Q4 2023 Diamond Offshore Drilling Inc Earnings Call

Participants

Kevin Bordosky; Senior Director, IR; Diamond Offshore Drilling Inc

Bernie Wolford; Chief Executive Officer, Director; Diamond Offshore Drilling Inc

Dominic Savarino; CFO & SVP; Diamond Offshore Drilling Inc

Eddie Kim; Analyst; Barclays

David Smith; Analyst; Pickering Energy Partners

Fredrik Stene; Analyst; Clarksons Securities

Noel Parks; Analyst; Tuohy Brothers Investment Research

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter 2023 Diamond Offshore Drilling Inc earnings call. (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, our President and Chief Executive Officer; and Dominic Savarino, Senior Vice President and Chief Financial Officer.
To 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 and a replay of this call. Some of the information referenced in our call today is included in the slide presentation that combined 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, preferreds and 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, and good day, everyone, and thank you for your interest and Diamond Offshore supercenter results for the fourth quarter 2023. First one and three was a transformational year for Diamond Offshore marked our one-year anniversary of re-listing on the New York Stock Exchange. Measurable improvements in our capital structure, secured $485 million contract for us, safely delivered shipyard projects, all while delivering industry-leading operational excellence for our customers.
Positive momentum continues totaled 24 with the addition of another $362 million to new contracts purchasing our total current backlog to approximately $1.6 billion. Before addressing Q4 resolves concerns of perspective on our largest, I would like to provide a high-level update on the previously reported great leadership on February first already or whether the well secure lower marine riser package, our LFRP disconnected from the BOP, the LRP and riser, I mean, physically separated from the rig it slipped to attach rate dropped to the seabed, so all in was ours.
So pollution occurred in there for us to recover. The sale of our B is progressing methodically to ensure safe recovery while working within the weather constraints West of Shetlands, the LRP is situated on the seabed exposed to both mud line in an upfront orientation. We have successfully on both the riser straying from the sale of our base and are prepared to lift the LFRP to the rig in the next weather window. We currently estimate the total repair proved to be 90 to 100 days from the days of the US to nominate will provide additional information related to that estimated repair, timing, cost and insurance coverage in his remarks.
In the interim, I would like to recognize the extraordinary work our team in response to this, the quality of our ongoing collaboration with our clients at local authorities. Turning to the fourth quarter, I'm pleased to report that our rig crews and operation support team delivered exceptional safety results and revenue efficiency of 95% across our fleet. During the quarter. This achievement was particularly noteworthy as we commence for contracts during the quarter, one in each of the regions in which we operate. It's all to our team 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 Tenaris on our market day rate contracts. At quarter end, total revenue and adjusted EBITDA for the quarter were $298 million $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 and Senegal. Speed in part reflects the impact of rate exposure to higher direct contracts and sets the stage for improving financial performance in 2020 for oil into fewer planned shipyard days. I'll talk encourage having a full year on higher day rates and the BlackLine and black Verano moving to higher day rates 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 for all U.S. upstream capital spending and anticipated year-over-year growth and exploration drilling 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 a longer duration upside exploration drilling to be considered a leading indicator at a precursor to future development programs.
And Alan floater subsea tree orders are another leading indicator and holding 24 forecasts predict the 3rd year in a row with over 300 trees ordered. This level of order activity has 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 to drilling activities for the subsea tree orders. In perspective, relative to the global market 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 22 and 2023, those numbers were 2.1 and 1.9 and 2024 forecast stands at approximately 1.9, as we've indicated three continuous years with numbers matching or exceeding some measures dating back 12 years. These trends sync well with analyst forecasts for floater demand on our peak year spaces forecast compound annual growth rate for rig years of demand from 2023 to 2020, sales by region or 7% for North America, 11% for South America, 10% for the North Sea, 7% for West Africa and 25% for Southeast Asia and Oceania.
Another key metric we track is the trailing four quarters tender activity on a rig years basis. It has been a bumpy road from a peak in 2012, approximately 106 rig years of tender implied trailing demand through a cycle bottom up 28, 2016 and a COVID bottom of 35 in 2020, the industry and closed 2023 with 106 rig years of Tinder implied trailing demand matching the number for 12 years ago. So those are done all. We are currently tracking 51 opportunities representing 32 rig years.
That demand will commence commencement date through 2025, of which roughly 61% of our DP rigs and 39% for moored rigs start day profile. While for these opportunities prices from a low level in Q2 2024 to a peak of 12 and 11 in Q4 24 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 non-U.S. Specifically, UK sector of the NRC continues to develop as a bright spot with increasing demand in the region was shrinking harsh environment, rig supply, recent long-term commitments by operators in the region support our view, the demand for a plug and abandonment for our P. and A. for is becoming more certain and exist in larger quantities than previously anticipated.
Additionally, green shoots of future drilling demand have embarked on the heels of the recent oil and gas licensing rounds were 27 licenses were awarded for areas that have the potential to be brought into production quickly. Swimming options are able to ship the BlackRhino with availability late this year. We are currently pursuing opportunities for the BlackRhino all for were commensurate commencing following the conclusion of his contract for SSBS. and MPD. upgrade.
In the context of these improving markets, we have been able to firm up additional contracts are for 2024 and build significant Baxdela commitments for 2025 and 2026. Year to date, we have secured $362 million in new contract awards, blood for our seventh-generation drillship BlackLine at leading edge, right and one for a horse harsh environment semis. Patriot BlackLine contract will start in direct continuation of its current or without any gap between contracts and provide far more through the third quarter of 2026.
Under this new contract, the black line will be positioned to generate approximately the $115 million in annualized rig level EBITDA and contributed significantly to our cash flow in the coming years. The Patriot contract is for 60 day through will be in a campaign set to commence this week. Filling in some of the gap is 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 2020 for capacity contracted 91% if you include priced options.
Looking further out, excluding cold-stacked rigs, we now have 36% of our 22 five capacity and 30% of 2026 capacity contracted. If we include priced options for 2025 number goes from 36% to 59%, with notable contracting opportunities on the BlackRhino Black Hornet endeavor and Apex that further secure backlog. For the last 20 months, we complete the special periodic surveys are SPS's 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 are 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 for financials, then I'll return with some concluding remarks .

Dominic Savarino

Thanks. Good morning, and good morning or afternoon to everyone. 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 embedded in guidance for the first quarter and full year 2024.
For the fourth quarter, we reported a net loss for $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 a 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 US GAAP required for deferral of approximately $8 billion of free contract commencement costs for the courage and Black Hawk 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 Black Hawk commencing its contract in the Gulf of Mexico in early November, accurate SPSNPP. upgrade in the third quarter, Patriot 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 polymers 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 managed raise any accrual of the annual bonus expense related to the drillships BOPs service agreements, partially offset by the absence of costs associated with the apex of the 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. Improvement in free cash flow was primarily the 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 day rate 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. Capex 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, screening, which we operate and the Gulf of Mexico from Black Hawk commenced as new contracts 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 second 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 Asia-Pac successfully commenced a contract for a new customer during the fourth quarter at a higher day rate in Brazil after completing its prior three-year contract with Petrobras in the third quarter occurred safely and timely completed at SPS. and contract preparation activities and committed to its new four year contract with Petrobras in mid December. Turning now to the Great White and our estimate of the financial implications of the unintentional release of the LMRP. and riser.
As Bernie noted, the Great White is currently in the process of recovering the LMR piece of the surface. It is estimated to be back earning day rate by the end of April, early May. As a result, we currently estimate that we can be off rates are 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 holiday machinery insurance policy and that all incremental costs that are $10 million deductible should be reimbursable under the policy.
In addition, we maintained loss of hire insurance on the Great White accurate 60 day waiting period for the loss of hire insurance provides $150,000 per day for 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 hire insurance may provide proceeds of approximately $4.5 million to $6 million because the accounting treatment of insurance proceeds trades complexities in the reporting of financial results and because the actual financial impact of the Great White incident is not yet known, we are presenting our initial guidance for 2024 results by excluding the estimated financial impact from the GreatWhite defense.
We believe that this normalized approach will provide more accurate and meaningful visibility into our expectations of our artists. Extraordinary isolated absolutely 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 and booking new contracts.
As Bernie mentioned, in the Gulf of Mexico, we enjoyed significant contract wins in the past month with the black line and 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 black line is now contracted through the third quarter of [$200,000]. In addition, in the fourth quarter, the BlackRhino was awarded a contract in direct continuation of its Senegal campaign and a day rate in excess of $500,000 per day.
The highest clean day rate awarded during this upcycle. These recent contract awards pushed to the average day rate. Our drillship backlog up from $408,000 per day. Also during the quarter for the factory was awarded a contract valued at $240 million or 35 well P&A campaign, representing approximately three years of hard work expected to commence in early 2025 for up to 17 additional P&A wells subject to priced options. It's that would add a 4th year duration.
Subsequent to year end. Inventory was also awarded a two well P&A campaign commencing later this week. And some of the gap before commencing its three year contract in 2025. The Patriot is also being considered for additional work later in 2020 for evidence of the improving more floater market in the North Sea. Turning now to our normalized full year 2024 guidance.
Our $1.4 billion in backlog as of January first, 2024, combined with our year to date 2024 contract awards of the $362 million gives us visibility to over $1.6 billion of far more work to be performed over the coming years and position us extremely well. In terms of cost contract coverage for 2024 for 91% of our available days, excluding cold-stacked rigs, committed with firm contracts are priced options.
Our 2024 revenue, excluding reimbursable revenue and excluding any estimated impact of the great quite a bit, is currently expected to be between $490 million. This expected level of revenue represents a slight decrease from the revenue we earned in 2023. This expected decrease is primarily due to the managed rigs transitioning back to their older over the course of 2024, and our plans for the BlackRhino to spend time in the shipyard conducting its SPS. and MBD. upgrade later this year. Partially offset by higher CapEx and BlackLine during the year.
Our EBITDA guidance for 2020 fourth, again, excluding any impact of the Great White answer, that is currently expected to be between $230 million and $250 million, more than 50% increase over 2023 EBITDA, largely driven by higher day rate contracts and increased EBITDA margins due to due to the return of the lower-margin manage we expect to their owner.
It is worth noting that our EBITDA guidance for 2024 includes approximately $20 billion of non-cash net amortization expense as required by US GAAP accounting rules associated with the courage and Black Hawk pre-commitment contract activities that occurred in 2023. G&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 Great White of debt for 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 Black Hornet, 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 Great White answer that, we currently expect revenue excluding reimbursables to be between $260 million and $270 billion, EBITDA to be between $45 million and $55 billion 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 contracts, proportion of the quarter and the amortization of pre-contract commencement cost of the courage and Blackhawk.
Despite this dip in Q1, our projected EBITDA ended the first half and second half of the year. We expect our free cash flow in 2024 should be meaningfully greater than the 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 are 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 recontracting opportunities arise. And with the continued favorable fundamentals of the deepwater offshore industry, we are confident that we'll 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 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 clients. Looking further ahead as the BlackLine rose to its higher day rate in Q3, followed closely by an option. On the last call, we will have five out of our nine active rigs on contracts at market rates. Yes, we are ideally positioned to capture further upside in the streets of new drillship market with the BlackRhino in late 2024 and the Black Hornet in early 2025. Similarly, the supply and demand picture for harsh environment semis bodes well for upside from the Endeavor, Apex and Great.
What actually progress through 2025. In the interim, we are targeting several near-term opportunities for Patriot allows failed a portion of the GAAP and 20 to 24 prior to its long-term campaign in 2025. Factors that AR days position us to deliver growth in both EBITDA and cash flow while making significant progress in deleveraging our balance sheet.
We appreciate your interest in Diamond Offshore, and we'll now open the call for questions.

Question and Answer Session

Operator

Eddie Kim, Barclays.

Eddie Kim

Hi, good morning. As a very constructive market outlook you provided here. But just curious, have you been surprised at the lack of contracting for the 10 or so seven Gen sidelined drillships? And it seems like until all or maybe most to the sideline reads are absorbed in might put a lid on day rate increases on G&A 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 effect we expect throughout the year. And clearly we would have expected some contracts to be awarded earlier than they have been, particularly on one of the opportunity and Petrobras that we thought would have been already awarded at this stage. But I certainly expect those awards to come through in the very near future to what 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, you know, returning to the market, I would I would expect, yes, you know that five to six of those do secure contracts by the time we reach the middle of this year, Eddie. I mean, I think that's highly anticipated that and would be what I would say is kind of right down the middle of the fairway in terms of our expectations.
So you clearly said five to six. They've announced contracts by mid middle of this year, say in a couple of months. Yes, by the middle of this year, we do this year. So these are contracts that would have start dates Q3, Q4 and Q1 of 25. Their data. There's sort of up to spend around that time period that typically you'll see the contracts are now 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 deal, the BlackRhino, you highlighted that each potential opportunities for the rig and could you see the rig mobilized things that are outside now less than with Africa?

Bernie Wolford

You see on the rig staying in West Africa at this point, and it's definitely yet you have to come. I think it goes in for a five. The SPS. and MPD. upgrade is typically seen in NPD being upgraded for a rig for a specific contract. But it seemed like in this case, it's a voluntary or maybe they're not here on on why you're choosing to add the NPV on this rig systems.
So Eddie, we're currently tracking for opportunities starting Q4 and for the start in Q1 of 25 for the Rhino on those opportunities are in West Africa, some are in South America and somewhere in the US are solid as it is hard to handicap where the rig will be backed into our resolve. The opportunities are currently tracking. I wouldn't expect any gap in the release schedule after completion, not the SPS. and FPB. escalation phase of our market intelligence.
As we sit here today with regard to the MPDM., it was a proactive decision to ensure that our for flagships are and remain in the top 30 rigs in 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 rates for the NPD. But first and foremost, we look at it as a key to entry and ability to bid on every single tender this out their preferred drilled so far.

Eddie Kim

Got it. That's great. Thanks for clarifying. I'll turn it back.

Operator

David Smith, Pickering Energy Partners.

David Smith

Good morning and good morning. Thank you for taking my questions and congratulations on a solid quarter.

Bernie Wolford

Thanks, Dave.

David Smith

I wanted to make sure I understood the 24 guidance I could get your free. Clearbridge has taken share, excluding the Great White impact, we should think about that guidance as if the Great White have been working and it's contracted freight with no interruptions?

Dominic Savarino

Yes, that is correct. We will normalize our results for the impact that the downtime has with the insurance proceeds tabs as we reported throughout the year.

David Smith

So that is it correct to the correct assumption. Appreciate it. And for the on the financial impact for the property insurance within 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?

Dominic Savarino

I think estimated $20 million to $25 million also apply to that policy. All of those costs would be covered by the policy. So absent that is certainly subject to the claim with the insurance company and collect 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

Yes. Right. About gadget by timing factor in the loss of revenue, the potential loss of higher proceeds as well as the $10 million deductible is right at right at $30 million based on our redemption at 90 to 100 days.

David Smith

Thanks for that. So I'll circle back into queue. Thanks.

Operator

Fredrik Stene, Clarksons Securities.

Fredrik Stene

Hello, Bernie and team. Hope your hope you're well on the last from me as well quarter, and I wanted to follow up a bit on your clear to you clearly have casino goods coverage for 24. And I think your revenue guidance is a testament to that. It's quite a narrow range. And so I want them to, I guess a few details on how that range is being built up. They've been dependent on what to, for example, are able to secure additional work on Patriot. Does it assume any inside of the Onyx? Is your marketing that and or does it assume, you know, for example, that the priced options on the Black Hawk and the parking, although minimal and we will also be exercised? Any thinking or thoughts around how we can move from the low to the high end of that range would be very helpful. Thanks.

Bernie Wolford

I'll I'll ask Dominic to comment on it, but I'll make some introductory comments. First further, our car line of thinking is that we will secure additional work for the Patriot. We're actively pursuing to some more probable than less opportunities right now for the Patriot for work in 2024. That would help us fill that gap. If you don't anticipating filling 1% of the gap throughout the year. So in part, the range reflects filling a portion of the gap. As far as the price option on the halt goes, our current expectation is it is 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 accounts are on that. And then with respect to the gray, what we continue to anticipate that not only the farmers are this already committed for the gray acquired, but at the tail end of year, the likelihood that additional options become exercise.

Dominic Savarino

And to add to that is a Patriot is probably our biggest variable. There have certainly where we're operating. 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 contracts dark, it's unlikely that it's unlikely that will be able to some relief released accrue or otherwise, we'll have to maintain those costs to every dollar of revenue were able to achieve.
There is going to be upside relative to I would consider to the forecast adding some 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 wouldn't be something that would more likely again in 2025 that we have to reactivate the rig earlier than that and incur the cost recruit a deal that CapEx in the second half of 2024 is that we're going to be the case.
So the Onyx variable certainly currently not considered, but if it were to be contracted with crop, most likely be negative relative to 2024.

Fredrik Stene

That's very helpful. And the approximately kind of answered my follow-up on the Patriots and are able to share, I call it how much of the gap you would you would expect that tend to multimodal, not the 100%, but do you think 50, 60, 37 days?

Dominic Savarino

I'd say 40% to 50% of the gap where exploring open to cover them, particularly given the summer months, it would be the likely timeframe. So Q2 and Q3 more likely than Q4. But I think 50% from a modeling perspective is probably not too far off. That's very helpful time.

Fredrik Stene

Finally, now that you're refinance and a new moment place, a lot of liquidity through the RCF, good coverage on 2020, we are some rigs have four rigs will be substantially. We price on the upfront. Are you feeling or or you know them 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. Before we sort of some kind of an equity market has been a big casino off, but the pads anything's changed on your side in terms of your thinking around consolidation, similar diamonds place in that mix can be acquired, we acquired, et cetera? Or are the M&A discussions that for now?

Bernie Wolford

Thanks for the question for either hit a recurring question that a fair question. Nonetheless, at this point in time, our view is with the strength of our backlog for the strength of our balance sheet. On the you know, we look to be a net acquirer rendered going forward.

Fredrik Stene

All right, looking forward to him the quality. And as always, thank you so much for taking my questions.

Operator

Noel Parks, Tuohy Brothers Investment Research.

Noel Parks

Hi, good morning. Morning all. So just a couple things. one theme that done has been coming up more frequently has some companies have been reporting this quarter. Is it. It seems it's more consistent that various pillars are indeed seeing customer making that shift towards higher, prioritizing the derisking of future rig rates on to the point that some of them are maybe seeing some of the larger ones, even I might be accrued to the card, doing speculator fitting Black Duck, secure effect that the trend that conversion deals can be materializing. And I call it something you saw he serves on the horizon, he's done, but you still seeing that to be the case. And anything anecdotal you can say?

Bernie Wolford

So thanks for the question, Noel. We can continue to see client behavior that is consistent with the thesis that they're looking to derisk their future, great upside exposure per se and longer-term contracts come through the doors are the ones you're looking at now averaged just over a year, but we're seeing numerous three to five year opportunities through the door and certainly a fair share of to your opportunities. All would lead me to believe that thesis remains that for the longer-term clients have significant development work. They know what they want to do.
They want to derisk those projects by secure and for our day rates in the near term. Great. Thanks. And then, you know, of course, there is a keen interest by firm observers are or the Street about kind of looking at every contract. And of course, that that done that desire to have them all side and then announced sooner rather than later, which of course is certainly.com for every drillers are increasing as well as wondering are there I'm just being realistic about, you know, from some of the tensions with being at very high utilization.

Noel Parks

Are there any source of the variabilities that that could affect timing on that that people ought to have in mind is to be very realistic looking at for the quarters ahead? And then I'm thinking things even without the differences in the lead time between getting a deal signed and in Africa versus I know well, a lot.

Bernie Wolford

To make sure I understood your question, are you asking from a government perspective? We are seeing in the likelihood of a high variability in future commitments are with your question for broad and could you maybe restate it to make sure I'm clear on your question.

Noel Parks

Sure. I guess more broadly, there's sufficient so much scrutiny on everyone's kind of hanging and seeing what's the next contract announcement is pretty much where every driller and done. But so I just am concerned that maybe people who haven't paid a lot of attention the industry recently, our kitchen or what's going on in the current cycle, we have had this worry. Why isn't it happening faster? And just some of that, it seems to me is probably not realistic considering that you're getting the such high utilization right now, Tom, so just any anything to kind of give perspective on the pace of signings and you know, why that that data that certainly is consistently with what you'd expect these days?

Bernie Wolford

So I'll start by saying, you know, as we as we finished the third quarter or the pace of signings was both for 2023 up to the end of the third quarter. It was at a very high pace, unprecedented in modern times, I guess with state, we continue to see the tenders out there. They're looking for commitments minimum almost six months prior to the start to work at and many and 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 are securing one or two rigs at below market rates. We've seen quite an interesting deal out there around the client, securing partial ownership and an asset. We have two to three stranded assets out there that are very interested in getting into the market i t.
We have some people that may be interested in protecting the downside. So I'll think you'll see a few rates. And what I would call on the three hundreds for lower spec rigs are stranded rigs. I think, again, that's noise. If you look at the average of what I think you're going to see contract signed and executed at this year, I would say it stays in the fourth, 54 and 90 range from We even in even with averaging and are likely to come through for people are just looking for Charm over price for up for what I would call a second tier, our second generation of sale activity or one BOP asset. Great. I think that's going to add to that Van Cleef sorry, I had to add that all it 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 the operator side that you get, that gets the liabilities, right? You get the escalation factors, right, get the day rate, right. So at that could also be influenced by 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.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect and have a great day. Thank you.