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)

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q1 2022 was negative $31 million compared to positive $3 million in the prior quarter, while adjusted EBITDAR was $31 million compared to $40 million in the prior quarter [41] - Revenues for Q1 2022 were $318 million, up from $306 million in the prior quarter, with revenues excluding reimbursable items increasing to $291 million from $283 million [41] - Contract drilling expense for Q1 2022 was $331 million compared to $286 million in the prior quarter, with reactivation costs increasing to $62 million from $37 million [42][43] Business Line Data and Key Metrics Changes - In the jackup segment, new contracts commenced for Valaris 249, 117, and 114, contributing to higher utilization [41] - The Other segment saw revenue increases primarily due to higher day rates for managed rigs, Mad Dog and Thunder Horse, which received contract extensions [41] - The floater segment experienced revenue declines mainly due to Valaris DPS 5 being out of service for a survey [42] Market Data and Key Metrics Changes - Demand for hydrocarbons is expected to exceed 2019 levels by early 2023, with offshore upstream CapEx projected to see double-digit growth over the next few years [12][14] - Active utilization for benign environment jack-ups has increased to approximately 85%, with pricing improving [19] - The company anticipates Brazil to be a significant driver of offshore demand, with Petrobras seeking to double production by 2030 [17][18] Company Strategy and Development Direction - The company aims to actively manage its fleet and contracting activities, having increased its contract backlog to over $2.4 billion from just over $1 billion at the beginning of 2021 [21] - The strategy includes reactivating high-quality stacked rigs for long-term contracts at attractive economics, while maintaining a disciplined approach to future reactivations [22][32] - The company plans to assess its fleet for retirement and divestiture candidates, acting opportunistically to divest assets if economically sensible [32][60] Management's Comments on Operating Environment and Future Outlook - Management noted that financial results are expected to improve significantly as reactivation projects are completed and rigs commence long-term contracts [32][56] - The company retains significant operational leverage to the improving market through its high-quality stacked fleet [32] - Management expressed confidence in capitalizing on opportunities during the industry upcycle, focusing on maximizing earnings and free cash flow [33][59] Other Important Information - The company reported a strong balance sheet with cash and cash equivalents of $578 million and only $550 million in senior secured notes due in 2028 [58] - ARO Drilling, a joint venture with Saudi Aramco, is expected to contribute significantly to the company's future earnings, with a backlog of approximately $1 billion [29][57] Q&A Session Summary Question: Regarding debt retirement and asset monetization - Management indicated that while there are reinvestment rights associated with the recent asset sale, there is a non-call period for the debt that ends in April next year, and they are focused on maintaining liquidity while exploring investment opportunities [64] Question: Interest from international oil companies (IOCs) in Brazil - Management noted strong interest from IOCs in Brazil, with Petrobras aiming to double production by 2030, which is expected to drive incremental demand for rigs [66]

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, 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) Indicate by check mark whether th ...

Valaris Limited (NYSE:VAL) Q4 2021 Earnings Conference Call February 22, 2022 10:00 AM ET Company Participants Tim Richardson - Director, Investor Relations Anton Dibowitz - President and Chief Executive Officer Darin Gibbins - Interim Chief Financial Officer and Vice President, Investor Relations and Treasurer Conference Call Participants Greg Lewis - BTIG Fredrik Stene - Clarksons Operator Good day, everyone and welcome to Valaris’ Fourth Quarter 2021 Results Conference Call. As a reminder, this call is b ...

PART I [Business](index=8&type=section&id=Item%201.%20Business) Valaris is a global offshore drilling contractor operating a large rig fleet after emerging from bankruptcy in 2021 - Valaris is a leading global provider of offshore contract drilling services, owning a fleet of **56 rigs** and holding a 50% equity interest in ARO, which owns an additional seven rigs[18](index=18&type=chunk) - The company provides drilling services on a day rate contract basis, where it supplies the rig and crew, while customers bear the costs and risks of well construction[20](index=20&type=chunk) - On April 30, 2021, Valaris successfully completed its financial restructuring and emerged from Chapter 11 bankruptcy, eliminating **$7.1 billion of debt** and securing a **$520 million capital injection** through new First Lien Notes[27](index=27&type=chunk) - The business consists of four operating segments: Floaters (drillships and semisubmersibles), Jackups, ARO (50/50 joint venture with Saudi Aramco), and Other (management services)[29](index=29&type=chunk) Major Customer Revenue Concentration (2021) | Period | Top 5 Customers' Revenue Share | BP's Revenue Share | | :--- | :--- | :--- | | **Successor (8 mos ended 12/31/21)** | 42% | 11% | | **Predecessor (4 mos ended 4/30/21)** | 45% | 14% | - The offshore drilling industry is highly competitive, with contracts typically awarded based on competitive bids where price, quality of service, safety performance, and equipment suitability are key factors[48](index=48&type=chunk) - Operations are subject to extensive governmental regulation and environmental laws, including those from the Bureau of Safety and Environmental Enforcement (BSEE) and emerging rules related to climate change and greenhouse gas emissions[49](index=49&type=chunk)[54](index=54&type=chunk)[58](index=58&type=chunk) [Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks from market volatility, contract uncertainties, post-bankruptcy challenges, and extensive international regulations - **Business & Market Risks:** The company's financial condition is adversely impacted by the COVID-19 pandemic, high dependence on volatile oil and gas prices, and the highly competitive and cyclical nature of the offshore drilling industry[71](index=71&type=chunk)[76](index=76&type=chunk)[82](index=82&type=chunk)[86](index=86&type=chunk) - **Contractual Risks:** The current contract backlog may not be fully realized due to potential rig downtime, early terminations, or customer renegotiations[89](index=89&type=chunk)[90](index=90&type=chunk)[98](index=98&type=chunk) - **Financial & Post-Bankruptcy Risks:** Having emerged from bankruptcy may affect business relationships and access to financing, and historical financial information is not indicative of future performance due to fresh start accounting[140](index=140&type=chunk)[141](index=141&type=chunk)[145](index=145&type=chunk) - **ESG Risks:** Increasing regulation of greenhouse gases and heightened stakeholder scrutiny of ESG practices could negatively impact demand for services and increase operational costs[147](index=147&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - **Regulatory & Legal Risks:** The company must comply with complex anti-bribery statutes, environmental laws, and tax regulations across numerous jurisdictions, with non-compliance potentially leading to significant fines[154](index=154&type=chunk)[157](index=157&type=chunk)[160](index=160&type=chunk) - **International Operations Risks:** Non-U.S. operations, which constitute the majority of revenues (**87% in the Successor period**), are subject to geopolitical instability, currency fluctuations, and complex local laws[174](index=174&type=chunk)[176](index=176&type=chunk) [Unresolved Staff Comments](index=46&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved comments from the staff of the Securities and Exchange Commission - None[192](index=192&type=chunk) [Properties](index=47&type=section&id=Item%202.%20Properties) The company details its drilling fleet of 56 rigs and its owned and leased global office facilities Drilling Fleet Composition (as of Feb 21, 2022) | Rig Type | Count | | :--- | :--- | | **Floaters** | | | Drillship | 11 (plus 2 under construction option) | | Semisubmersible | 5 | | **Jackups** | 40 | | **Total Owned** | **56** | - The report provides a detailed table listing each rig's specifications, including name, type, year built, design, water/drilling depth, location, and current operational status[193](index=193&type=chunk)[194](index=194&type=chunk) - The company owns all rigs in its fleet and also manages drilling operations for two platform rigs owned by a third party[200](index=200&type=chunk) - Valaris leases office space globally and owns office and other facilities in Louisiana, Angola, and Brazil[200](index=200&type=chunk) [Legal Proceedings](index=50&type=section&id=Item%203.%20Legal%20Proceedings) The company is contesting notices in Brazil for past drilling fluid spills and has accrued a minor liability - The company is contesting notices of assessment in Brazil for spills from drilling rigs between 2008 and 2019[201](index=201&type=chunk) - A liability of **$0.4 million** related to the Brazilian environmental matters was recorded on the Consolidated Balance Sheet as of December 31, 2021[201](index=201&type=chunk) - Other legal proceedings are considered incidental to the business and are not expected to have a material adverse effect on financial results[202](index=202&type=chunk) [Mine Safety Disclosures](index=50&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[203](index=203&type=chunk) PART II [Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=51&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Post-bankruptcy, new shares and warrants trade on the NYSE, while dividends are restricted by debt covenants - As a result of the Chapter 11 cases, the Class A ordinary shares of Legacy Valaris were cancelled on the Effective Date, April 30, 2021[206](index=206&type=chunk) - The new Common Shares and Warrants of the successor company, Valaris Limited, are listed on the New York Stock Exchange under the ticker symbols **"VAL"** and **"VAL WS"**, respectively[207](index=207&type=chunk) - The company has not paid or declared any dividends on its Common Shares, and the Indenture governing its debt includes provisions that limit its ability to pay dividends[208](index=208&type=chunk) - Valaris has obtained an assurance from the Minister of Finance of Bermuda that certain taxes on profits, income, or capital gains will not be applicable to the company or its shares until March 31, 2035[210](index=210&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=52&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Financial results are not comparable year-over-year due to fresh start accounting post-bankruptcy emergence [Introduction](index=52&type=section&id=Introduction) The company emerged from bankruptcy with a new accounting basis, making post-emergence financials incomparable to prior periods - Upon emergence from Chapter 11, the company adopted fresh start accounting, resulting in a new basis of accounting, making financial statements after April 30, 2021 (Successor) not comparable to those prior (Predecessor)[219](index=219&type=chunk) - The industry environment improved in 2021, with Brent crude oil prices rising from **~$50 to nearly $80 per barrel**, leading to increased contracting and tendering activity[225](index=225&type=chunk) Contract Backlog Comparison (in millions) | Category | Feb 21, 2022 | Dec 31, 2020 | | :--- | :--- | :--- | | **Valaris Total** | **$2,443.9** | **$1,041.4** | | Floaters | $1,665.3 | $163.7 | | Jackups | $643.0 | $737.6 | | Other | $135.6 | $140.1 | | **ARO** | **$1,501.1** | **$347.5** | - The increase in Valaris's backlog by **$1.4 billion** is attributed to new contract awards and extensions, partially offset by revenue realization[231](index=231&type=chunk) [Business Environment](index=56&type=section&id=Business%20Environment) The offshore drilling market improved in 2021, with a significant recovery in the floater segment but a more modest recovery for jackups - **Floaters:** The floater segment backlog increased significantly from **$163.7 million** at YE 2020 to **$1.7 billion** as of Feb 21, 2022, with stable utilization and day rates[236](index=236&type=chunk)[237](index=237&type=chunk) - **Jackups:** The jackup segment backlog decreased from **$737.6 million** to **$643.0 million**, though utilization was stable and average day rates increased to approximately **$95,000** in 2021[242](index=242&type=chunk)[243](index=243&type=chunk) - The market continues to be oversupplied with rigs, but rig retirements are ongoing, with **134 benign environment floaters** and **161 jackups** retired since 2014[239](index=239&type=chunk)[245](index=245&type=chunk) [Results of Operations](index=57&type=section&id=Results%20of%20Operations) A non-GAAP combined 2021 analysis shows lower revenue but a significantly smaller operating loss compared to 2020 due to reduced expenses and impairments Consolidated Results of Operations (in millions) | | Combined 2021 (Non-GAAP) | 2020 (Predecessor) | | :--- | :--- | :--- | | **Revenues** | **$1,232.4** | **$1,427.2** | | Contract drilling expense | $1,072.5 | $1,470.4 | | Loss on impairment | $756.5 | $3,646.2 | | Depreciation | $225.7 | $540.8 | | General and administrative | $88.9 | $214.6 | | **Operating loss** | **($902.0)** | **($4,334.5)** | | **Net loss attributable to Valaris** | **($4,500.0)** | **($4,855.5)** | - Combined 2021 revenues declined by **$194.8 million (13.6%)** compared to 2020, primarily due to fewer operating days and prior-year contract termination fees[250](index=250&type=chunk) - Combined 2021 contract drilling expense decreased by **$397.9 million (27.1%)** compared to 2020, driven by lower costs for idle rigs, rigs sold, and cost control efforts[251](index=251&type=chunk) - A non-cash impairment loss of **$756.5 million** was recorded in the four-month 2021 Predecessor period, compared to a **$3.6 billion** impairment in 2020[252](index=252&type=chunk) - Other expense, net, for the combined 2021 period includes **$3.6 billion in reorganization items**, primarily related to the effects of emerging from bankruptcy and applying fresh start accounting[256](index=256&type=chunk)[318](index=318&type=chunk) [Liquidity and Capital Resources](index=74&type=section&id=Liquidity%20and%20Capital%20Resources) The company holds $608.7 million in cash with $550 million in debt and projects significant capital expenditures for rig upgrades in 2022 Liquidity Position (in millions) | | Dec 31, 2021 (Successor) | Dec 31, 2020 (Predecessor) | | :--- | :--- | :--- | | Cash and cash equivalents | $608.7 | $325.8 | | Available credit/DIP facility | $0.0 | $500.0 | | **Total liquidity** | **$608.7** | **$825.8** | - Capital expenditures for 2022 are expected to be approximately **$225 million to $250 million** for rig enhancement, reactivation, and upgrade projects[350](index=350&type=chunk) - The company's primary debt consists of **$550 million in First Lien Notes** due April 30, 2028, issued upon emergence from bankruptcy[354](index=354&type=chunk)[357](index=357&type=chunk) Contractual Obligations as of Dec 31, 2021 (in millions) | Category | Total | | :--- | :--- | | Principal payments on long-term debt | $550.0 | | Interest payments on long-term debt | $294.9 | | Operating leases | $27.4 | | **Total contractual obligations** | **$872.3** | - The company has a potential obligation to make capital contributions to its ARO joint venture to fund a 20-rig newbuild program, up to a maximum aggregate of **$1.25 billion**[371](index=371&type=chunk)[772](index=772&type=chunk) [Critical Accounting Policies and Estimates](index=85&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Key accounting judgments involve property depreciation, impairment assessments, income taxes, and pension benefit assumptions - Upon emergence from bankruptcy, the company changed its accounting policy for property and equipment, moving from a single asset approach to identifying and depreciating significant components of its drilling rigs separately[398](index=398&type=chunk)[400](index=400&type=chunk) - Impairment of Property and Equipment was a critical policy for the Predecessor, leading to non-cash impairment charges of **$756.5 million** in the first four months of 2021 and **$3.6 billion** in 2020[404](index=404&type=chunk)[405](index=405&type=chunk) - Accounting for income taxes is complex due to operations in numerous jurisdictions; as of December 31, 2021, the company had a **$320.2 million liability** for unrecognized tax benefits[412](index=412&type=chunk) - Pension and other postretirement benefit liabilities are based on significant actuarial assumptions; a one-percentage-point decrease in the assumed discount rate would increase liabilities by approximately **$109.1 million**[420](index=420&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=89&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable to the company - Not applicable[422](index=422&type=chunk) [Financial Statements and Supplementary Data](index=90&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited financial statements reflecting the post-bankruptcy new basis of accounting and an unqualified audit opinion - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2021[425](index=425&type=chunk) - The independent auditor, KPMG LLP, issued an **unqualified opinion** on both the consolidated financial statements and the effectiveness of internal control over financial reporting[428](index=428&type=chunk)[429](index=429&type=chunk) - The financial statements are presented for two distinct periods: the Successor (post-bankruptcy) and the Predecessor (pre-bankruptcy), which are not comparable due to fresh start accounting[430](index=430&type=chunk)[465](index=465&type=chunk) Key Financial Statement Data (in millions) | | **Successor (8 mos ended 12/31/21)** | **Predecessor (4 mos ended 4/30/21)** | **Predecessor (Year ended 12/31/20)** | | :--- | :--- | :--- | :--- | | **Operating Revenues** | $835.0 | $397.4 | $1,427.2 | | **Operating Loss** | ($11.9) | ($890.1) | ($4,334.5) | | **Net Loss Attributable to Valaris** | ($33.0) | ($4,467.0) | ($4,855.5) | | **Total Assets (at period end)** | $2,609.2 | N/A | $12,873.2 | | **Total Liabilities (at period end)** | $1,548.4 | N/A | $8,502.9 (incl. subject to compromise) | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=179&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable to the company - Not applicable[811](index=811&type=chunk) [Controls and Procedures](index=179&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures are effective as of year-end 2021 - Management concluded that the company's disclosure controls and procedures were **effective** as of the end of the period covered by the report[812](index=812&type=chunk) - There were **no material changes** in internal control over financial reporting during the quarter ended December 31, 2021[814](index=814&type=chunk) [Other Information](index=179&type=section&id=Item%209B.%20Other%20Information) This item is not applicable to the company - Not applicable[815](index=815&type=chunk) PART III This section incorporates by reference information from the company's forthcoming definitive Proxy Statement [Directors, Executive Officers and Corporate Governance](index=180&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors and governance is incorporated by reference from the Proxy Statement, while officer information is in Part I - Information required by this item is incorporated by reference from the company's Proxy Statement to be filed within 120 days of the fiscal year-end[817](index=817&type=chunk) - Information regarding executive officers is located in Part I of this Annual Report[818](index=818&type=chunk) [Executive Compensation](index=180&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from the company's Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[821](index=821&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=181&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) This section provides details on equity compensation plans not approved by security holders Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be Issued Upon Exercise (a) | Securities Remaining Available for Future Issuance (c) | | :--- | :--- | :--- | | Equity compensation plans not approved by security holders | 1,467,438 | 7,493,135 | - Additional information required by this item is incorporated by reference from the company's Proxy Statement[823](index=823&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=181&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[824](index=824&type=chunk) [Principal Accounting Fees and Services](index=181&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information concerning principal accounting fees and services is incorporated by reference from the Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[825](index=825&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=182&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K - This item lists all financial statements and exhibits filed with the Form 10-K[828](index=828&type=chunk) - Key exhibits filed include the Fourth Amended Joint Chapter 11 Plan of Reorganization (2.1), Bye-laws of Valaris Limited (3.2), Indenture for the First Lien Notes (4.1), and the Warrant Agreement (4.5)[829](index=829&type=chunk) [Form 10-K Summary](index=186&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for its Form 10-K - None[834](index=834&type=chunk)