Financial Data and Key Metrics Changes - Adjusted EBITDA for Q2 2023 was $15 million, down from $28 million in the prior quarter, while adjusted EBITDA adding back one-time reactivation costs was $59 million, up from $55 million in the prior quarter [25] - Revenues decreased to $390 million from $408 million, primarily due to fewer operating days for the jackup fleet and lower mobilization and demobilization revenues [25][26] - Contract drilling expense decreased to $348 million from $356 million, primarily due to lower costs for idle rigs and lower repair and maintenance costs [27] Business Line Data and Key Metrics Changes - Jackup revenues decreased due to fewer operating days and lower mobilization revenues, particularly for Valaris 249, which completed its contract [26] - Floater revenues increased due to more operating days and a higher average day rate, primarily related to Valaris DS-12 [26] - Reactivation expense increased to $44 million from $26 million, driven by the commencement of a reactivation project for Valaris DS-8 [27] Market Data and Key Metrics Changes - Spot Brent crude prices moved above $80 per barrel, with five-year forward prices remaining above $65 per barrel, supporting offshore project investments [6][7] - Active utilization for sixth and seventh generation drillships has exceeded 90% for over 12 months, indicating strong demand [7] - The number of contracted jackups recently surpassed 400 for the first time since mid-2015, with active utilization above 90% [11] Company Strategy and Development Direction - The company intends to exercise purchase options for newbuild drillships VALARIS DS-13 and DS-14, viewing them as compelling investment opportunities [18][22] - The fleet strategy focuses on maintaining a critical mass of rigs in priority basins to benefit from economies of scale [16] - The company aims to return all future free cash flow to shareholders unless better investment opportunities arise [21][44] Management's Comments on Operating Environment and Future Outlook - The outlook for the offshore drilling market remains positive, with increasing demand and constrained supply tightening the market [22] - Management noted that the ultra-deepwater market is experiencing a strong upcycle, with increased contract durations and day rates [11][22] - The harsh environment jackup market in the North Sea is expected to remain challenging through 2024 [12][15] Other Important Information - The company announced an increase in its share repurchase authorization to $300 million, with a target of repurchasing $200 million by year-end 2023 [20][44] - ARO Drilling, a joint venture with Saudi Aramco, is expected to deliver newbuild rigs by the end of 2023, marking a significant growth milestone [19] Q&A Session All Questions and Answers Question: Regarding the purchase options on DS-13 and DS-14 - Management confirmed the intention to exercise the purchase options, emphasizing the need for attractive contracts before reactivating these rigs [46][47] Question: Thoughts on M&A opportunities - Management stated that while they are open to M&A opportunities, they are currently focused on organic growth and maximizing the potential of their existing high-spec fleet [48][49] Question: Characterization of leading-edge rates for jackups - Management noted that leading-edge rates for jackups are geographically diverse, with strong rates observed in regions outside the North Sea [52][53] Question: Future of leased rigs to ARO - Management expressed confidence in the long-term sustainability of the Saudi market and the potential for attractive opportunities for leased rigs [54] Question: Insights on pricing strategy for drillships - Management indicated that the pricing strategy will balance long-term contracts with opportunistic contracts at leading-edge rates, reflecting the tightening supply-demand balance [57][60]

Financial Performance - Operating revenues for Q2 2023 were $415.2 million, a slight increase of 0.5% compared to $413.3 million in Q2 2022[19]. - Net loss for Q2 2023 was $27.3 million, compared to a net income of $112.8 million in Q2 2022, representing a significant decline[20]. - The company reported an operating loss of $9.9 million for Q2 2023, an improvement from the operating loss of $15.6 million in Q2 2022[19]. - The company reported a basic loss per share of $0.39 for Q2 2023, compared to earnings per share of $1.49 in Q2 2022[19]. - Revenues for the three months ended June 30, 2023, totaled $415.2 million, with operating income (loss) reported at $(9.9) million[96]. - For the six months ended June 30, 2023, total revenues were $845.3 million, with an operating income (loss) of $(1.4) million[100]. - Revenues for the six months ended June 30, 2023, increased to $845.3 million, up 16% from $731.7 million in the same period of 2022[131]. Cash Flow and Liquidity - Cash and cash equivalents increased to $787.3 million as of June 30, 2023, up from $724.1 million at the end of 2022[23]. - The company generated $122.6 million in net cash from operating activities for the first half of 2023, a turnaround from a cash outflow of $114.0 million in the same period of 2022[24]. - The company expects to fund its short-term liquidity needs from cash and cash equivalents, cash flows from operations, and borrowings under the Credit Agreement, with $375.0 million available for borrowings as of July 26, 2023[172]. - As of June 30, 2023, letters of credit outstanding totaled $100.4 million, with collateral deposits amounting to $16.2 million[89]. Debt and Financing - Long-term debt rose to $681.9 million as of June 30, 2023, compared to $542.4 million at the end of 2022, indicating increased leverage[23]. - The company issued $700.0 million in Second Lien Notes during the first half of 2023, reflecting a strategy to strengthen its capital structure[24]. - The total principal amount of the Second Lien Notes issued was $700.0 million, with net proceeds of $681.4 million after deducting expenses[70]. - The company redeemed its First Lien Notes for an aggregate redemption price of $571.8 million on May 3, 2023, resulting in a loss of $29.2 million recognized in the financial statements[69]. - The company has a senior secured revolving credit facility with commitments allowing borrowings of up to $375.0 million, which can be increased by an additional $200.0 million under certain conditions[76]. - The Company has the option to redeem up to 40.0% of the aggregate principal amount of the Second Lien Notes prior to April 30, 2026, at a redemption price of 108.375% of the principal amount[72]. Shareholder Equity and Repurchase - Valaris shareholders' equity decreased to $1,254.1 million as of June 30, 2023, down from $1,289.9 million at the end of 2022[23]. - The board of directors authorized a share repurchase program, increasing the amount from $100.0 million to $300.0 million in April 2023, with 1.1 million shares repurchased for $65.0 million at an average price of $58.82 during the three and six months ended June 30, 2023[84]. - The total shareholders' equity increased from $1,097.9 million on December 31, 2022, to $1,110.3 million on June 30, 2023[82]. Operational Highlights - The company completed the reactivation of the VALARIS DS-17 drillship, which is expected to commence a contract in the third quarter of 2023[121]. - The total fleet consisted of 51 rigs as of June 30, 2023, with 40 rigs classified as active[137]. - The company owns a total of 51 rigs, including 11 drillships and 35 jackup rigs, while ARO owns an additional 7 rigs[111]. - The company plans to purchase 20 newbuild jackup rigs over an approximate 10-year period, with the first two expected to be delivered in 2023[44]. Revenue Sources and Trends - Consolidated revenues from the U.S. Gulf of Mexico for the three months ended June 30, 2023, were $77.3 million, a decrease from $125.8 million in the same period of 2022[108]. - The geographic concentration of revenues shows that the U.S. Gulf of Mexico contributed $153.3 million for the six months ended June 30, 2023, compared to $176.4 million in the same period of 2022[109]. - ARO's revenues for the three months ended June 30, 2023, were $117.8 million, slightly up from $116.4 million in the same period of 2022[46]. - The company recognized revenues related to Lease Agreements of $16.8 million and $35.6 million for the three and six months ended June 30, 2023, respectively, compared to $14.6 million and $28.8 million for the same periods in 2022, indicating a year-over-year increase of 15% and 23%[50]. Expenses and Cost Management - Total operating expenses decreased to $424.4 million in Q2 2023 from $437.6 million in Q2 2022, a reduction of approximately 3%[19]. - Operating expenses totaled $849.3 million, a 5% increase from $810.2 million in the prior year, driven by a $57.6 million rise in contract drilling expenses[131]. - General and administrative expenses rose by 34% to $50.8 million, primarily due to higher compensation and professional fees[134]. - Contract drilling expenses increased by $92.8 million due to rigs commencing contracts after reactivation[132]. Tax and Regulatory Matters - For the three months ended June 30, 2023, the income tax expense was $18.3 million, while for the six months it was $34.4 million, excluding discrete tax items[86]. - The company received an income tax refund of $45.9 million during the first quarter of 2023 related to the U.S. Coronavirus Aid, Relief, and Economic Security Act[106]. - The Australian tax authorities issued tax assessments totaling approximately A$101.0 million ($67.3 million) for the years 2011 through 2016, with a $17.9 million liability for unrecognized tax benefits as of June 30, 2023[191]. Risks and Challenges - The company is involved in an administrative proceeding in Brazil, facing a claim for approximately BRL 601 million (approximately $127.0 million) related to overbilling to Petrobras[91]. - The company is exposed to foreign currency exchange risk due to revenues and expenses denominated in currencies other than the U.S. dollar[198]. - A hypothetical 1% decrease in LIBOR would reduce interest income by $4.0 million for the year ended December 31, 2023, based on a principal amount of $402.7 million[197].

Valaris Limited (NYSE:VAL) Q1 2023 Earnings Conference Call May 2, 2023 10:00 AM ET Company Participants Darin Gibbins - Vice President of Investor Relations & Treasurer Anton Dibowitz - President & Chief Executive Officer Chris Weber - Senior Vice President & Chief Financial Officer Conference Call Participants Kurt Hallead - Benchmark Eddie Kim - Barclays David Smith - Pickering Energy Partners Darin Gibbins Welcome, everyone, to the Valaris First Quarter 2023 Conference Call. With me today: are President ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to__________ Commission File Number 1-8097 Valaris Limited (Exact name of registrant as specified in its charter) (State or other jurisdiction of i ...

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q4 2022 was $54 million, down from $76 million in the prior quarter, while adjusted EBITDAR was $75 million compared to $94 million in the previous quarter [26] - Revenues decreased slightly to $434 million from $437 million in the prior quarter, with a notable drop in revenues excluding reimbursable items from $416 million to $413 million [26] - Contract drilling expenses increased to $353 million from $337 million in the prior quarter, primarily due to higher operating days for the floater fleet and increased reactivation costs [27] Business Line Data and Key Metrics Changes - The jackup segment saw a decrease in revenues primarily due to the completion of contracts and idle time between contracts, while floater revenues increased due to higher revenue efficiency and a full quarter of revenues from reactivated rigs [26] - Active utilization for drillships is currently above 90%, with day rates improving significantly, now pushing into the low to mid $400,000s [12][15] Market Data and Key Metrics Changes - The number of contracted jackups has increased by more than 15% from lows in early 2021, with active utilization above 90% [15] - The IEA forecasts oil and gas demand to increase by 1.9 million barrels per day in 2023, with supply growth expected to slow, contributing to a tight supply picture [10][11] Company Strategy and Development Direction - The company aims to maximize shareholder value during the industry upcycle by maintaining high operational performance and focusing on disciplined fleet management [4][18] - The strategy includes reactivating high-specification stacked drillships and pursuing contracting opportunities in priority basins to benefit from economies of scale [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the offshore drilling market, citing increased demand for hydrocarbons and a constructive macro environment [10][11] - The company anticipates 2024 to be an inflection point for earnings as legacy contracts roll to market rates and new contracts commence [48] Other Important Information - The company has a strong focus on ESG initiatives, achieving high ratings from MSCI and Sustainalytics, and is committed to reducing emissions from operations [7][8] - Capital expenditures for 2023 are anticipated to be between $260 million and $300 million, with a significant portion allocated for maintenance and reactivation projects [37][38] Q&A Session Summary Question: Can you provide more details on rig reactivations and capital allocation? - Management highlighted the company's strong track record in reactivating rigs and emphasized a disciplined approach to finding the right opportunities for reactivation [50][51] Question: Are there opportunities for jackups in the near term? - Management acknowledged improvements in the jackup market but indicated that the economics of reactivating drillships are currently more favorable [52] Question: Will the CARES Act refund be considered a catalyst for opportunistic returns? - Management confirmed that while the CARES Act refunds are part of their planning, the focus remains on capital allocation for attractive reactivation opportunities [54][56]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-8097 Valaris Limited (Exact name of registrant as specified in its charter) Bermuda 98-1589854 (State or other jurisdiction of incorpor ...

Financial Data and Key Metrics Changes - Adjusted EBITDA increased to $76 million from $29 million in the previous quarter, and adjusted EBITDAR rose to $94 million from $54 million [14][47] - Revenues were $437 million compared to $413 million in the prior quarter, with revenues excluding reimbursable items increasing to $415 million from $385 million [48] - Contract drilling expense decreased to $337 million from $362 million in the prior quarter, with a further decrease in reactivation costs to $18 million from $24 million [50][51] Business Line Data and Key Metrics Changes - Floater revenues increased due to the reactivation of rigs, with VALARIS DS-4 and DS-9 starting contracts early in the third quarter [49] - Jackup revenues increased due to more operating days and higher average day rates, with average day rates for benign environment jackup fixtures signed in the third quarter up nearly $100,000 per day [26][48] Market Data and Key Metrics Changes - Utilization for active drill ships sustained at around 90% for the past 12 months, leading to improvements in day rates, with average day rates for drill ship fixtures around $400,000 per day [20] - Jackup rig years awarded are more than double the previous 12 months, with active utilization for jackups reaching approximately 90% [25][26] Company Strategy and Development Direction - The company aims to maintain a disciplined fleet management strategy, focusing on high utilization of the active fleet and reactivation of stacked rigs for opportunities with meaningful returns [30][32] - The company is strategically positioned in key markets, particularly in Brazil, to benefit from increased demand for floaters [22][24] Management's Comments on Operating Environment and Future Outlook - The management expressed a highly constructive outlook for the offshore drilling market, driven by a lack of investment in new production sources and geopolitical instability [15][16] - Despite macroeconomic uncertainties, the management remains optimistic about increased contracting and tendering activity across both floaters and jackups [43] Other Important Information - The company executed a sales agreement for a 40-year-old jackup for $28.5 million, expected to close in March 2023, which will provide capital for more attractive investment opportunities [36][68] - The company authorized a $100 million share repurchase program to enhance capital allocation flexibility [70] Q&A Session Summary Question: Market dynamics and contract durations - Management noted that while day rates have increased significantly, customers remain cautious about committing to long-term contracts due to past experiences with over-committing [76][78] Question: Supply side and reactivation economics - Management acknowledged attractive economics for reactivating rigs but emphasized the need for discipline in selecting opportunities to avoid cannibalizing the current fleet [82][86] Question: Short-term investments and rig sale - Short-term investments were described as time deposits for yield enhancement, and the rig sale was confirmed as an arm's-length transaction, reflecting the strengthened jackup market [88][89] Question: Norwegian jackup market and relocation strategy - Management indicated a lack of near-term demand in Norway, prompting the relocation of rigs to the UK for better opportunities [91][92] Question: Training facility and employee recruitment - The company is focused on training entry-level employees to prepare them for offshore work, addressing the industry's need for skilled labor [100][103]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to__________ Commission File Number 1-8097 Valaris Limited (Exact name of registrant as specified in its charter) (State or other jurisdiction ...

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q2 2022 was $29 million compared to negative $31 million in the prior quarter, while adjusted EBITDAR was $54 million compared to $31 million in the prior quarter [37] - Revenues for Q2 2022 were $413 million, up from $318 million in the prior quarter, with revenues excluding reimbursable items increasing to $385 million from $291 million [38] - Contract drilling expense for Q2 2022 was $362 million compared to $331 million in the prior quarter, with adjusted EBITDA guidance for the second half of 2022 expected to be $135 million to $155 million [40][51] Business Line Data and Key Metrics Changes - The return of four reactivated floaters is expected to significantly improve financial results in future periods, with the reactivation costs for these rigs averaging $40 million to $45 million per rig [32][33] - Jackup revenues increased primarily due to more operating days for VALARIS 249, while floater revenues increased due to VALARIS DPS-1 and DS-16 returning to work [38][40] - Active utilization for jackups has increased to approximately 90%, with notable contract awards including a four-year contract with Renishaw Petroleum for VALARIS 115 [17] Market Data and Key Metrics Changes - The offshore drilling market is experiencing increased contracting and tendering activity, with rig years awarded for benign environment floaters approximately 75% higher than the previous 12 months [14] - Spot Brent crude prices have been above $100 per barrel for most of the past five months, with medium- and longer-term commodity prices remaining constructive for investment in offshore projects [12] - The jackup rig market has seen a notable increase in activity, primarily driven by demand in the Middle East, with rig years of open demand at tender or pretender stage increasing by approximately 10% and 30% compared to six months and twelve months ago, respectively [16] Company Strategy and Development Direction - The company aims to maximize shareholder value during the industry upcycle by focusing on safe, reliable, and efficient operations, and has implemented additional onboarding programs for new personnel [6][10] - The strategy includes reactivating high-quality stacked rigs for long-term contracts at attractive economics, with a disciplined approach to returning additional stacked rigs to the active fleet [20][21] - The company is also focused on creating shareholder value through potential M&A or asset transactions while maintaining an industry-leading cost structure and strong balance sheet [66] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the fundamental outlook for the offshore drilling industry, citing a tight supply picture exacerbated by geopolitical instability and increased focus on energy security [12] - The company anticipates double-digit growth in offshore upstream CapEx over the next couple of years, with an increase in project sanctioning expected in 2022 and 2023 [13] - Management acknowledges potential volatility in earnings over the next several quarters due to timing of reactivation costs and market conditions for harsh environment jack-up rigs [61] Other Important Information - The company recorded a gain on asset sales of $135 million during the quarter, primarily related to the sale of jackups VALARIS 113 and 114 [23] - ARO Drilling, a joint venture with Saudi Aramco, is expected to contribute significantly to the company's value, with newbuild rigs scheduled for delivery in the first half of next year [24][25] - The company expects to receive approximately $90 million in upfront payments from customers related to capital reimbursements and mobilization fees over the remainder of the year [58] Q&A Session Summary Question: Discussion on rigs rolling off contracts in spring 2023 - Management indicated that DS-15 in Brazil has options for extension, and there are strong opportunities in West Africa, with a focus on finding the right long-term contracts [73][74] Question: Reactivation lead times and long-term contracts for 2024 - Management confirmed discussions about term contracts that include reactivation, with planning for approximately 12 months for the DS-17 reactivation due to supply chain challenges [78] Question: Remaining stacked assets and newbuilds - Management stated that the priority is to utilize the active fleet before considering stacked rigs and newbuilds, with discussions ongoing regarding potential contracts for the newbuilds [82] Question: Demand for longer contract terms and direct negotiations - Management noted an increase in demand for direct negotiations, particularly in less regulated environments like the Gulf of Mexico, while contract durations remain cautious [90][92]

[PART I - FINANCIAL INFORMATION](index=7&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents Valaris Limited's unaudited condensed consolidated financial statements for Q2 2022, detailing operations, balance sheets, cash flows, and key events [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported **$413.3 million** in Q2 2022 operating revenues and **$111.6 million** net income, significantly impacted by asset sales and the VALARIS DS-11 contract termination Q2 2022 (Successor) Statement of Operations Highlights (in millions) | Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | **Operating Revenues** | $413.3 | $731.7 | | Contract drilling expense | $361.8 | $693.1 | | Loss on impairment | $34.5 | $34.5 | | Operating Income (Loss) | $(15.6) | $(65.5) | | Other Income, net | $149.7 | $158.0 | | **Net Income (Loss) Attributable to Valaris** | $111.6 | $73.0 | | **Diluted EPS** | $1.48 | $0.97 | - The company received a **$51.0 million** early termination fee for the VALARIS DS-11 contract, which was included in revenues for the three and six months ended June 30, 2022[42](index=42&type=chunk) - A pre-tax, non-cash loss on impairment of **$34.5 million** was recorded in Q2 2022 related to capital upgrades for the terminated VALARIS DS-11 contract[43](index=43&type=chunk)[75](index=75&type=chunk) [Condensed Consolidated Balance Sheets](index=12&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2022, Valaris reported total assets of **$2.76 billion**, total liabilities of **$1.62 billion**, and total equity of **$1.14 billion**, reflecting growth from year-end 2021 Balance Sheet Summary (in millions) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $1,280.9 | $1,206.6 | | Cash and cash equivalents | $553.5 | $608.7 | | **Property and equipment, net** | $931.7 | $890.9 | | **Total Assets** | **$2,760.8** | **$2,609.2** | | **Total Current Liabilities** | $547.1 | $422.0 | | **Long-Term Debt** | $545.7 | $545.3 | | **Total Liabilities** | **$1,620.4** | **$1,548.4** | | **Total Equity** | **$1,140.4** | **$1,060.8** | [Condensed Consolidated Statements of Cash Flows](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For H1 2022, net cash used in operations was **$114.1 million**, while investing activities provided **$46.9 million**, resulting in a **$67.3 million** decrease in cash and restricted cash Cash Flow Summary for Six Months Ended June 30, 2022 (Successor, in millions) | Cash Flow Activity | Amount | | :--- | :--- | | Net cash used in operating activities | $(114.1) | | Net cash provided by investing activities | $46.9 | | Net cash used in financing activities | $(0.2) | | **Decrease in Cash and Restricted Cash** | **$(67.3)** | - Investing activities were positively impacted by **$146.5 million** in net proceeds from the disposition of assets, while being offset by **$99.6 million** in additions to property and equipment[26](index=26&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide critical context to the financial statements, detailing the VALARIS DS-11 termination fee, ARO joint venture, asset sales, debt, contingencies, segment performance, and customer concentration - The company's 50/50 unconsolidated joint venture, ARO, owns seven jackup rigs and has ordered two newbuilds. Valaris leases an additional seven rigs to ARO. ARO's net income was **$9.9 million** for Q2 2022[58](index=58&type=chunk)[59](index=59&type=chunk)[62](index=62&type=chunk) - In Q2 2022, the company sold three rigs (VALARIS 113, 114, and 36) for a combined pre-tax gain of **$128.5 million** and received an additional **$7.0 million** on a prior-year sale[81](index=81&type=chunk) - The company has a potential obligation to contribute up to **$1.25 billion** to ARO to fund a 20-rig newbuild program if other financing is unavailable[113](index=113&type=chunk) Customer Revenue Concentration (Six Months Ended June 30, 2022) | Customer | Percentage of Revenue | | :--- | :--- | | BP plc ("BP") | 14% | | Equinor ASA ("Equinor") | 12% | | Other | 74% | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=39&type=section&id=Item%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's performance, industry outlook, and financial condition, highlighting improved offshore drilling prospects, a **$2.3 billion** backlog, and strong liquidity [Business Environment and Outlook](index=40&type=section&id=Business%20Environment%20and%20Outlook) The offshore drilling outlook has improved with increased contracting, though geopolitical and inflationary risks persist, with the company's backlog at **$2.3 billion** and rising utilization and day rates - Contract backlog was **$2.3 billion** as of July 28, 2022, a decrease from **$2.4 billion** as of February 21, 2022, primarily due to the termination of the VALARIS DS-11 contract[157](index=157&type=chunk) - ARO's backlog was stable at **$1.5 billion** as of July 28, 2022[160](index=160&type=chunk) Q2 2022 vs Q1 2022 Segment Performance | Segment | Q2 2022 Utilization | Q1 2022 Utilization | Q2 2022 Avg. Day Rate | Q1 2022 Avg. Day Rate | | :--- | :--- | :--- | :--- | :--- | | **Floaters** | 31% | 25% | $213,000 | $197,000 | | **Jackups** | 67% | 63% | $94,000 | $89,000 | [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Q2 2022 revenue increased **30%** to **$413.3 million** from Q1, driven by the VALARIS DS-11 termination fee and higher operating days, while contract drilling expenses also rose Q2 2022 vs Q1 2022 (Successor, in millions) | Metric | Q2 2022 | Q1 2022 | | :--- | :--- | :--- | | **Revenues** | $413.3 | $318.4 | | Contract drilling expense | $361.8 | $331.3 | | Operating loss | $(15.6) | $(49.9) | | **Net income (loss) attributable to Valaris** | $111.6 | $(38.6) | - Floater revenue for Q2 2022 increased by **$88.4 million** (**89%**) compared to Q1 2022, driven by the **$51.0 million** termination fee for VALARIS DS-11 and a **$26.0 million** increase from more operating days[201](index=201&type=chunk) - Other income, net, increased significantly in Q2 2022 due to a **$135.5 million** gain on the sale of three rigs (VALARIS 113, 114, 36) and additional proceeds from a prior sale[186](index=186&type=chunk)[220](index=220&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$553.5 million** in cash and no debt maturities until 2028, projecting **$200-$210 million** in 2022 capital expenditures and holding options for two newbuild drillships - As of June 30, 2022, the company had **$553.5 million** in cash and cash equivalents and no debt principal payments due until 2028[233](index=233&type=chunk) - Full-year 2022 capital expenditures are expected to be approximately **$200 to $210 million**[238](index=238&type=chunk) - The company has options to take delivery of two drillships, VALARIS DS-13 and VALARIS DS-14, on or before December 31, 2023[236](index=236&type=chunk) - The company has a potential obligation to fund its joint venture, ARO, for its newbuild program, with a maximum aggregate contribution of **$1.25 billion** if third-party financing is not secured[248](index=248&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk on fixed-rate debt and LIBOR-based notes, with a hypothetical **1%** LIBOR decrease impacting interest income by **$4.4 million**, and unhedged foreign currency risk - The company's outstanding debt consists of **$550.0 million** in fixed-rate First Lien Notes, exposing it to fair value changes from market interest rate fluctuations[262](index=262&type=chunk) - Long-term notes receivable from ARO bear interest based on LIBOR. A hypothetical **1%** decrease in LIBOR would reduce interest income by approximately **$4.4 million** annually[263](index=263&type=chunk) - The company is exposed to unhedged foreign currency risk from operations conducted in currencies other than the U.S. dollar[264](index=264&type=chunk) [Controls and Procedures](index=61&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal controls over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[269](index=269&type=chunk) - There were no material changes in internal controls over financial reporting during the second quarter of 2022[270](index=270&type=chunk) [PART II - OTHER INFORMATION](index=62&type=section&id=PART%20II%20OTHER%20INFORMATION) [Legal Proceedings](index=62&type=section&id=Item%201.%20Legal%20Proceedings) The company is contesting fines for fluid spills in Brazil and is involved in other legal matters, increasing its accrual for certain claims by approximately **$25.0 million** as of June 30, 2022 - The company is contesting fines assessed by Brazilian authorities for drilling fluid spills between 2008 and 2019 and has a **$0.5 million** liability accrued for these matters[273](index=273&type=chunk) - The company increased its accrual for certain other legal matters by approximately **$25.0 million** as of June 30, 2022, to reflect changes in the projected value of claims[274](index=274&type=chunk)[115](index=115&type=chunk) [Risk Factors](index=62&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the comprehensive discussion of business risks detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - The report refers to the 'Risk Factors' section of the Annual Report on Form 10-K for the year ended December 31, 2021, for a comprehensive discussion of business risks[275](index=275&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=63&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2022, the company withheld **2,834** common shares to satisfy tax obligations on vesting employee share awards, not as part of a stock buyback program - A total of **2,834** shares were withheld during Q2 2022 to satisfy tax obligations on vesting share awards, not as part of a share repurchase program[276](index=276&type=chunk)[278](index=278&type=chunk) [Exhibits](index=63&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including supplemental indentures, executive compensation plans, and certifications - Lists exhibits filed with the report, such as a Third Supplemental Indenture, an Amended Executive Severance Plan, and CEO/CFO certifications[278](index=278&type=chunk)