Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Valaris Ltd (VAL, Financial) achieved a fleet-wide revenue efficiency of 99% in the second quarter, with no lost-time incidents, showcasing strong operational performance.
- The company secured new contracts and extensions worth approximately $715 million, increasing its total backlog to over $4.3 billion, marking the seventh consecutive quarter of backlog growth.
- Adjusted EBITDA increased significantly to $139 million in the second quarter, up from $54 million in the first quarter, driven by higher utilization and average daily revenue.
- Valaris Ltd (VAL) successfully reactivated the Valaris DS-7 drillship on time for a long-term contract offshore West Africa, marking its sixth drillship reactivation since 2022.
- The company expects to generate meaningful and sustained free cash flow in 2025 and beyond, with plans to return all future free cash flow to shareholders unless a more value-accretive use is identified.
Negative Points
- Valaris Ltd (VAL) lowered its full-year EBITDA guidance range to $480 million to $540 million, primarily due to the current outlook for the DS-10 and DPS-5 rigs in the second half of the year.
- The company faces potential financial impacts from the suspension of contracts for Valaris 147 and 148 by Saudi Aramco, which could adversely affect full-year 2024 EBITDA by up to $10 million.
- Valaris 249 incurred leg damage, leading to an estimated financial impact of $5 million to $10 million due to out-of-service time and repair costs.
- The company experienced a large build in working capital during the second quarter, primarily due to an increase in accounts receivable driven by higher fleet utilization.
- Valaris Ltd (VAL) anticipates that nearly 70% of 2025 available days for its active floater fleet are spoken for, indicating potential challenges in securing additional contracts for the remaining availability.
Q & A Highlights
Q: How is Valaris thinking about capital allocation and returning cash flows to shareholders given the current market conditions?
A: Anton Dibowitz, President and CEO, stated that Valaris remains committed to returning capital to shareholders. The company has been clear about its capital return philosophy and intends to return all future free cash flow to shareholders unless there is a more value-accretive use for it. Valaris is generating increasing amounts of cash as they roll legacy contracts onto new ones, and they see a strong pipeline of opportunities for their high-specification rigs in the latter half of 2025 and into 2026.
Q: Can you discuss the dynamics of the DS-17 contract, where the customer was willing to pay a standby rate?
A: Anton Dibowitz explained that the DS-17 is a high-specification asset, and Equinor, the customer, has a strong partnership with Valaris. Equinor invested in innovative technology on the rig, which demonstrates their confidence in its capabilities. The willingness to pay a standby rate reflects the tight market for high-specification assets and the strong pipeline of opportunities expected in 2025 and 2026.
Q: Regarding the DS-7 contract, is the standby rate a strong indicator for other reactivated rigs?
A: Anton Dibowitz noted that Equinor's investment in the DS-17 was significant, but the timing of the program and the strong pipeline of opportunities are also key factors. Valaris sees a good potential for a call on additional assets, including the DS-11, DS-13, and DS-14, as the market for high-specification rigs tightens.
Q: Can you provide more insight into the suspension notices for Valaris 147 and 148 jackups?
A: Anton Dibowitz mentioned that discussions with Aramco are ongoing, and they may consider suspending other leased or owned rigs instead. The potential suspensions are not expected to significantly impact the broader market, as they represent a small percentage of the global marketed jackup fleet.
Q: What is Valaris's outlook on the net incremental demand for 7th generation deepwater rigs through 2026?
A: Matthew Lyne, Senior Vice President and Chief Commercial Officer, stated that Valaris is tracking approximately 30 opportunities with durations of at least one year, with about 10 of those providing potential incremental opportunities. Customers have a preference for 7th generation rigs, and Valaris's fleet is well-positioned to meet this demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
