Valaris Limited (NYSE: VAL) ("Valaris" or the "Company") today reported second quarter 2024 results.

President and Chief Executive Officer Anton Dibowitz said, “In the second quarter, we built on our excellent start to 2024 with another quarter of strong safety and operating performance, delivering revenue efficiency of 99% without a lost time incident. In addition, we achieved a meaningful improvement in our financial results during the second quarter, driven in part by a successful contract startup for VALARIS DS-7 – our sixth drillship reactivation completed since 2022.”

Dibowitz added, “In July, we secured a new multi-year contract with Equinor offshore Brazil for VALARIS DS-17, which added nearly $500 million of contract backlog. This new contract is a testament to the quality of our crews and operations, the leading-edge technical capabilities of the rig and the collaborative nature of our relationship with Equinor."

Dibowitz concluded, “Valaris is well-positioned and we continue to execute our strategy, securing attractive new contracts and building our contract backlog. We maintain our conviction in the strength and duration of this upcycle and see strong customer demand for projects that are expected to commence in 2025 and 2026. We expect to deliver significant earnings and cash flow growth over the next few years, and we intend to return all future free cash flow to shareholders unless there is a better or more value accretive use for it.”

Financial and Operational Highlights

• Net income of $151 million, Adjusted EBITDA of $139 million and Adjusted EBITDAR of $150 million;
• Revenue efficiency of 99% during the quarter;
• Strong safety performance, including no Lost Time Incidents (LTI) for the second consecutive quarter;
• Successful contract startup for drillship VALARIS DS-7, the sixth drillship Valaris has reactivated since 2022;
• Multi-year contract for drillship VALARIS DS-17, adding nearly $500 million of contract backlog; and
• Increased total contract backlog to more than $4.3 billion as of July 29, 2024, representing the seventh consecutive quarter of backlog growth and a 42% increase from twelve months ago.

Second Quarter Review

Net income increased to $151 million from $26 million in the first quarter 2024. Adjusted EBITDA increased to $139 million from $54 million in the first quarter primarily due to higher utilization and average daily revenue for both the floater and jackup fleets along with lower contract drilling expense. Adjusted EBITDAR increased to $150 million from $84 million in the first quarter.

Revenues increased to $610 million from $525 million in the first quarter 2024. Excluding reimbursable items, revenues increased to $573 million from $491 million in the first quarter primarily due to higher utilization and average daily revenue for both the floater and jackup fleets as several rigs commenced new contracts during the first and second quarters, including VALARIS DS-7 which commenced operations in late May following its reactivation.

Contract drilling expense decreased to $439 million from $445 million in the first quarter 2024. Excluding reimbursable items, contract drilling expense decreased to $407 million from $414 million in the first quarter primarily due to lower reactivation expense related to VALARIS DS-7 as well as lower repair and personnel costs for the jackup fleet. These items were partially offset by increased operating costs for the floater fleet due to higher utilization and costs incurred related to the stacking of VALARIS DS-13 and DS-14.

Depreciation expense increased to $30 million from $27 million in the first quarter 2024 primarily due to new assets placed in service for certain rigs following reactivation projects and capital upgrades. General and administrative expense increased to $33 million from $27 million in the first quarter 2024 primarily due to higher professional fees.

Other income increased to $12 million from $9 million in the first quarter 2024 primarily due to an increase in interest income, partially offset by an increase in interest expense and a decrease in foreign currency gains.

Tax benefit of $30 million compared to tax expense of $13 million in the first quarter 2024. The second quarter tax provision included $64 million of discrete tax benefit and the first quarter tax provision included $7 million of discrete tax benefit, which were primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years. Adjusted for discrete tax items, tax expense increased to $34 million from $20 million in the first quarter.

Cash and cash equivalents and restricted cash decreased to $410 million as of June 30, 2024, from $509 million as of March 31, 2024. The decrease was primarily due to capital expenditures, partially offset by positive operating cash flow. In the second quarter, operating cash flow was negatively impacted by changes in working capital primarily due to an increase in accounts receivable related to higher revenues.

Capital expenditures of $110 million decreased from $151 million in the first quarter 2024 due to lower capital expenditures associated with VALARIS DS-13 and DS-14, which mobilized from South Korea to Las Palmas during the first quarter and lower reactivation capital expenditures as VALARIS DS-7 commenced its contract during the second quarter following its reactivation. These items were partially offset by an increase in maintenance and upgrade capital expenditures.

Results Compared to Prior Guidance

The Company's second quarter 2024 results were better than prior guidance primarily due to strong operating performance resulting in higher revenue efficiency, certain contracts extending longer than previously anticipated and the timing of certain costs that are now expected to be recognized in subsequent quarters.

Second Quarter Segment Review

Floaters

Floater revenues increased to $384 million from $324 million in the first quarter 2024. Excluding reimbursable items, revenues increased to $370 million from $310 million in the first quarter. The increase was primarily due to a full quarter of operations for VALARIS DS-12 and DPS-5, which both commenced contracts during the first quarter, along with revenue from DS-7, which commenced operations in late May following its reactivation. In addition, VALARIS DS-15 and DS-16 started new higher day rate contracts in the second quarter, which contributed to an increase in average daily revenue.

Contract drilling expense increased to $257 million from $253 million in the first quarter 2024. Excluding reimbursable items, contract drilling expense increased to $245 million from $240 million in the first quarter primarily due to higher utilization for the floater fleet and costs incurred related to the stacking of VALARIS DS-13 and DS-14. This was partially offset by lower reactivation expense due to VALARIS DS-7 returning to work in the second quarter following its reactivation.

Jackups

Jackup revenues increased to $186 million from $152 million in the first quarter 2024. Excluding reimbursable items, revenues increased to $167 million from $139 million in the first quarter primarily due to higher utilization for the jackup fleet, including for VALARIS 107 which commenced a contract during the first quarter as well as VALARIS 123 and Stavanger, which both started new contracts during the second quarter, following out of service time during the first quarter while undergoing contract preparation and survey work.

Contract drilling expense decreased to $123 million from $134 million in the first quarter 2024. Excluding reimbursable items, contract drilling expense decreased to $108 million from $122 million in the first quarter primarily due to lower repair and maintenance expense as rigs returned to work following out of service time for contract preparations and survey work in the first quarter, and lower personnel expense.

ARO Drilling

Revenues decreased to $124 million from $138 million in the first quarter 2024 primarily due to out of service time for both scheduled repair and maintenance projects and unplanned downtime during the second quarter, partially offset by incremental operating days for VALARIS 108, which started its contract late in the first quarter. Contract drilling expense decreased to $94 million from $98 million in the first quarter primarily due to lower bareboat charter expense for leased rigs.

Other

Revenues decreased to $40 million from $48 million in the first quarter 2024 primarily due to lower revenues earned from bareboat charter agreements with ARO and lower reimbursable revenues. Contract drilling expense decreased to $20 million from $22 million in the first quarter primarily due to lower reimbursable expenses.

As previously announced, Valaris will hold its second quarter 2024 earnings conference call at 9:00 a.m. CT (10:00 a.m. ET) on Thursday, August 1, 2024. An updated investor presentation will be available on the Valaris website after the call.

About Valaris Limited

Valaris Limited (NYSE: VAL) is the industry leader in offshore drilling services across all water depths and geographies. Operating a high-quality rig fleet of ultra-deepwater drillships, versatile semisubmersibles, and modern shallow-water jackups, Valaris has experience operating in nearly every major offshore basin. Valaris maintains an unwavering commitment to safety, operational excellence, and customer satisfaction, with a focus on technology and innovation. Valaris Limited is a Bermuda exempted company. To learn more, visit the Valaris website at www.valaris.com.

Forward-Looking Statements

Statements contained in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "likely," "plan," "project," "could," "may," "might," "should," "will" and similar words and specifically include statements regarding expected financial performance; expected utilization, day rates, revenues, operating expenses, cash flows, contract status, terms and duration, contract backlog, capital expenditures, insurance, financing and funding; the offshore drilling market, including supply and demand, customer drilling programs and the attainment of requisite permits for such programs, stacking of rigs, effects of new rigs on the market and effect of the volatility of commodity prices; expected work commitments, awards, contracts and letters of intent; scheduled delivery dates for rigs; performance of our joint ventures, including our joint venture with Saudi Aramco; timing of the delivery of the Saudi Aramco Rowan Offshore Drilling Company ("ARO") newbuild rigs and the timing of additional ARO newbuild orders; the availability, delivery, mobilization, contract commencement, availability, relocation or other movement of rigs and the timing thereof; rig reactivations; suitability of rigs for future contracts; divestitures of assets; general economic, market, business and industry conditions, including inflation and recessions, trends and outlook; general political conditions, including political tensions, conflicts and war; cybersecurity attacks and threats; impacts and effects of public health crises, pandemics and epidemics; future operations; ability to renew expiring contracts or obtain new contracts, including for VALARIS DS-13 and VALARIS DS-14; increasing regulatory complexity; targets, progress, plans and goals related to sustainability matters; the outcome of tax disputes; assessments and settlements; and expense management. The forward-looking statements contained in this press release are subject to numerous risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, including cancellation, suspension, renegotiation or termination of drilling contracts and programs; our ability to obtain financing, service our debt, fund capital expenditures and pursue other business opportunities; adequacy of sources of liquidity for us and our customers; future share repurchases; actions by regulatory authorities, or other third parties; actions by our security holders; internal control risk; commodity price fluctuations and volatility, customer demand, loss of a significant customer or customer contract, downtime and other risks associated with offshore rig operations; adverse weather, including hurricanes; changes in worldwide rig supply, including as a result of reactivations and newbuilds; and demand, competition and technology; supply chain and logistics challenges; consumer preferences for alternative fuels and forecasts or expectations regarding the global energy transition; increased scrutiny of our sustainability targets, initiatives and reporting and our ability to achieve such targets or initiatives; changes in customer strategy; future levels of offshore drilling activity; governmental action, civil unrest and political and economic uncertainties, including recessions, volatility affecting the banking system and financial markets, inflation and adverse changes in the level of international trade activity; terrorism, piracy and military action; risks inherent to shipyard rig reactivation, upgrade, repair, maintenance or enhancement; our ability to enter into, and the terms of, future drilling contracts; suitability of rigs for future contracts; the cancellation of letters of intent or letters of award or any failure to execute definitive contracts following announcements of letters of intent, letters of award or other expected work commitments; the outcome of litigation, legal proceedings, investigations or other claims or contract disputes; governmental regulatory, legislative and permitting requirements affecting drilling operations; our ability to attract and retain skilled personnel on commercially reasonable terms; environmental or other liabilities, risks or losses; compliance with our debt agreements and debt restrictions that may limit our liquidity and flexibility, including in any return of capital plans; cybersecurity risks and threats; and changes in foreign currency exchange rates. In addition to the numerous factors described above, you should also carefully read and consider "Item 1A. Risk Factors" in Part I and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our most recent annual report on Form 10-K, which is available on the Securities and Exchange Commission's website at www.sec.gov or on the Investor Relations section of our website at www.valaris.com. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward-looking statements, except as required by law.