Q4 2022 Noble Corporation PLC Earnings Call

Participants

Blake A. Denton; SVP of Marketing & Contracts; Noble Corporation Plc

Ian MacPherson; VP of IR; Noble Corporation Plc

Richard B. Barker; Senior VP & CFO; Noble Corporation Plc

Robert W. Eifler; President, CEO & Director; Noble Corporation Plc

David Christopher Smith; Partner & Senior Oil Service Analyst; Pickering Energy Partners Insights

Eddie Kim

Fredrik Stene; Deputy Head of Research; Clarksons Platou Securities AS, Research Division

Gregory Robert Lewis; MD & Energy and Infrastructure Analyst; BTIG, LLC, Research Division

Kay Hoh; Research Analyst; Evercore ISI Institutional Equities, Research Division

Kurt Kevin Hallead; Research Analyst; The Benchmark Company, LLC, Research Division

Truls Olsen; Head of Research & MD of Research; Fearnley Securities AS, Research Division

Presentation

Operator

Good morning, and welcome to Noble Corporation's Fourth Quarter 2022 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the call over to Ian MacPherson, Vice President of Investor Relations. Please go ahead.

Ian MacPherson

Thank you, Julianne, and welcome, everyone, to Noble Corporation's Fourth Quarter 2022 Earnings Conference Call. We appreciate your continued interest in the company. You can find a copy of our earnings release issued yesterday evening, along with the supporting statements and schedules on our website at noblecorp.com. Also located adjacently on the website is the fourth quarter earnings slides presentation that we will make reference to during this call as well.
Joining me today are Robert Eifler, President and Chief Executive Officer; and Richard Barker, Senior Vice President and Chief Financial Officer. Also joining are Blake Denton, Senior Vice President of Marketing and Contracts; and Joey Kawaja, Senior Vice President of Operations.
For today's call, we will begin with prepared remarks, followed by Q&A. During the course of our call, we may make certain forward-looking statements regarding various matters related to our business and companies that are not historical facts. Such statements are based on upon current expectations and assumptions of management and are, therefore, subject to risks and uncertainties. Many factors could cause actual results to differ materially from these forward-looking statements, and Noble does not assume any obligation to update these statements. Please refer to our SEC filings for more information regarding our forward-looking statements. Investors should carefully read our previous and ongoing disclosure with respect to these events, including our press release issued yesterday and other filings with the SEC.
Also, note that we're referencing non-GAAP financial measures on the call today, and you can find the required supplemental disclosure for these materials, including the most directly GAAP measure and associated reconciliation in our earnings report as well as our filings with the SEC.
And with that, I'd now like to turn the call over to Robert Eifler, President and CEO.

Robert W. Eifler

Thank you, Ian. Good morning. Welcome, everyone, and thank you for joining us on the call today. I'd like to begin with some opening remarks and a brief update on our integration progress and then provide some views on the market outlook and regional demand perspectives before turning the call over to Richard to review the financial results and outlook.
Starting on Page 3 of our earnings slide deck. 2022 was indeed a transformational year for Noble, culminating with the business combination with Maersk Drilling that has created a leading player in ultra-deepwater drillships and harsh environment jackups. We're now approaching the 5-month milestone since closing the business combination with Maersk Drilling, and I couldn't be prouder and more appreciative of our offshore and shore-based teams around the world, who have made these first and most crucial few months of this integration go as smoothly as it has.
To our employees on the call, we asked each of you to check your egos at the door and to head the mantra of listen, learn and lean in. Well, that is exactly the response that we've gotten. And so I'd just like to say a huge thank you for the tremendous effort and commitment that you've given. We still have work ahead of us, but we're off to a great start. Richard will speak more to the financial elements of this in the next few slides during his remarks.
Now on to the market outlook. In short, the fundamental setup for our industry is arguably the best that it has looked in the past 20 years based on a confluence of macro supply and demand factors. Leading indicators on offshore project sanctioning uniformly point to a sustained multiyear upturn in offshore investment and rig demand. And our near-term commercial pipeline for 2023 and '24 confirms as much. We're also observing an interesting increase in licensing bid rounds in several frontier regions that further support the demand story. All of these improving demand signals are a result of an upstream sector that is finally inflecting after a decade of structural underinvestment.
The world runs on oil and gas and will continue to do so for decades. In the new energy order, the largest producers are prioritizing lowest lifting cost and lowest carbon profile barrels of production, both of which aligns squarely with Noble's fleet positioning. And while the value to over volume imperative for upstream producers has both validity and a sense of permanence, it is not to be mistaken for a cap-on growth. On the contrary, the call in hydrocarbon production growth over the next decade is real, with international deepwater set to command a rising share of investment, as indicated by an expected sharp increase in greenfield FIDs over the next 2 years relative to prior decade levels.
The supply side of the offshore rig market has been comprehensively redefined by fleet attrition, capital flight and tightening and a much more economically rational competitive structure, all of which, of course, stand in complete contrast with the fast and loose growth-at-all-cost market conditions that derailed the broader energy industry during prior commodity up cycles since the early 2000s. Meanwhile, threshold utilization for most rig classes has been eclipsed over the past year and dayrates continue to rise in direct correlation with incremental demand growth.
Deepwater, in particular, has taken another significant leg higher over the past several months. The contracted UDW rig count in the first half of 2022 averaged plus or minus 80 rigs with 86% utilization of the marketed fleet. Today, the contracted UDW count has reached 91 rigs and rising with 91% marketed utilization, while utilization of the approximately 45 Tier 1 drillships remains above 95%. Consequently, not only our Tier 1 drillships pricing firmly in the low to mid $400,000 per day with an upward tilt, the lower capability UDW rigs are also being pulled higher.
Yes, there has been some recent transacting and capital formation behind a handful of sideline UDW rigs, of which there are approximately a dozen 7G drillships between cold-stacked units and stranded new builds. However, the majority of these are not necessarily fully Tier 1 ready in terms of being equipped with 2 BOP stacks.
In any event, this pool of sideline capacity is both finite and fully required to meet expected incremental demand growth, especially given the most recent developments with UDW utilization moving into scarcity territory. Also, the fact that established drilling contractors are prioritizing investment in 7G drillships stranded in shipyards is also a very clear indication in our view that most of the stacked 6G rigs in the world are becoming more and more marginalized with the passage of time.
Moreover, the timing of the reactivation of these sideline drillships will continue to be spread out due to disciplined contractor bidding, significant lead times for reactivation and a limited number of multiyear tenders in the market that would be adequate to underwrite a compelling guaranteed return for a major capital project.
As a reminder, we have selectively marketed our cold stacked Tier 1 drillship Meltem, which we're budgeting as a $100 million all-in reactivation project with at least a 1-year delivery timeline. We continue to take a very disciplined approach with bidding the Meltem, which is to say that we would require a firm guaranteed contract with an attractive full payout plus return on capital in order to move forward with its reactivation.
Looking forward at the global deepwater demand outlook, all indicators from our internal commercial perspective and customer dialogue to analysts and consultant research point to a probable multiyear rise in UDW rig demand.
Rystad, for example, is currently forecasting total floater demand to increase by 11% from 113 rig years in 2022 and up to 125 rig years in 2023 on the way to a peak of 150 by 2026. While we would certainly love to see that level of demand to materialize, the truth is that even a modest increase of demand this year could likely exert further upward pressure on dayrates.
The fulcrum of demand growth for deepwater continues to be the Golden Triangle and especially South America and West Africa. Starting in Brazil, Petrobras has been by far the most active operator in terms of securing rig capacity recently, comprising nearly 40% of all drillship rig years contracted throughout '21 and '22. A lot of this has been renewing and extending existing capacity, but still Petrobras' deepwater rig count has recently increased from plus or minus 20 rigs throughout most of the past 2 years to 24 rigs today and on the way to 26 with recent signings. Some research indicates that Brazil could absorb an additional 10 to 11 rigs over the next year-or-so, although it's frankly hard to see where that much capacity could be sourced.
Nonetheless, we do believe that Petrobras could realistically take an incremental 5 to 7 floaters over the next 12 to 18 months. Beyond Brazil, other South America, which represents 9 floaters of demand currently, could add an additional 1 to 2 rigs through '23 and '24. We're also seeing some pretty interesting leading indicators in this part of the world beyond the tangible near-term rig requirements. I'm referring to the emergence -- a reemergence of frontier markets like Colombia on the deepwater side and Argentina on the jackup side as well as increasing license bid round activity in places like Uruguay, Ecuador and parts of the Caribbean.
After South America, West Africa has become the second most dynamic region for deepwater rigs. We're seeing a significant increase in tendering driven by Angola, Nigeria, and the emergence of Namibia is an important exploration basin. West Africa was a late mover off the bottom, but it's now moving higher in a meaningful way with several multiyear drillship requirements surfacing.
Current marketed utilization of UDW units in the region is 18 out of 19 rigs, and we see a likely supply deficit of around 3 units by 2024. The deepwater Gulf of Mexico has been more of a steady market with between 20 to 22 rigs of demand for the past couple of years, and we're not counting on a significant change here over the near term. However, the bias looks flat to up by perhaps 1 or 2 incremental rigs through 2024. The shorter-term nature of most of the contracting and the role played by more of the nimble independent E&Ps on the demand side makes the Gulf of Mexico a little harder to forecast by nature.
So that's the outlook for the Golden Triangle, which comprises about 75% of the total UDW market and an even higher percentage of the current placement of our fleet. Additionally, however, both Australia and the Med looks like they could each contribute a further 1 to 2 rigs of demand to global balances. Other peripheral markets outside of these are projecting roughly flat in total, so that gets us to a global roll-up of about 12 to 15 incremental UDW rigs over the next 12 to 18 months. If this demand level does in fact materialize, then we should expect to see a combination of upward dayrate movement and more sideline capacity entering the market. These are not mutually exclusive outcomes.
Now for a few comments on our own deepwater fleet status and outlook, as summarized on Pages 6 and 7 of the slides. Since our last fleet status report in early November, we have secured 24 months of additional backlog across 4 6G and 7G drillships at an average dayrate above $420,000. This includes the 9-month contract for the Gerry de Souza, which started recently in Nigeria, the 6-well program for the Stanley Lafosse in the Gulf of Mexico, a 1-well contract for the Faye Kozak in the Gulf of Mexico at $450,000 per day and a 70-day P&A scope for the Globetrotter I also in the Gulf of Mexico.
The Globetrotter I's proceeding contract with Petronas in Mexico has encountered a delayed start, however, and presently remains off contract awaiting permit approvals. We believe this delayed permitting process represents a deviation from past precedent by the regulator there, and we continue to work diligently towards a solution.
Our fleet status report now indicates an expected start date for this contract in March. However, the permitting process remains fluid. Our 16 marketed UDW rigs are currently 75% contracted throughout 2023, with visibility towards securing additional utilization for a portion of the remaining availability for this year. Although some contract gaps and SPS time will remain uncontracted.
The average dayrate across our $2.7 billion floater backlog today is approximately $400,000 and with over half of our 2024 floater days uncommitted, an upward trajectory for repricing a fleet is visible based on current market dynamics. So we're very optimistic about how our deepwater fleet is positioned at the moment, with a good balance of backlog, but also 15 out of our 16 working rigs exposed to current or future market rates over the next year.
And next, on to jackups, which is an improving, but still later cycle dimension to our fleet. Globally speaking, the roughly 400 rig jackup market eclipsed 90% effective utilization in the middle of last year, driven primarily by the demand surge in the Middle East. However, in the North Sea and Norway region, where our harsh and ultra-harsh jackup fleet is now principally positioned, the market has been softer recently. Current activity in the North Sea, Norway region is 28 rigs with utilization at 85%. This is down from a 31 to 33 rig count during the first half of last year.
The net impacts of tax policy levers out of the U.K. have not been stimulative for jackup activity in the North Sea over the short term. But we continue to see encouraging demand indicators that support the case for an improving market from here forward, including, crucially, visible demand improvement in Norway from mid-2024. We believe this could provide decent earnings upside for Noble in 2024-2025 compared to a fairly anemic jackup EBITDA contribution in 2023, which, depending on contracting results this year, is about 10% of our total EBITDA guidance.
Naturally, a huge key to better margins is utilization, not just dayrates, and the white space will certainly weigh on margins over the near term. This includes also the likelihood of losing at least most of this year for the Regina Allen.
On the positive side, during the fourth quarter, the Noble Innovator was awarded a 1-year contract with BP in the U.K. North Sea at $135,000 per day with a 1-year option with dayrate escalation. This is a premium rate for the U.K. based on the Innovator's high technical capability as a CJ70. But nonetheless, we do see dayrate improvement for the other harsh environment class rigs into the $110,000 to $125,000 range, up from sub-100 rates through the recent trough.
I'd also like to highlight that the Noble Resolve recently commenced the on-site pilot scope at Project Greensand, the world's first industrial-scale offshore carbon capture project offshore Denmark. Long-term market growth potential from offshore carbon capture could prove quite significant. In the meantime, we're proud to be an early leader in this field.
Further east, Noble Tom Prosser has recently completed its contract with Santos in Australia in late January. While we don't have future work for the Prosser reflected on our fleet status report, we do have strong visibility for a significant amount of work for this rig starting around the middle of this year. So overall, we do have some space to fill across our fleet over the near term, but the opportunity set looks promising.
That wraps up the market overview. And with that, I'd like to pause now and turn it to Richard to go over the financials.

Richard B. Barker

Thank you, Robert, and good morning or good afternoon all. In my remarks today, I will go over some brief highlights of our fourth quarter results, provide an update on our synergy progress, go through our 2023 financial guidance and highlight a few key points related to our return of capital program.
Starting with our quarterly results. The fourth quarter was our first as a combined company with Maersk Drilling. As such, the type of prior period comparisons that we typically reference have less relevance, so I will dispense with the prior period comps for the purposes of this review.
Additionally, as mentioned previously, we have included on our website a handful of earnings slides that summarize some of the key elements of our fourth quarter results. For the fourth quarter, which included 90 out of 92 total days as a combined company, our diluted earnings per share was $0.92.
Contract drilling services revenue for the fourth quarter totaled $586 million. Adjusted EBITDA was $157 million for an adjusted EBITDA margin of 25% for the quarter. Additionally, we generated free cash flow of $106 million in the quarter.
As previously cited, the downtime and cost impacts of the Noble Regina Allen incident as well as the delayed contract start for the Noble Globetrotter I in Mexico had adverse impacts on the quarter's financial results. And on a combined basis, these 2 rigs represented a $15 million decrease to Q4 EBITDA relative to our expectation. As we worked through the closing for the first integrated quarter as a combined company, certain impacts from the merger, including accounting impacts from the purchase price allocation, have served to partially offset this negative impact.
Noble's year-end revenue backlog stands at $3.9 billion. Page 5 in the presentation slides provide a summarized schedule of backlog for floaters and jackups over the next 5 years.
Our balance sheet remains in terrific shape, with December 31st net debt of approximately $200 million. Subsequent to the end of the fourth quarter, we have elected to repay the $150 million Danish Ship Finance loan with excess cash on hand. In conjunction with our banking partners, we are currently evaluating alternatives to further optimize and simplify our capital structure.
Before discussing our guidance for 2023, I would like to first provide a cost synergy update related to the business combination. Our integration activities continue to progress strongly as we work towards realizing the target of $125 million in annual run rate cost synergies by October 2024. We expect to have realized over 3/4 of these savings on a run rate basis in the fourth quarter of this year, and we achieved the first $50 million of run rate synergies as we exited 2022.
As previously disclosed, we expect in the aggregate with the onetime cash cost to achieve these synergies to be within a range of $1 to $1.25 for every dollar of annual synergies realized. In calendar year 2023, we expect to have onetime cash costs of approximately $70 million to $85 million related to achieving the cost synergies, leaving minimal thereafter.
Now I will cover our guidance for 2023. We anticipate total revenue to be between $2.35 billion and $2.55 billion. Adjusted EBITDA, which adds back merger and integration costs, to be between $725 million and $825 million and capital expenditures net of client reimbursables to be between $325 million and $365 million.
Additionally, note that our total revenue guidance is impacted by 2 items. Firstly, revenue includes the noncash amortization related to net unfavorable customer contracts, a function of accounting rules for both the recent combination and our emergence. And secondly, revenue includes various client reimbursables, which generally carry a minimal margin. In total, these items are expected to contribute approximately $200 million of revenue in 2023, split somewhat evenly across the 2 items.
Additionally, we expect our cash taxes in 2023 to be just over 10% of our adjusted EBITDA. Incorporated in our guidance is the anticipated impact of the recent contract termination for the Noble Regina Allen, as has been previously disclosed. We continue to develop the repair plans, and the rig has applicable insurance coverage with a $5 million deductible. Given this insurance coverage, our guidance excludes any projected expense or capital required to repair the rig. However, there could be a timing difference between the payment of repairs and receipt of funds from our insurers.
While we are not providing quarterly guidance, I would like to provide the basic directional comment that we had a couple of key factors at play that we anticipate should drive a progressively stronger contribution of both EBITDA and free cash flow as the year unfolds. One expected factor is the momentum of dayrates with the fleet continuously repricing into an improving market.
And secondly, we expect operating days to increase in the second half of the year. We currently expect to generate approximately 65% of our 2023 EBITDA in the second half of the year. Additionally, our 2023 adjusted free cash flow generation will be heavily weighted to the second half of the year.
On last quarter's call, we cited recurring high single-digit percentage inflation rates across major OpEx and CapEx categories assisting throughout 2023, and that view is indeed embedded in our 2023 guidance today. Also as previously stated, CapEx for this year and likely to an even greater extent next year is influenced by a higher than historical average number of SPSs across our fleet. As the majority of our working fleet approaches its 10-year SPS, we have approximately half of our fleet due for these surveys over the course of 2023 and 2024. The reality with the typical rig life cycle is that the first 5-year survey is usually inconsequential in terms of capital and downtime. In addition to the capital for a deepwater rig, a 10-year SPS generally requires 30 to 60 days out of service.
For 2023, excluding the Regina Allen repairs, we have 7 rigs combined across our jackup and floater fleet planned for major projects. While we expect the peak number of 10-year SPS to drive CapEx in 2024 to a level somewhat higher than 2023 with our schedule currently showing 10 major projects in 2024, our plan is to achieve 5-year average annual CapEx in the $275 million area between 2023 and 2027, as the 10-year surveys taper off after 2024.
It is important to note that there was a tightening impact on effective supply that results from structurally high global fleet downtime caused by these SPS surveys over the next couple of years. An additional consideration is how the shipyard and OEM supply chain will respond to a handful of deepwater rig reactivations laid on top of the SPS spike. This is a recipe for pinch points, cost inflation and delays. However, we feel very confident that we have the right team and plans in place to knock out these major projects in an efficient manner.
Now I'd like to wrap up with a quick refresh on capital allocation. We believe our conservative balance sheet and strong free cash flow results and outlook are differentiating factors for Noble. Since authorizing a $400 million share repurchase program in Q4, we have repurchased nearly $100 million in shares through January, including the mandatory purchase associated with the squeeze out of legacy Maersk Drilling shareholders.
Returning capital is central to our capital allocation strategy and to restate our current priorities as it relates to the use of cash are as follows: to maintain what we believe is a conservative through-cycle balance sheet, coupled with significant liquidity; to invest in the maintenance and maximum potential of our existing working fleet. Once these objectives are achieved, we will look to return at least 50% of our free cash flow to shareholders and target disciplined and accretive investment opportunities.
That concludes my prepared remarks, and I'll now turn the call to Robert.

Robert W. Eifler

Thank you, Richard. So to wrap it up here, we're increasingly confident in the outlook for a sustained multiyear up-cycle for our business. It's a tight market today with structurally redefined supply governors that should drive further tightening as demand continues to recover from an unsustainably low baseline.
We have an optimally positioned elite UDW fleet with an enviable backlog, and we're looking out into the future for fairly significant upside optionality from our jackup business, which is still under earning in 2023. Noble will not deviate from our disciplined and conservative financial position and capital allocation framework, and we look forward to returning growing amounts of free cash flow to shareholders over the long run.
Operator, we're ready to begin the Q&A segment of the call.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from Greg Lewis from BTIG.

Gregory Robert Lewis

Robert, I was hoping you could provide a little bit more color. Clearly, one of the big things that people are watching is the potential of rig reactivations and you alluded to the potential about we're looking to potentially act -- looking for that right contract to reactivate potentially the Meltem.
As we look globally, could you talk about some of those opportunities? It seems like most of the rig reactivations we're hearing about are largely focused around Brazil. And I guess what I'm wondering is, as you look at potential opportunities for the Meltem, how are you thinking about that rig and really where those opportunities potentially could be?

Robert W. Eifler

Yes, sure. So look, I think the Golden Triangle is going to host the vast majority of the opportunities. And specifically, as you mentioned, Brazil, and West Africa right now seem to be carrying the term that would be required. Whether it's specifically Petrobras or not is very much up in the air. Recall that to take a rig outside of Brazil into a Petrobras contract, there's a pretty hefty capital requirement. And so as we said, I didn't repeat it in the script today, but we have said previously, and we do hold to the idea that where we sit in 2023 in the bids that we're considering, we would be looking to get a significant portion of that $100 million upfront so that we can maintain our cash flow story, which I think is unique to Noble.
So realistically, in the very near term, I think those opportunities exist through the Golden Triangle. There are very few and far between. And today, more likely to be outside of a Petrobras contract than with Petrobras. But the market is moving, and I think as we move through this year, that could change. There are a very small handful of opportunities that could come up for '24 and even '25 work that would exist outside the Golden Triangle. But we're just maintaining a constant dialogue with customers globally. And I think you said my words for me, we're picking our opportunities very carefully and making sure it's the right opportunity for that rig.

Gregory Robert Lewis

Okay. Great. Great. And then I did want to touch on the jackup market. I mean, clearly, post the Maersk acquisition, you guys have a very solid position in the North Sea. That being said, it seems like at least in '23, that's going to be a little bit of an air pocket not only for floaters, but also for jackups, which is really -- which is what you guys run in the North Sea.
So as you think about that, those dynamics, is it kind of a let's just kind of wait it out for '24, which is a better -- which is expected to see some improvements? Or could we think about maybe setting -- starting to try to find another basin, where maybe some of these rigs could go to kind of -- for employment until we see that actual North Sea shelf recovery?

Robert W. Eifler

Yes, it's a good question. And I'm not going to put any rule down here because we've always been, I think, pretty economic in how we think through bidding and potentially moving rigs. The windfall -- the change in windfall profit tax in the U.K. was a pretty major headwind that came through a few months ago.
And it essentially put the market, which does have some movement back and forth between the U.K. and Norway, on its heels. For our -- and of course, we have a portion of our jackup fleet scattered out outside of the North Sea. Highest and best use for the units that we own is in the North Sea, whether it's outside of Norway or within Norway depending on the unit.
And we do believe that ultimately that's the right home for these rigs. So we are -- from current fleet positioning, we are not actively trying to remove rigs from the region. We are mindful of the white space in managing costs in the meantime. And I think, in particular, the Norway class vessels -- we have -- we now have visible demand in 2024. It doesn't meet the total supply from what we see today, but it's also still too early on the sales cycle for -- even for CJ70 to fully understand what the back half of '24 is going to look like. And so we stick to the view that late '24 is going to bring back the demand for our CJ70 fleet.
Those are the most capable rigs Norway class jackups. They will contract before and stay active longer than other Norway class rigs because of their performance capability. And they also have the ability to work in certain transitions in waters that would otherwise go to harsh semis, and that's very much a dynamic that's too early to conclude today, but does exist as a pocket of demand for those rigs in '24 and onwards.
So that was a bit of a rambling answer, Greg. I think to sum it up, neither U.K., nor Norway class rigs we are actively seeking to relocate. We will always remain economic, though.

Operator

Our next question comes from Eddie Kim from Barclays.

Eddie Kim

So very constructive outlook for the floater market, which would suggest that dayrates continue to move higher throughout the year. I hate to start with a leading question, but do you think it's likely that we'll see a floater fixture announced later this year with the [5] handle? And how are you thinking about contracting strategy in this type of environment? Because I would think you'd want to maybe sign shorter contracts today in anticipation of higher dayrates maybe 12 to 18 months from now? And maybe the one-well contract for the Faye Kozak at 450 a day was evidence of that, though I might be reading too much into that.

Robert W. Eifler

Yes. Look, Eddie, thanks and a great leading question. Look, I think there are some things that have to fall in place. In the near term, I think we're actually going to see a bit of a wide range of fixtures here even among seventh generation rigs. You've got some rigs, as I mentioned in the script, that are coming into the marketplace that were previously sidelined, and those can carry some slightly different economic motives behind them, which is fine and expected, we said that for a couple of years.
And I think -- and so I think with that at play, the fact we're experiencing this right now with all the short-term contracting, you do get white space in schedules. And so I think with those couple of dynamics, people managing time between contracts, et cetera, you are going to see a range of fixtures in the near term. But I think very much what I laid out in the script and what we see in terms of very tangible demand coupled with some of this project sanctioning coming through, like we're hopeful this year, puts us on a path to 500.
And I don't know that, that rate is going to be paid in 2023 for anybody. But I think there's very much a path where we could see a fixture this year that's above 500. And even more confident in that if you include kind of a total contract value analysis of what an operator ultimately is going to need to pay for a rig this year.
As it relates to our strategy, we've been very lucky to have these contracts in Guyana with Exxon where we have had long-term visibility for 4 of our top drillships. And also, of course, we only have the Meltem cold stacked and then the Scirocco, which is 6G cold stacked.
And so we've been fortunate not to be put really to -- as I think as crucial a decision around taking a strategy towards long-term contracts or not at this point. But -- we've got right up there with the largest Tier 1 fleet in the world. We -- and we'd be willing to take 1 or 2 long-term contracts that at current dayrate levels, which we can produce a significant amount of cash flow here at current dayrate levels, even though we see a rising market.
But I would say, Eddie, that our strategy thus far has been to take advantage of rising day rates, and that's been enabled by the visibility we have in the Guyana-Suriname region.

Eddie Kim

Understood. Just shifting over to the SPSs, as you mentioned, you have a good number of rigs undergoing programs this year and next. Specifically, for 10-year SPSs for 1 of your drillships, can you just remind us what the typical cost is for that and the approximate split there between OpEx versus CapEx?

Richard B. Barker

Sure, Eddie. Look, obviously, it's very rig-dependent, but I think a good kind of rule of thumb from a capital perspective is probably think about a range of $20 million to $40 million, obviously, very, very rig dependent. A lot of that is capital, but also there's definitely an element of OpEx there as well. It's just going to be very specific to the rig. I do think what's important to note, and I referenced this in the script, was just the impact on top line, right?
And so for example, a 30- to 60-day SPS means you are an earning dayrate for that period of time. And with rates north of $400,000 a day, I think that, that can have obviously a material impact on the overall financial statement. So I encourage you to think about it both obviously from a cost perspective. And again, which is very, very rig-dependent, but also the lost revenue, if you will.

Robert W. Eifler

Yes. And I think let me just add to that, if I could, Eddie, you're going to see a pretty wide range. We've got an example of a rig in Guyana that came out for just 19 days to do its 10-year SPS at a cost, I think, it's just under $20 million total. Now that was an instance where we were able to work very closely with our customer and plan out that SPS. In other instances, that's just not possible to do.
If you're between customers and contracts, you can't be quite as efficient. You're not going to get the customer preceding the SPS to allow you to do some of the onboard work that would make you more efficient. And it's hard to actually sign a contract when you have the SPS in the way and you're trying to manage a shipyard project on timing on top of rolling between customers. So you're just going to see a range, and that's why Richard said it is very rig-dependent.

Operator

Our next question comes from Kurt Hallead from Benchmark.

Kurt Kevin Hallead

I think it's a great summary. I really appreciate the color commentary. So I guess my follow-up here would be on CapEx and the CapEx guidance that you provided, not just for this year, but obviously over the course of the next few years, right? I'm going to make an assumption here that at least for 2023, your CapEx guidance does not assume any costs associated with the activation of the Meltem. Maybe let's start there. Is that fair?

Richard B. Barker

Correct. Yes, that's right.

Kurt Kevin Hallead

Okay. And then of the potential activation cost of that $100 million, right, you mentioned you'd want a significant portion of that upfront. And I know there's going to be some probably horse trading between what kind of term you can get, what kind of dayrate you can get, what you want. But what's -- at a bare minimum, what would be acceptable in terms of upfront payment to activate the Meltem?

Robert W. Eifler

Yes. Look, it's a multivariable equation as you alluded to. And so, let's say, somewhere in the order of half, something like that. But a big piece of that is -- and that's not a rule, but you asked a question. A big piece of it also is when would the timing occur? We're on -- as Richard mentioned in his script, we're very much on an upward trajectory on free cash flow here and not looking to fall off of that track. We'll see what the world brings us this year. But as I've kind of, I think, hit pretty hard, I think things are set up quite well in the industry for the next few years. So as we move forward in time, I think that number is more likely to go down -- well, it's more likely to go down than up. Yes.

Kurt Kevin Hallead

Okay. And then just to kind of put a bow on the CapEx. So over the '23 to '27 period where you said an average $275 million of CapEx, then I would assume that you did include the Meltem into that calculation. Is that fair?

Richard B. Barker

No, actually, it's not. So I think the way to think about it, obviously, there's guidance we've got out there for 2023. We've talked about just given the number of SPSs next year, we expect that number to be higher. And I think thereafter, as you think about the '26 through '27 timeframe, you can therefore infer that if you will, capital on an average basis is going to be plus or minus $200 million in that timeframe. So it doesn't include the Meltem.

Operator

Our next question comes from Fredrik Stene from Clarkson Securities.

Fredrik Stene

Okay, hopefully you can hear me all right. I had some trouble with my line. Can you hear me?

Robert W. Eifler

Loud and clear. Yes, Fredrik, loud and clear. Thanks.

Fredrik Stene

Perfect. Okay. So I wanted -- and I'm sorry if you already said it again, a bit trouble with the line. But wanted to touch briefly on the guidance you gave, and thank you for the color on the reimbursables and amortization. If you subtract those 200, I think we come to a midpoint of $2.250 billion approximately, just from regular revenue. And if you look at your backlog chart a bit earlier, I think we had $1.65 billion, $1.66 billion secured for [2023] already. So my question relates to this gap here. How should we think about that? Where will those $600 million come from? Do you think mostly floaters, mostly jackups, et cetera? I guess you have some insight to where you find it likely that you'll be able to secure contracts that will actually contribute to close that gap? So any color you can give on that would be super helpful.

Robert W. Eifler

Sure. Yes. Let me just say a couple of words, and then I'm going to hand it to Blake, who's leading our global efforts there. We've got -- I mentioned in my script, we have an excellent opportunity set behind effectively all of the rigs, where we have white space. Those are works in process. Some are very well developed, and we hope to have some good news soon, and then others are still closer to the bidding stage. That includes some of the big enduring white spaces, but also perhaps a couple of filler jobs here where you see some gaps. So we're kind of working all of it right now. But maybe, Blake, just some [rig-by-rig] class color?

Blake A. Denton

Yes, of course. So the first comment I would make, you asked about floaters versus jackups. I think it comes from the floater side more than the jackups, the additional backlog and EBITDA contribution. And then I think we've talked about the SPS already sufficiently to describe how that affects the white space, but also the short-term nature of some of the contracts that have hit in the UDW create this, I guess, I'll call it, inefficiency in the market. So then we have just the timing of different projects or programs with mobilization. And then, of course, you've got regional and contract specific requirements.
So depending on where we pick up the work, and the timing that will define the white space. But what moves the needle is, of course, converting that white space to operating dates. So as Robert mentioned, I mean, when you look at the drillships, the demand backdrop is incredibly encouraging, I would say, equally encouraging our discussions ongoing with customers. And so we should have some highlights here soon on that.
And then when you look at the other ones for 2023 are 2 of our D-class semisubmersibles. So when you look at these assets, I mean, they're some of the most capable DP-plus moored units available in the world. And traditionally, they compete for both programs that require that niche DP-plus moored capability as well as UDW capacity where there's gaps or where they're available on the back end. And I think we have conversations in both of those spaces that are ongoing now, and we see several opportunities that start for these specific rigs late in the year or early into 2024.

Fredrik Stene

Super helpful. And just a follow-up on the guidance and how to -- I think, please compared to my numbers, pre report and when we adjust for the reimbursables, we're not -- it's still coming on the revenue side a bit higher than what I had expected. And I think my EBITDA number was also a bit higher in the range, so around $800 million and you guided $725 million to $825 million. So you mentioned that the guidance numbers take inflation into account. And I think the inflation thing and cost increases has been present also in some of your peers that have reported already. So I was wondering, are you able to kind of give us some insight into how that has been factored in, in terms of percentage basis? And how do you view that going into 2024 as well as your cost base?

Richard B. Barker

Sure. Yes. So look, I think we've been pretty consistent around inflation here for a few quarters. So -- and on my script, I talked about how we expect high single-digit-type inflationary pressures this year. So that's absolutely embedded in our guidance, which is consistent with what we said back in October. So we expect that in 2023. As you look forward to 2024, obviously, as we expect global rig demand to continue to increase. We don't see that inflationary pressure stopping. And so therefore, I think you should expect in a rising rig demand market, essentially the inflation pressures that we're seeing in that high single-digit-type area to continue both in -- obviously, in '23, but also through 2024 as well.

Fredrik Stene

And I guess it's fair to assume that you'll try to push all these cost increases and if not more than that on to your clients?

Robert W. Eifler

Yes. Yes. Current market is current market and -- yes, reflects -- typically reflects current cost basis as well. So -- I don't -- just speaking generally about the industry, of course, I don't know about outside of Noble. But the market where most of the contracts were signed were producing revenue today. There's probably a few that have some cost recovery. We have a couple that have cost recovery, but it's not been the norm here over the past couple of years of contracts signed. So perhaps that's something that comes back in into market as we move through this year. But with the churn of contracts, particularly on the UDW side, the pricing resets can reflect increased costs. So...

Operator

Our next question comes from Samantha Hoh from Evercore ISI.

Kay Hoh

Congrats on a really great quarter. Thanks for providing that commentary that your order backlog is averaging north of $400,000 per day. I was kind of curious given this backdrop how you're viewing options like potentially granting options with new contracts? Are the days of price options gone for the industry? Or how do you think about that in terms of like new long-term contracts going in terms of weighing price versus open-ended option pricing?

Robert W. Eifler

Yes. Good question. Separated into 2 answers between floaters and jackups, unfortunately right now. I think we've been probably more aggressive than the average on not giving priced options here over the past couple of years. And while it hasn't been a [hard no], and we do have a couple of exceptions out there, generally speaking, we started pushing back very aggressively on priced options like 1.5 years ago, I think. And obviously, as the market tightens, you could expect us to continue or even stop giving options.
But the jackup side is a little bit different. It's a soft market and more tentative economics, I think, for our customers. Options do serve a purpose and ensuring that certain wells can actually get sanctioned and drilled. And so I think on the jackup side, that's still a part of the market we see.

Kay Hoh

Okay. And then maybe if you can help us think about geographically where you want to have more scale? You're so concentrated in Guyana and the U.S. Gulf of Mexico, but is there a goal in terms of getting to a certain size in like the Australian market or in the West Africa region?

Robert W. Eifler

We don't have -- I wouldn't say that we have a defined strategy right now to move more rig -- in other words, we're going to be governed by economics and how or if we move rigs around the market. If the tightness that we're predicting plays out, I think the market very quickly gets to a point where the price for time between contracts starts to be put to operators, whether that's through mobilization or dayrate recovery on a move that's something that we're thinking through.
The growth markets that I described in South America and West Africa are the most just by math, are the most likely to draw some more supply from us. We have worked, of course, and are working currently, but have got decades of experience there. And I think just naturally, as the demand in those 2 regions draws in supply, those are likely places where you continue to see the Noble brand building.

Operator

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

David Christopher Smith

A lot of questions were answered mostly in the prepared remarks. I did want to say on the deepwater side, the progression of dayrates is really transparent. We don't get to see the changes in contract terms and conditions, which I expect are improving pretty well also. So I wanted to ask if you could give us some color broadly on how TMCs have been improving in terms of backlog margin protection from early termination, maybe allowance for nonproductive time? It sounds like a better environment for getting some cost recovery and paid mobilizations as well.

Robert W. Eifler

Yes, sure. Thanks for the question. You're certainly headed in the right direction in terms of being in sync with the market, particularly in the areas that you mentioned. Mobilization and the cost recovery we're able to get in mobilization not only really for our cost, but also the opportunity cost of losing operating days, while mobilizing. So that is improving. Termination payouts are also improving. Yes, they're largely improving with the market, just as you described.

David Christopher Smith

Appreciate it. And I just wanted to double check something. On the updated fleet status report, it doesn't look like there are any remaining floater options that are much below market rates. I just wanted to make sure I'm reading that right, especially for the Viking options?

Richard B. Barker

Yes. Another good question. It really speaks to some of the Q&A we had just a moment ago about preserving optionality to a recovering rate market and the efforts that we had in the strategy that we employed last year. Yes, so you're exactly right, we don't have exposure to low priced options or options priced earlier in the cycle. I think the exception there would be the [venture] -- no, I'm sorry, all those are exercised. And the remaining ones that we reflect here are unpriced and subject to market.

Operator

Our last question will come from Truls Olsen from Fearnley Securities.

Truls Olsen

A couple of questions for me. One is when you're stating that you guys are targeting a conservative through-cycle balance sheet, I mean how should we think about this? I'm also thinking about this from a capital return perspective. And is it a net debt cash free balance sheet? Is it net debt-to-EBITDA of some kind of multiples? Or how does this -- what's your thinking here? Some color around that would be good. And also in terms of the synergies as we think about 2023 -- sorry, 2024, how should we sort of read or expect to see that in the OpEx and CapEx and SG&A, I mean, notwithstanding inflation doing whatever it does, obviously?

Richard B. Barker

Sure. On the first question, we're very comfortable with our debt today, right? So our balance sheet is a strategic asset, and we're going to protect that over time. So I wouldn't expect us to layer on a bunch of debt on top of where we are today, but I would say that we're incredibly comfortable with what it looks like today. On the synergies point, we talked about having realized about -- by the end of this year, about 3/4 of the $125 million of synergies, the overwhelming majority of that is shore-based burden.
So that will come out of both G&A as well as OpEx as well, just some of our shore-based runs through all OpEx. So you should expect to see the impact of that as we move through the year. Inflation, obviously, is a counter to that. But as we move through this year, obviously, we've realized about $50 million -- or we had realized $50 million as we exited 2022, and that will migrate, obviously, to about $80 million, $85 million here by the end of the year.

Truls Olsen

Okay. So effectively $80 million, $85 million improvement, if you -- all else being equal?

Richard B. Barker

Well, so if you think about it, right, we're -- we realized $50 million as we exited 2022, not all of that would show up in Q4. Some of it would -- it's an exit rate. But as you get to Q4 this year, you're realizing $85 million on a run rate basis. So it's as you work through the year, you could call it versus the Q4 baseline, you can imagine between now and Q4, somewhere in the order of magnitude of about, call it, $40 million to $50 million impact.

Operator

We have no further questions in queue. I'd like to turn it back over for closing remarks.

Ian MacPherson

Thank you, everybody, for your participation and interest, and we look forward to speaking to you next quarter. Thanks.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.