Valaris Ltd

Valaris operates one of the world’s largest fleets of offshore drilling rigs, positioning it strongly within the offshore energy production sector. Despite recent declines in share prices, Valaris remains a key contributor to Fund performance year-to-date. The ongoing need to rebuild global strategic and industrial oil inventories will take years, creating incremental oil demand. This long-term perspective on offshore energy supplies supports our investment thesis, which has been strengthened by recent market dynamics.

Valaris was the largest individual contributor to performance in H1, with shares surging following the announcement of its acquisition by Transocean at a 32% premium. The Fund added Valaris in early 2025 after a decline in its share price, which was attributed to temporary headwinds in offshore drilling activity. The manager believes these challenges overshadowed the long-term benefits of Valaris's position in the market, viewing it as a well-managed business capable of creating enduring shareholder value.

During the quarter, Valaris became the subject of a takeover offer from a larger industry peer, Transocean. The premium price offered to Valaris shareholders stems from several factors, each central to our investment thesis; I) a building cyclical recovery of demand for offshore energy services, II) Valaris’ extremely difficult to replicate fleet of high quality floating drilling rigs and III) Valaris’ very well-capitalized balance sheet, which offers an indebted Transocean the opportunity to reduce its own financial leverage through an all-stock merger transaction with far better capitalized peer Valaris.

Valaris finished lower in line with lower oil prices and softer investor sentiment toward energy services companies given reduced expectations for offshore drilling activity. Following the strong rally over the CYTD (+39% in local currency) associated with the proposed Transocean acquisition earlier in the Quarter, investors locked in gains as regulatory approvals and integration milestones remained pending. Concerns over slower contract awards and moderating day-rate expectations also pressured sentiment.

Valaris was a top contributor to our portfolio return as oil and LNG-linked equities rallied sharply in the wake of the war in Iran. The strong performance of our Energy positions, including Valaris, highlights the resilience and potential of this sector in the current market environment. We believe that Valaris, as part of our Mature holdings, will continue to benefit from favorable market conditions and contribute positively to our strategy's performance.

Valaris Ltd. was sold to Transocean at a large premium in an all-stock deal valued at roughly $5.8 billion. We bought Valaris in 2022, and we featured it in this Value Investor Insight interview in 2024. It was a very strong contributor for us.

Valaris is well-positioned in the offshore energy services market, which has seen a consolidation into just four major companies, including Valaris. This consolidation is expected to improve supply and pricing discipline, potentially enhancing future profitability. The Fund believes that the long-term prospects for Valaris are attractive, especially as demand for offshore energy services is booming. The company has survived a multi-year depression in activity levels, which has led to a more favorable environment for its operations.

Valaris Limited is a leading provider of offshore contract drilling services, owning one of the largest fleets in the industry. The offshore drilling sector has seen significant consolidation, resulting in improved supply and pricing discipline. Despite healthy profits, the incentives to order newbuild floaters remain minimal, which, combined with a declining supply of rigs, has led to a tightening supply-demand dynamic. Valaris, having emerged from bankruptcy in 2021 with a healthier balance sheet, is now improving utilization across its fleet and is well-positioned to benefit from the rising demand for offshore production.