.
InvestingPro Tips:
- Despite the stock taking a significant hit over the last week with a 1-week price total return of -9.4%, analysts predict the company will be profitable this year, which could be a sign of resilience and potential for recovery.
- The company's liquid assets exceed its short-term obligations, indicating a solid liquidity position that can support its operational needs and strategic investments.
Investors seeking more detailed analysis and additional InvestingPro Tips can find them on the Diamond Offshore Drilling Inc. page at https://www.investing.com/pro/DO. Currently, there are 5 additional tips available on InvestingPro, which can provide deeper insights into the company's financials and stock performance. For those interested in an InvestingPro subscription, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Diamond Offshore Drilling (DO) Q4 2023:
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter 2023 Diamond Offshore Drilling Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would like now to turn the conference over to, Kevin Bordosky, Senior Director of Investor Relations. Please go ahead.
Kevin Bordosky: Thank you, Michelle. Good morning or afternoon to everyone, and thank you for joining us. With me on the call today are Bernie Wolford, President and Chief Executive Officer; and Dominic Savarino, Senior Vice President and Chief Financial Officer. Before we begin our remarks, I remind you that information reported on this call speaks only as of today, and therefore, time-sensitive information may no longer be accurate at the time of any replay of this call. Some of the information referenced on our call today is included in a slide presentation that you can find in the Investor Relations section of our website under Calendar of Events. In addition, certain statements made during this call may be forward-looking in nature. These statements are based on our current expectations and include known and unknown risks and uncertainties, many of which we are unable to predict or control. These risks and uncertainties may cause our actual results or performance to differ materially from any future results or performance expressed or implied by these statements. These risks and uncertainties include the risk factors disclosed in our 10-K and 10-Q filings with the SEC. Further, we expressly disclaim any obligation to update or revise any forward-looking statements. Refer to the disclosure regarding forward-looking statements incorporated in our press release issued yesterday evening, and please note that the contents of our call today are covered by that disclosure. In addition, please note that we will be referencing non-GAAP figures on our call today. You can find a reconciliation to GAAP financials in our press release issued yesterday. And now, I will turn the call over to Bernie.
Bernie Wolford: Thanks, Kevin. Good day to everyone. Thank you for your interest in Diamond Offshore as we present our results for the fourth quarter of 2023. 2023 was a transformational year for Diamond Offshore. We marked our one-year anniversary of relisting on the New York Stock Exchange, a measurable improvement in our capital structure, secured $485 million of new contract reports, and safely delivered five shipyard projects, all while delivering industry-leading operational excellence for our customers. The positive momentum continues in 2024 with the addition of another $362 million in new contracts, taking our total current backlog to approximately $1.6 billion. Before addressing fourth quarter results and sharing some perspective on our markets, I would like to provide a high-level update on the previously reported GreatWhite incident. On February 1st, while waiting on weather with the well secured and lower marine riser package, or LMRP disconnected from the BOP, the LMRP and riser unintentionally separated from the rig at the slip-joint tensioner ring and dropped to the seabed. No one was hurt, no pollution occurred, and there was no damage to subsea infrastructure. Work to recover the LMRP is progressing methodically to ensure a safe recovery while working within the weather constraints west of Shetland. The LMRP is situated on the seabed, exposed above the mudline in an upright orientation. We have successfully unvoted the riser stream from the LMRP and are prepared to lift the LMRP to the rig in the next winter window. We currently estimate the total repair period to be 90 to 100 days from the date of the incident. Dominic will provide additional information related to the estimated repair timing, cost, and insurance coverage in his remarks. In the interim, I'd like to recognize the extraordinary work of our team in response to this step and the quality of the ongoing collaboration with our clients and local authorities. Turning to the fourth quarter. I'm pleased to report that our rig crews and operations support team delivered exceptional safety results and revenue efficiency of 95% across our fleet during the quarter. This achievement was particularly noteworthy as we commenced four contracts in the quarter, one in each of the regions in which we operate. That's off to our teams for their steadfast commitment to planning and execution while never compromising on safety. Our fourth quarter financial performance reflects the impact of having four of our marketed fleet of 10 rigs on higher market dayrate contracts at quarter end. Total revenue and adjusted EBITDA for the quarter were $298 million and $72 million, respectively. These results were above our guidance for the quarter, primarily due to the Patriot working longer than previously anticipated, the deferral of certain contract preparation costs, and earning a performance bonus for efficient and injury-free operations in Senegal. This beat in part reflects the impact of rigs moving to higher dayrate contracts and sets the stage for improving financial performance in 2024, owing to fewer planned shipyard days. The BlackHawk impurged [ph] having a full year of higher dayrates and the BlackLion and BlackRhino moving to higher dayrates in the third quarter. Now, let's turn to our view on the markets and opportunities for Diamond in 2024 and beyond. The upcycle in offshore drilling continues to be supported by strong commodity prices, robust upstream capital spending, and anticipated year-over-year growth in exploration drilling. Taken as a group, these indicators support our view of a longer duration upcycle in deepwater drilling. Let's look at some of the numbers in support of the longer duration upcycle. Exploration drilling can be considered a leading indicator and a precursor to future development programs, and analysts now forecast year-on-year growth in floater exploration wells of 34%. Subsea trees orders are another leading indicator and 2024 forecasts predict the third year in a row with over 300 new trees ordered. This level of order activity is the highest it's been since 2013 at a time when we had 115 more rigs in the market than we do today to execute the related drilling activity. Putting to subsea tree into perspective relative to the global marketed floater fleet, back in 2012 and 2013, the number of orders per marketed floater peaked at 1.5 and 1.8 trees ordered for marketed floater respectively. In comparison, in 2022 and 2023, those numbers were 2.1 and 1.8, and the 2024 forecast stands at approximately 1.9. This would indicate three continuous years with numbers matching or exceeding measures dating back 12 years. These trends sink well with [Indiscernible] forecast for floater demand on a rig years basis. The forecast compound annual growth rate of rig years and demand from 2023 to 2026 by region or 7% for North America, 11% for South America, 10% from the North Sea, 7% for West Africa, and 25% for Southeast Asia and Ocean EMEA. Another key metric we track is the trading four quarters tender activity on a rig years basis. It has been a bumpy road from a peak in 2012 of approximately 106 rig years of tender implied trailing demand to a cycle bottom of 28 in 2016 and a COVID bottom of 35% in 2020. The industry closed 2023 with 106 rig years of tender implied trailing demand matching the number from 12 years ago. Closer to home, we are currently tracking 51 opportunities representing 52 rig years of demand with commencement dates through 2025, of which roughly 61% are for DP rigs and 39% for more rigs. The start date profile for these opportunities arises from a low in Q2 2024 to a peak of 12 and 11 in Q4 2020 and Q1 2025, respectively. This data lends credence to the view that the second half of this year looks to be positive in terms of the number of expected fixtures and contract starts. For Diamond specifically, the U.K. sector of the North Sea continues to develop as a bright spot with increasing demand in the region with shrinking harsh environment rig supply. Recent long-term commitments by operators in the region support our view that demand for plug and abandonment or P&A work is becoming more certain and exist in larger quantities than previously anticipated. Additionally, green shoots of future drilling demand have missed on the heels of the recent oil and gas licensing round, where 27 licenses were awarded for areas that have the potential to be brought into production quickly. Timing options are exercised on the Black Hawk, we have one drillship, the BlackRhino, with availability late this year. We are currently pursuing eight opportunities for the BlackRhino, all for work commencing following the conclusion of its contract for SPS and MPD upgrade. In the context of these improving markets, we have been able to firm up additional contract term for 2024 and build significant backlog commitments for 2025 and 2026. Year-to-date, we have secured $362 million in new contract awards, one for our seventh generation drillship BlackLion at leading-edge rate and 1 for a more harsh environment semi in the Patriot. The BlackLion contract will start in direct continuation of its current work without any gap between contracts and provide firm work through the third quarter of 2026. Under this new contract, the BlackLion will be positioned to generate approximately $115 million in annualized rig level EBITDA and contribute significantly to our cash flow in the coming years. The Patriot contract is for a 60-day 2-well P&A campaign and is set to commence this week, filling in some of the gap in its schedule before beginning its three-year contract in early 2025. On the back of our recent contract announcements, excluding cold-stacked rigs, we have 87% of our 2024 capacity contracted, 91% if you include priced options. Looking further out, excluding cold-stacked rigs, we now have 36% of our 2025 capacity and 30% of 2026 capacity contracted. If we include price options, the 2025 number goes from 36% to 59% with notable contracting opportunities on the BlackRhino, BlackHornet, Endeavor and Apex to further secure backlog. For the last 20 months, we completed the special periodical surveys or SPSs on six of our 10 actively marketed rigs with a further two rigs due in 2024 and one in 2025. Through the combination of reduced planned shipyard days, our recent backlog additions, our positive exposure to improving market conditions, we are providing materially improved EBITDA and cash flow visibility through 2026. I will now turn the call over to Dominic before returning with some concluding remarks.
Dominic Savarino: Thanks Bernie and good morning or afternoon to everyone. In my prepared remarks this morning, I'll provide a recap of our results for the fourth quarter, including some operational highlights and additional details on our recent contract awards. The estimated financial impact of the recent GreatWhite event and guidance for the first quarter and full year 2024. For the fourth quarter, we reported a net loss of approximately $146 million or $1.42 per diluted share. The reported loss consisted of net income before tax of $29 million and non-cash tax expense of $174 million. As discussed in prior quarters, the large tax expense in the quarter was the result of the reversal of the tax benefit recorded in prior quarters and the further normalization of our overall tax expense for the year. The results for the fourth quarter included a reported adjusted EBITDA of $72 million, well in excess of our guidance for the quarter of $50 million to $60 million, with the U.S. GAAP required deferral of approximately $8 million of precontract commencement cost for the Courage and BlackHawk contributing to the favorable results. Our reported adjusted EBITDA for the quarter represents a significant increase compared to our adjusted EBITDA of $28 million reported in the third quarter. And this quarter-over-quarter increase was primarily a result of higher revenue reported in the fourth quarter. Excluding reimbursable revenue, revenue for the fourth quarter was $280 million, slightly higher than our guidance for the quarter and up from $225 million in the prior quarter. This improvement was primarily a result of the BlackHawk commencing its contract in the Gulf of Mexico in early November after its SPS and NPP upgrade in the third quarter. Patriot is being on contract for the entirety of the fourth quarter after being between contracts in the prior quarter. And the BlackRhino, earning its largest performance bonus to-date during the fourth quarter. Contract drilling expense increased to $189 million for the quarter compared to $182 million for the prior quarter, primarily as a result of higher charter costs from one of our management and the accrual of the annual bonus expense related to the drillship's BOP service agreements, partially offset by the absence of costs associated with the Apex and shipyard period in the prior quarter. Operating cash flow for the fourth quarter was $9 million with negative free cash flow of $22 million as compared to negative free cash flow of $48 million in the third quarter. The improvement in free cash flow was primarily a result of increased EBITDA and lower CapEx in the fourth quarter, offset by greater working capital used during the quarter as a result of commencing higher dayrate contracts and the resulting higher accounts receivable at year-end. For the full year 2023, we reported revenue, excluding reimbursable revenue of $984 million and adjusted EBITDA of $158 million. OpEx for the full year was $132 million. After the successful execution of our capital structure refinancing in the third quarter, we exited 2023 with unrestricted cash and cash equivalents of $124 million and total liquidity of $422 million, including the undrawn balance of our revolving credit facility. Expanding a bit more on the fourth quarter operational highlights, we had notable successes in each region in which we operate. In the Gulf of Mexico, the BlackHawk commenced its new contract in November at the start of the commencement window after undergoing its SPS and MPD upgrade. In West Africa, the BlackRhino earned performance bonuses in the quarter totaling $3.2 million, the ninth bonus achieved during the Senegal campaign. In the North Sea, the Patriot executed a P&A campaign for a customer over the course of the fourth quarter and into January of this year, being on contract almost twice as long as originally anticipated. In Australia, after coming out of the shipyard in the third quarter, the Apex successfully commenced a contract for a new customer during the fourth quarter at a higher dayrate. In Brazil, after completing its prior three-year contract with Petrobras in the third quarter, Courage safely and timely completed its SPS and contract preparation activities and commenced its new four-year contract with Petrobras in mid-December. Turning now to the GreatWhite and our estimate of the financial implications of the unintentional release of the LMRP and riser. As Bernie noted, the GreatWhite is currently in the process of recovering the LMRP to the surface and is estimated to be back earning dayrate by the end of April or early May. As a result, we currently estimate that we could be off rates for approximately 90 to 100 days, which could result in approximately a $24 million to $27 million reduction in revenue over the course of the first and second quarters. Our current estimate of incremental recovery costs and repairs and maintenance is approximately $20 million to $25 million, and our current estimate of replacement capital expenditures is approximately $12 million to $15 million. We anticipate that the incident will be covered by our hull and machinery insurance policy and that all incremental costs, less our $10 million deductible should be reimbursable under the policy. In addition, we maintained loss of higher insurance on the GreatWhite. After a 60-day waiting period, the loss of higher insurance provides $150,000 per day or up to 180 days for each day of lost revenue as a result of a covered property loss claim. Based on our current expectations of being out of service for approximately 90 to 100 days, the loss of higher insurance may provide proceeds of approximately $4.5 million to $6 million. Because the accounting treatment of insurance proceeds creates complexities in the reporting of financial results and because the actual financial impact of the -- GreatWhite incident is not yet known. We are presenting our initial guidance for 2024 results by excluding the estimated financial impact from the GreatWhite event. We believe that this normalized approach will provide more accurate and meaningful visibility into our expectations of our ongoing recurring operations without regard to this extraordinary isolated incident. In addition to having a strong financial performance in the fourth quarter, we also had significant success in the quarter and early this year in booking new contracts, as Bernie mentioned. In the Gulf of Mexico, we enjoyed significant contract wins in the past month with the BlackLion, executing a contract extension with its current customer with a duration of two years and a contract value of approximately $350 million. With this new contract, the BlackLion is now contracted through the third quarter of 2026. In addition, in the fourth quarter, the BlackRhino was awarded a contract and direct continuation of its Senegal campaign at a day rate in excess of $500,000 per day, the highest clean day rate awarded during this upcycle. These recent contract awards pushed the average day rate in our drillship backlog, up to $408,000 per day. Also during the quarter, the Patriot was awarded a contract valued at $240 million for a 35-well P&A campaign representing approximately three years of firm work expected to commence in early 2025, and up to 17 additional P&A wells subject to priced options that would add a fourth year of duration. Subsequent to year-end, the Patriot was also awarded a two-well P&A campaign commencing later this week, filling in some of the gap before commencing its three-year contract in 2025. The Patriot is also being considered for additional work later in 2024, evidence of the improving moored floater market in the North Sea. Turning now to our normalized full year 2021 guidance. Our $1.4 billion in backlog as of January 1, 2024, combined with our year-to-date 2024 contract awards of $362 million gives us visibility to over $1.6 billion of firm work to be performed over the coming years and positions us extremely well in terms of contract coverage for 2024, with 91% of our available days, excluding cold stacked rigs committed with firm contracts or priced options. Our 2024 revenue, excluding reimbursable revenue and excluding any estimated impact of the GreatWhite event, is currently expected to be between $940 million and $960 million. This expected level of revenue represents a slight decrease from the revenue we earned in 2023. We -- this expected decrease is primarily due to the managed rigs transitioning back to their owner over the course of 2024, and our plans for the BlackRhino in time in the shipyard, conducting its SPS and NPD upgrade later this year, partially offset by higher day rates for the BlackHawk, Courage, Apex and BlackLion during the year. Our EBITDA guidance for 2024, again, excluding any impact of the GreatWhite head today, is currently expected to be between $230 million and $250 million, a more than 50% increase over 2023 EBITDA, largely driven by higher day rate contracts and increased EBITDA margins due to the return of the lower-margin managed rigs back to their owner. It is worth noting that our EBITDA guidance for 2024 includes approximately $20 million of non-cash net amortization expense as required by U.S. GAAP accounting rules associated with the Courage and BlackHawk pre-commencement contract activities that occurred in 2023. D&A expense for 2024 is expected to be between $72 million and $77 million. Net interest expense for the year is currently expected to be approximately $40 million to $45 million, and cash taxes are expected to be approximately $5 million to $10 million. CapEx for 2024 is currently expected to be between $125 million and $135 million, excluding any CapEx resulting from the GreatWhite event or the potential reactivation of the Onyx should it be successful in securing a long-term contract. Our estimated CapEx spend for 2024 includes the installation of MPD equipment and the SPS for the BlackRhino, the SPS for the BlackHornet as well as the BOP recertification for the endeavor. Taking a look at our guidance for the first quarter, again, excluding any impact of the GreatWhite incident, we currently expect revenue, excluding reimbursables, to be between $260 million and $270 million, EBITDA to be between $45 million and $55 million and CapEx to be between $38 million and $43 million. Our expectations for the first quarter of 2024 are lower than the fourth quarter of 2023 as a result of the Patriot being off contract for a portion of the quarter and the amortization of pre-contract commencement costs for the Courage and BlackHawk. Despite this dip in Q1, our projected EBITDA results for the year are essentially equally weighted between the first half and second half of the year, and we expect our free cash flow in 2024 should be meaningfully greater than 2023. Beyond 2024, our visibility to estimated future earnings and cash flow is increasing as a result of our growing backlog at higher average day rates. In addition to our 91% contract coverage in 2024 for firm contracts and priced options, excluding cold stacked rigs, we have 59% and 30% of available days committed for 2025 and 2026, respectively. This level of contract coverage positions us extremely well for the next three years, yet still provides plenty of room for positive operational leverage as re-contracting opportunities arise. And with the continued favorable fundamentals of the deepwater offshore industry, we are confident that we will be able to continue to secure meaningful day rate increases for our rigs as contracts roll over. And finally, at the end of 2024, we expect our net leverage ratio and other requirements under our credit facility and bond indenture to be met we would allow our Board to begin to consider the appropriate timing for a shareholder return program. That concludes my prepared remarks. I will now hand it back to Bernie for some closing comments.
Bernie Wolford: Thank you, Dominic. In the near term, our organization remains focused on the safe and timely restart of the great wine. Looking further ahead, as the BlackLion rolls to its higher day rate in Q3, I'll look closely by adoption of the BlackHawk. We will have 5 out of our 9 active rigs on contracts at market rates. We are ideally positioned to capture further upside in the strengthening drillship market with the BlackRhino in late 2024 and the BlackHornet in early 2025. Similarly, the supply-demand picture for harsh environment semis bodes well for upside on the Endeavor, Apex and GreatWhite as we progress through 2025. In the interim, we are targeting several near-term opportunities for the Patriot that allow us to fill a portion of the gap in 2024 prior to its long-term campaign in 2025. These factors, combined with the notable decrease in planned shipyard days, position us to deliver growth in both EBITDA and cash flow while making significant progress in de-leveraging our balance sheet. We appreciate your interest in Diamond Offshore. I will now open the call for questions.
Operator: Thank you. [Operator Instructions] And the first question comes from Eddie Kim with Barclays. Your line is now open.
Eddie Kim: Hi. Good morning. So very constructive market outlook you provided here. But just curious if you've been surprised at the lack of contracting for the 10-or-so seventh Gen side line drillships. It seems like until all or maybe most of the sideline rigs are absorbed it might put a lid on day rate increases here in the medium term. So have you been surprised here? And if you had to guess, just based on the demand you're seeing, do you think maybe we could see four or five of these 10 sideline rigs announced contracts by year-end?
Bernie Wolford: Thanks for the question, Eddie. I wouldn't say surprised. I mean, looking at our investor presentation, you'll sort of see the staggered impact of new contract awards, we expect throughout the year. Clearly, we would have expected some contracts to be awarded earlier than they have been, particularly one opportunity in Petrobras that we thought would have been already awarded at this stage. I certainly expect those awards to come through in the very near future. Q1 is typically a quiet time of the year and not any different this year if you look back from a historical perspective. As far as sideline rigs returning to the market, I would expect, yes, that five to six of those do secure contracts by the time we reached the middle of this year, Betty. I mean I think that's highly anticipated and would be what I would say is kind of right down the middle of the fairway in terms of our expectations.
Eddie Kim: Sorry, just to lay said five to six, maybe announced contracts by middle of this year, so in a couple of months.
Bernie Wolford: Yes. By the middle of this year, so these are contracts that would have start dates, Q3, Q4 and Q1 of 2025. There's sort of a demand around that time period that and typically, you'll see the contracts announced six months before the actual start dates.
Eddie Kim: Got it. Got it. thanks for clarifying that. And then my follow-up is just on the BlackRhino. You highlighted eight potential opportunities for the rig. Could you see the rig mobilizing to outside West Africa DC, the rig staying in West Africa at this point? And separately, after it comes off contract, it goes in for a five-year SPS and an MPD upgrade, we've typically seen MPD being upgraded for a rig for a specific contract, but it seems like in this case, it's voluntary or maybe a preemptive upgrade on your part. So I just wanted to get your thoughts here on why you're choosing to add the MPD on this rig?
Bernie Wolford: We're currently tracking four opportunities to start in Q4 and for the start in Q1 of 2025 for Rhino. Those opportunities, some are in West Africa. Some are in South America and some are in the U.S. So it's hard to handicap where the rig will be next in terms of the opportunities we're currently tracking. I wouldn't expect any gap in the rig schedule after completion of the SPS and MPD installation based on our market intelligence as we sit here today. With regard to the MPD, it was a proactive decision to ensure that our four black ships are and remain in the top 30 rigs on a worldwide basis from a technical specs perspective. Having an MPD assures that you can bid on every opportunity that's out there and gives you a greater set of opportunities from which to secure work. And obviously, you can get some upside in terms of your rate for the MPD. But first and foremost, we look at it as a key to entry and ability to bid on every single tender that's out there for drill.
Eddie Kim: Got it. Great. Thanks for the color, Bernie. I'll turn it back.
Operator: Next question comes from David Smith with Pickering Energy Partners. Your line is now open.
David Smith: Hey, good morning. Good morning. Thank you for taking my question. And congratulations on a solid quarter.
Bernie Wolford: Thanks, Dave. I wanted to make sure I understood the 2024 guidance. You all were pretty clear, but just making sure, excluding the GreatWhite impact, we should think about that guidance as if the -- GreatWhite had been working at its contracted rate with no interruptions.
Dominic Savarino: Yes, that is correct. We will normalize our results for any impact that the downtime has or the insurance proceeds have as we report throughout the year. So that is a correct assumption.
David Smith: I appreciate it. And for the -- on the financial impact for the property insurance with the $10 million deductible, should we think about that as only apply into the $12 million to $15 million of replacement CapEx? Or would the recovery costs, I think, estimated $20 million to $25 million also apply to that policy?
Dominic Savarino: All of those costs would be covered by the policy. So absent -- certainly, it's subject to the claim with the insurance company and what is covered. But the expectation is that all of that is potentially eligible to be recovered as part of the insurance policy.
David Smith: So this could potentially after insurance be a net impact of maybe low $30 million range.
Dominic Savarino: Right. Yes, right about -- by the time you factor in the loss of revenue, the potential loss of higher proceeds as well as the $10 million deductible it's right at $30 million these of 90 to 100 days.
David Smith: Okay. Thank you and I'll circle back in the queue.
Dominic Savarino: Okay. Thanks, Dave.
Operator: The next question comes from Fredrik Stene with Clarksons Securities. Your line is open.
Fredrik Stene: Hello, Bernie and team, I hope you are well and for me as well, a good quarter. I wanted to follow-up a bit on your fleet. You clearly have good coverage for 2024. And I think your revenue guidance is a testament to that. It's quite a narrow range. So I wanted to get a few details on how that range is being built up. It's -- will it be dependent on what you, for example, are able to secure additional work on Patriot, does it assume any impact of the Onyx you're marketing that? Or does it assume for example, that the priced options on the BlackHawk and the part on the great right that in 2024, although minimal will also be exercised? Any thinking or thoughts around how it can move from the low to the high end of what that range would be very helpful. Thanks.
Bernie Wolford: I'll ask Dominic and I'll make some introductory comments first, Fredrik. Our current line of thinking is that we will secure additional work for the Patriot. We're actively pursuing two more probable than less opportunities right now for the Patriot for work in 2024 that will help us fill that gap. We don't anticipate filling 100% of the gap throughout the year. So in part, the range reflects building a portion of the gap. As far as the price option on the halt goes, our current expectation is that it's more likely than not that the client chooses to exercise the option. But obviously, that speculation at this point in time, we would expect clarity on that in the first half of the year and have good visibility one way or the other on that. And then with respect to the GreatWhite, we continue to anticipate that not only the firm work that's already committed for the GreatWhite. But at the tail end of the year, the last good at additional options become exercise. And to add to that, the Patriot is probably our biggest variable there. Certainly, we're optimistic that we'll be able to secure additional work for the Patriot. But given the fact that we've got a 2025 contract start, it's unlikely that we'll be able to release the crew or otherwise, we'll have to maintain those costs. So every dollar of revenue we're able to achieve there is going to be upside relative to what we considered in the forecast. Adding the Onyx into the mix. In fact, that would most likely be a negative to the forecast because the opportunity for the Onyx is really -- would be something that would more likely begin in 2025, such that we have to reactivate the rig earlier than that and incur the cost, recrew a deal with that CapEx in the second half of 2024, if that were to be the case. So the Onyx variable certainly currently not considered, but if it were to be contracted, it would most likely be negative relative to 2024.
Fredrik Stene: That's very helpful. And you partially kind of answered my follow-up. On the Patriot, are you able to share, call it, how much of a gap you would expect a sensible to model, not 100%, but you think 50, 60 million, 30 million, 70 million?
Dominic Savarino: I'd say 40% to 50% of the gap, we're hoping to cover, particularly, I mean, the summer months, it would be the likely time frame. So Q2 and Q3 more likely than Q4. But I think 50% from a modeling perspective is probably not too far off.
Fredrik Stene: That's very helpful. Finally, now that you refinanced new bond in place, a lot of liquidity through the RCF good coverage on 2024. And coming into a period where -- some rigs have or rigs will be substantially re-priced on the upside. Are you feeling or thinking actively about anything strategic? I know this is a recurring question in a way, but it's been quite quiet on the M&A front or serve sentiment in the equity market has been a bit off, but perhaps anything changed on your side in terms of thinking around consolidation where diamonds plays in that mix could be acquired, be acquired, et cetera? Or are the M&A discussions dead for now?
Dominic Savarino: Thanks for the question, Fredrick. It's an ever recurring question, but a fair question nonetheless. At this point in time, our view is with the strength of our backlog, with the strength of our balance sheet, we look to be a net acquirer, Fredrik, going forward.
Fredrik Stene: All right. Looking forward to follow you as always. Thank you so much for taking my question and have a great day.
Operator: [Operator Instructions] The next question comes from Noel Parks with Tuohy Brothers Investment Research. Please go ahead.
Noel Parks: Good morning, all.
Bernie Wolford: Good morning, Noel.
Noel Parks: So just a couple of things. One theme that has been coming up more frequently as companies have been reporting this quarter, it seems it's more consistent that various drillers are indeed seeing customers making that shift towards prioritizing the de-risking of future rig rates to the point that some of them are maybe some of the larger ones are even -- it might be verse to call it doing speculative bidding, but just that the trend -- that trend does indeed seem to be materializing. And I recall something you saw hints of on the horizon. Is are you still seeing that to be the case? And anything anecdotally you can even point to that's reassuring on that front.
Bernie Wolford: Thanks for the question, Noel. We continue to see client behavior that is consistent with the thesis that they're looking to de-risk their future great upside exposure. We're seeing longer-term contracts come through the door. The ones we're looking at now average just over a year, but we're seeing numerous three to five-year opportunities come through the door and certainly a fair share of two-year opportunities, all would lead me to believe that the thesis remains that for the longer term, clients have significant development work. They know what they want to do, and they want to derisk those projects by securing firm day rates in the near term.
Noel Parks: Great. And of course, there is this keen interest by observers, the Street about kind of like every contract and of course, that desire to have them all decided to announce sooner rather than later, which, of course, is certainly every driller is increased as well. I was wondering, are there just being realistic about some of the tensions being at very high utilization. Are there any sources of variability that could affect timing that people ought to have in mind just to be realistic looking at the quarters ahead? And I'm thinking things even differences in lead time between getting a deal signed in Africa versus a private direct deal on the Gulf.
Bernie Wolford: Noel, I want to make sure I understood your question. Are you asking from a Diamond perspective? Are we seeing the likelihood of a high variability in future commitments? Or was your question more broad and could you maybe restate it to make sure I'm clear on your question.
Noel Parks: Sure. Just more broadly, there's just so much scrutiny on everyone's kind of hanging on seeing what the next contract announcement is pretty much for every driller. And -- but -- so I just am concerned that maybe people who haven't paid a lot of attention in the industry recently or just catching to what's going on in the current cycle, have this worry why isn't it happening faster? And just some of that, it seems to be is probably not realistic considering that you're getting to such high utilization right now. So, just anything to kind of give perspective on the pace of signings and why that certainly is consistent with what you'd expect these days?
Bernie Wolford: Yes. I'll start by saying, as we finish the third quarter, the pace of signings was -- for 2023 up to the end of the third quarter was at a very high pace, unprecedented in modern times, I guess, you would say. We continue to see the tenders out there. They're looking for commitments a minimum of six months prior to the start of work and in many in most cases as much as one year and even more than a year before the actual commencement date. I think what we're going through right now in Q1 is what I'm going to generally classify as noise relative to the longer-term trend. I think you're going to see some clients take advantage of uncertainty, if you want to call it that, securing one or two rigs at below market rates. We've seen one interesting deal out there around the client securing partial ownership in an asset. We have two to three stranded assets out there that are very interested in getting into the market. And we have some people that may be interested in protecting the downside. So I think you'll see a few rates in what I would call the 300s for lower-spec rigs or stranded rigs. But I think, again, that's noise. If you look at the average of what I think you're going to see contract signs and executed at this year. I'm going to say it stays in the $4.50 to $4.90 range even with averaging in the lower day rate contracts that are out there and are likely to come through where people are just looking for term over price or what I would call, a second tier or sixth generation single activity or one BOP asset.
Noel Parks: Great. Thanks. Sorry, please.
Dominic Savarino: Sorry, to add to that, no. It's sometimes longer-term contracts that operators are talking about, take longer to negotiate. You want to make sure that both on the drilling contractor side as well as on the operator side that you get the liabilities right, you get the escalation factors right, to get the day rate right. So that could also be influenced some of the timing as we're talking about longer term.
Noel Parks: Right, absolutely. Thanks a lot.
Operator: At this time, I show no further questions. I would now like to turn the call back to Bernie Wolford CEO, for closing remarks.
Bernie Wolford: Thanks all for your participation in today's call. We look forward to speaking with you again next quarter, and have a great day. Bye-bye.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect, and have a great day.
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