Company Overview - Valaris is the largest offshore driller with a fleet of 48 rigs, including 13 high-specification drillships, 2 semisubmersibles, and 33 jackups [3] - The fleet is characterized by high specification, with 12 out of 13 drillships being seventh-generation assets, representing the highest concentration of high-spec drillships in the industry [3] Market Position - The quality of the fleet is crucial in the offshore drilling business, as evidenced by the contracting trends over the past year [3] - Dayrates for seventh-generation drillships have been approximately 25% higher than the general market, and their utilization rates have been about 10 percentage points higher than the overall market [3]

Financial Data and Key Metrics Changes - The company secured $2 billion worth of contracts this year, with a total contract backlog reaching $4.7 billion, the highest in a decade [6][7] - Operational performance led to an increase in the midpoint of guidance by $55 million to $585 million for the year [7] Business Line Data and Key Metrics Changes - The fleet consists of 48 rigs, including 13 high-specification drillships, 2 semisubmersibles, and 33 jackups, with 12 of the 13 drillships being seventh-generation assets [4] - Day rates for seventh-generation drillships have been about 25% higher than the general market, with utilization rates approximately 10 percentage points higher [5] Market Data and Key Metrics Changes - The company sees a strong case for offshore drilling, particularly in deepwater, as customers increasingly turn to deepwater to meet resource needs [7] - The jackup market has maintained utilization rates above 90%, despite challenges in the Saudi market [34] Company Strategy and Development Direction - The company focuses on operational excellence, successful contracting, and astute commercial strategy to deliver long-term value for shareholders [8] - The strategy includes securing long-term contracts and managing the fleet effectively to avoid oversupply in the market [26] Management's Comments on Operating Environment and Future Outlook - Management noted a positive outlook for deepwater utilization, expecting to exit 2026 with utilization levels above 90% [16][17] - The company anticipates an increase in exploration activity and greenfield development offshore in the coming years, driven by economic viability at current oil prices [40][41] Other Important Information - The company has a strong balance sheet and is considering shareholder returns, with flexibility enhanced by the sale of Valaris 247 for over $100 million [39] - Reactivation costs for cold-stacked rigs are estimated to remain in the range of $120 million to $125 million [28] Q&A Session Summary Question: What is the overall tone from customer conversations regarding deepwater outlook? - Management reflected on the transition from uncertainty to a more positive outlook, with a good pace of contracting expected as operators prepare for future programs [10][12] Question: What are the expectations for contract announcements and pricing in the second half of next year? - Management indicated that pricing is expected to follow supply-demand dynamics, with positive pricing momentum anticipated as the market tightens [14][18] Question: Can you discuss opportunities for the DF-12 rig? - Management is focused on securing long-term contracts for the DF-12, with a strong pipeline of opportunities in Africa and other regions [19][20] Question: What is the outlook for the jackup market? - Management expressed confidence in the jackup market, highlighting strong contract coverage and growth in average day rates and operating days [33][34] Question: What is the company's stance on M&A? - Management supports consolidation in the industry but emphasized that the company already has the necessary scale and fleet quality, making M&A a secondary consideration [35][36] Question: When can shareholders expect returns? - Management stated that capital returns will be considered once sustained cash generation is achieved, with positive markers indicating flexibility for returns [38][39]

Financial Data and Key Metrics Changes - The company secured $2 billion worth of contracts this year, with a total contract backlog reaching $4.7 billion, the highest in a decade [6][7] - Operational performance led to an increase in the midpoint of guidance by $55 million to $585 million for the year [7] - The company reported a revenue efficiency of 96%, indicating strong operational execution [5] Business Line Data and Key Metrics Changes - The fleet consists of 48 rigs, including 13 high-specification drillships, 2 semisubmersibles, and 33 jackups, with 12 of the drillships being seventh-generation assets [4] - Day rates for seventh-generation drillships have been approximately 25% higher than the general market, with utilization rates about 10 percentage points higher [5] - The company has successfully contracted three out of four drillships with near-term availability, all at rates exceeding $400,000 per day [21] Market Data and Key Metrics Changes - The company sees a strong case for offshore drilling, particularly in deepwater, as customers increasingly turn to deepwater to meet resource needs [7] - The pipeline of opportunities remains robust, with around 30 opportunities tracked for term programs starting in the next couple of years [16] - The jackup market has maintained utilization rates above 90%, indicating a healthy demand environment [35] Company Strategy and Development Direction - The company focuses on operational excellence, successful contracting, and astute commercial strategy to deliver long-term value for shareholders [8] - The strategy includes seeking long-term contracts while also being open to shorter-term opportunities if they align with business goals [23] - The company is well-positioned in the jackup market, with a strong presence in both benign and harsh environments, particularly through its joint venture with Saudi Aramco [34][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of the seventh-generation drillship market, expecting utilization levels to exceed 90% by the end of 2026 [19] - The company anticipates positive pricing momentum as the market tightens, driven by supply-demand dynamics [20] - Management noted that offshore developments are becoming increasingly economic at current oil prices, with many projects expected to be sanctioned in the next few years [42][43] Other Important Information - The company has a strong balance sheet and is considering shareholder returns, with flexibility enhanced by the sale of Valaris 247 for over $100 million [41] - Reactivation costs for cold-stacked rigs are estimated to remain in the range of $120 million to $125 million, with a timeline of about a year for reactivation [31][32] Q&A Session Summary Question: Overall tone from customer conversations and deepwater outlook - Management noted a positive shift in customer conversations, with an expectation of increased contracting activity as operators prepare for program startups in 2026 [15] Question: Pricing expectations for drillships - Management indicated that while pricing may see a broader range due to market dynamics, contracts secured have been above $400,000, reflecting strong operational performance [18] Question: Opportunities for the DF-12 rig - Management is optimistic about finding a long-term contract for the DF-12, particularly in Africa, where demand is expected to grow [22] Question: Outlook for jackup market - Management highlighted the strong performance of the jackup fleet, particularly through the ARO Drilling JV, with significant contract extensions secured [34] Question: Corporate M&A strategy - Management expressed openness to M&A opportunities that create value and enhance fleet quality, although they do not see an immediate need for consolidation [38] Question: Shareholder returns timeline - Management stated that capital returns will be considered once sustained cash generation is achieved, with the potential for returns in the second half of the year [40]

Core Insights - The report on Valaris Limited (NYSE: VAL) highlights the company's potential prospects in the current market scenario, focusing on extracting value from its operations [1]. Company Focus - The analysis emphasizes a preference for companies with sustained free cash flows, low leverage, and sustainable debt, particularly those in distress with high recovery potential [1]. - Valaris Limited is positioned within the oil and gas sector, which is often overlooked by the market, presenting opportunities for value investment [1]. Investment Strategy - The investment strategy targets companies in emerging markets that exhibit high margins and solid pro-shareholder attitudes, including consistent buyback programs and dividend distributions [1]. - The report aims to provide insights that add value to individual investment decisions within the Seeking Alpha community [1].

Company Overview - Valaris Limited (NYSE:VAL) is an offshore drilling company that leases rigs and drillships to major energy companies like Shell and Exxon, currently trading at a significant discount to its intrinsic value due to the industry's downturn during COVID, which led to bankruptcies and asset transfers to creditors [1] - Valaris has a stronger balance sheet and one of the youngest, most advanced fleets, positioning the company to benefit as deepwater drilling gains momentum with stable oil demand and rising cost competitiveness [2] Industry Insights - Deepwater offshore drilling is becoming increasingly important due to its cost competitiveness compared to other oil extraction methods, with breakeven prices falling to $30–$43 per barrel, making it cheaper than U.S. shale [4] - Offshore drilling accounts for approximately 30% of the world's total oil production, with deepwater drilling contributing 6-7% of the total supply [4] Market Position and Potential - Currently, 8.6% of Valaris's public float is sold short, and only one out of eight analysts covering the stock has a "Buy" rating, indicating a low market sentiment despite the company's potential [3] - Valaris trades at a steep discount to both replacement value and future free cash flow potential, with expectations of delivering a 3-7x return over the next 3-5 years due to low valuation, a new capital structure, rising demand, and constrained supply [3]

Financial Data and Key Metrics Changes - Total revenues for the second quarter were $615 million, a slight decrease from $621 million in the prior quarter, primarily due to the completion of a contract for Valaris DS-12 without follow-on work [28] - Adjusted EBITDA increased to $201 million from $181 million in the prior quarter, driven by a favorable arbitration outcome that provided a total benefit of $24 million [29] - Adjusted free cash flow for the quarter was $63 million, with cash and cash equivalents at $516 million, contributing to total liquidity of nearly $900 million [30][32] Business Line Data and Key Metrics Changes - The company added over $1 billion in new contract backlog, increasing total backlog to approximately $4.7 billion, the highest in a decade [5][34] - For floaters, $860 million was added to the backlog, while jackups contributed $145 million [16] - The jackup fleet maintained robust contract coverage, with over 70% of available days contracted for 2026 and 60% for 2027 [11] Market Data and Key Metrics Changes - Global marketed utilization for jackups ended the second quarter at 90%, driven by national oil companies prioritizing energy security [24] - The offshore drilling market is expected to see meaningful growth in deepwater project sanctioning in 2026 and 2027, with over 75% of deepwater spending expected to be sanctioned at breakeven prices below $50 per barrel [10][9] - The company is tracking more than 30 floater opportunities with planned start dates in 2026 or 2027, indicating a healthy pipeline for future contracts [10][18] Company Strategy and Development Direction - The company is focused on delivering operational performance, executing a commercial strategy, and maintaining disciplined cost and fleet management to drive long-term value for shareholders [4][12] - The strategy includes securing long-term contracts for high-specification assets and exploring short-term gap-fill opportunities as they arise [14][40] - The company plans to actively manage its fleet in response to market conditions, including retiring rigs when their economic benefit no longer justifies associated costs [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the offshore drilling market, noting that customers are prioritizing long-cycle offshore projects and that the demand for deepwater production remains strong [9][10] - The company anticipates additional contract awards across the industry in the coming months, supported by a healthy pipeline of opportunities [10][18] - Management highlighted a positive shift in customer sentiment, with increased confidence in contracting rigs and moving forward with developments [82] Other Important Information - The company completed the sale for recycling of three semisubmersibles, reflecting a proactive approach to fleet management [14] - The company expects total CapEx for the third quarter to be between $100 million and $110 million, including ongoing fleet maintenance and contract-specific upgrades [31][32] Q&A Session Summary Question: Can you provide more details on the shorter-term contracts for the drillships? - Management indicated that the average duration for shorter-term contracts varies and that they are well-positioned to service these opportunities with their high-spec fleet [38][39] Question: How many of the 30 planned floater opportunities have been pushed back? - Management clarified that while some opportunities have shifted, the pipeline remains robust with new work replenishing the opportunities [50][51] Question: What is the outlook for day rates on upcoming contracts? - Management expects day rates to remain stable in the low $400s for upcoming contracts, with potential for increases as utilization improves [58][62] Question: What are the expectations for Petrobras' rig count and tendering schedule? - Management expressed optimism about Petrobras maintaining a stable rig count and indicated that multiple tenders are expected, which could lead to increased contracting opportunities [70][73] Question: What is the company's approach to returning capital to shareholders? - Management remains committed to returning capital to shareholders and indicated that strong operational performance and upcoming rig sales will enhance flexibility for capital returns [88][89]

Financial Data and Key Metrics Changes - Total revenues for the second quarter were $615 million, a slight decrease from $621 million in the prior quarter, primarily due to the completion of a contract for Valaris DS-12 without follow-on work [29] - Adjusted EBITDA increased to $201 million from $181 million in the prior quarter, driven by a favorable arbitration outcome that provided a total benefit of $24 million [30] - Adjusted free cash flow for the quarter was $63 million, with cash and cash equivalents at $516 million, contributing to total liquidity of nearly $900 million [31][32] Business Line Data and Key Metrics Changes - The company added over $1 billion in new contract backlog, increasing total backlog to approximately $4.7 billion, the highest in a decade [5][17] - For floaters, approximately $860 million was added to the backlog, while jackups contributed $145 million [17] - The jackup fleet maintained robust contract coverage, with over 70% of available days contracted for 2026 and 60% for 2027 [11] Market Data and Key Metrics Changes - The offshore drilling market shows strong long-term fundamentals, with a healthy pipeline of more than 30 floater opportunities planned for 2026 or 2027 [10][20] - Global jackup utilization remained resilient at 90%, driven by national oil companies prioritizing energy security [11][25] - The majority of deepwater spending expected to be sanctioned in the next three years is tied to programs with breakeven prices below $50 per barrel, compared to a five-year forward price above $65 per barrel [10] Company Strategy and Development Direction - The company focuses on delivering operational excellence, executing a commercial strategy, and maintaining disciplined cost and fleet management to drive long-term shareholder value [4][12] - The strategy includes securing long-term contracts for high-specification assets and exploring short-term gap-fill opportunities [13][44] - The company is actively managing its fleet in response to market conditions, including retiring rigs when their economic benefit no longer justifies associated costs [13][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the offshore production's role in meeting global energy needs, particularly in deepwater projects [9] - There is an expectation of meaningful growth in deepwater project sanctioning in 2026 and 2027, with customers prioritizing long-cycle offshore developments [10] - Management noted a more positive outlook from customers regarding contracting and development programs compared to six months ago [82] Other Important Information - The company completed the sale for recycling of three semisubmersibles, reflecting the challenged global market for this asset class [13][14] - The company remains committed to returning capital to shareholders, with strong operational performance providing flexibility for capital returns [88][90] Q&A Session Summary Question: Insights on short-term contracts for drillships - Management indicated that average duration for short-term contracts varies and that they are well-positioned to service these opportunities across different locations [41][42] Question: Update on planned floater opportunities - Management clarified that the pipeline remains about 30 opportunities, replenished with new work, and expressed confidence in continued contract awards [52][54] Question: Thoughts on day rates for upcoming contracts - Management expects day rates to follow utilization trends, with seventh-generation rigs leading the recovery and potentially exiting 2026 with utilization above 90% [65] Question: Timing for reactivating cold stacked drillships - Management emphasized a focus on securing contracts for active rigs before considering reactivation of cold stacked units, with good opportunities for DS-12 in 2026 [68] Question: Petrobras tendering schedule - Management expressed optimism about Petrobras maintaining a stable rig count and the potential for multiple rigs to be contracted in upcoming tenders [72][76]

Investor Presentation FOCUSED VALUE DRIVEN RESPONSIBLE Forward-Looking Statements Statements contained in this investor presentation that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "likely," "outlook," "plan," "project," "could," "may," ...

[Forward-Looking Statements](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) [Summary of Forward-Looking Statements and Risks](index=3&type=section&id=Forward-Looking%20Statements%20Summary) The report outlines forward-looking statements on performance and details risks that could alter actual results - Forward-looking statements cover expected financial performance, utilization, day rates, revenues, operating expenses, cash flows, contract backlog, capital expenditures, and the offshore drilling market outlook[9](index=9&type=chunk) - Key risks include **delays or cancellations of drilling contracts**, changes in worldwide rig supply and demand, general economic and business conditions (recessions, inflation), and requirements for significant capital expenditures[10](index=10&type=chunk) - Additional risks involve cybersecurity incidents, liquidity adequacy, compliance with debt agreements, rig repair/upgrade delays, and impacts from public health crises, political conditions, and climate change concerns[11](index=11&type=chunk)[13](index=13&type=chunk) [PART I - FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents unaudited condensed consolidated financial statements and accompanying explanatory notes [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (Three Months Ended June 30) | Metric (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Total operating revenues | $615.2 | $610.1 | | Total operating expenses | $450.0 | $500.9 | | Operating income | $164.1 | $108.9 | | Net income attributable to Valaris | $115.1 | $149.6 | | Basic EPS | $1.62 | $2.07 | | Diluted EPS | $1.61 | $2.03 | Condensed Consolidated Statements of Operations (Six Months Ended June 30) | Metric (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Total operating revenues | $1,235.9 | $1,135.1 | | Total operating expenses | $930.3 | $999.0 | | Operating income | $307.1 | $138.2 | | Net income attributable to Valaris | $77.2 | $175.1 | | Basic EPS | $1.09 | $2.42 | | Diluted EPS | $1.08 | $2.38 | [Condensed Consolidated Statements of Comprehensive Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income (Three Months Ended June 30) | Metric (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net income | $114.2 | $150.8 | | Net other comprehensive income (loss) | $1.6 | $(0.8) | | Comprehensive income attributable to Valaris | $116.7 | $148.8 | Condensed Consolidated Statements of Comprehensive Income (Six Months Ended June 30) | Metric (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net income | $75.0 | $176.3 | | Net other comprehensive income (loss) | $2.7 | $(0.9) | | Comprehensive income attributable to Valaris | $79.9 | $174.2 | [Condensed Consolidated Balance Sheets](index=9&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (as of June 30, 2025 and December 31, 2024) | Metric (in millions) | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Total current assets | $1,227.4 | $1,078.7 | | Property and equipment, net | $2,021.6 | $1,932.9 | | Total assets | $4,503.3 | $4,419.8 | | Total current liabilities | $678.7 | $679.5 | | Long-term debt | $1,084.3 | $1,082.7 | | Total liabilities | $2,170.0 | $2,175.5 | | Total shareholders' equity | $2,333.3 | $2,244.3 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Metric (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $275.9 | $37.8 | | Net cash used in investing activities | $(139.8) | $(261.4) | | Net cash used in financing activities | $(0.4) | $(1.8) | | Increase (decrease) in cash and cash equivalents and restricted cash | $135.7 | $(225.4) | | Cash and cash equivalents and restricted cash, end of period | $516.2 | $410.3 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1 - Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Note%201%20-%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The unaudited financial statements are prepared per GAAP and SEC rules and include all necessary adjustments - The financial statements are unaudited but include all necessary adjustments for fair presentation, prepared in accordance with GAAP and SEC rules[22](index=22&type=chunk) - ASU No 2024-03 (Expense Disaggregation Disclosures) is effective for annual periods after December 15, 2026, requiring additional expense category disclosures[25](index=25&type=chunk) - ASU No 2023-09 (Improvements to Income Tax Disclosures) is effective for fiscal years beginning after December 15, 2024, expanding income tax disclosures but not impacting recognition or measurement[26](index=26&type=chunk) [Note 2 - Revenue from Contracts with Customers](index=12&type=section&id=Note%202%20-%20Revenue%20from%20Contracts%20with%20Customers) The company recognizes revenue from drilling contracts over time as a single performance obligation - Drilling services are a single performance obligation satisfied over time, with total revenue estimated based on fixed and variable consideration[29](index=29&type=chunk) Contract Assets and Liabilities (in millions) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Current contract assets | $2.6 | $1.3 | | Noncurrent contract assets | $4.5 | $5.5 | | Current contract liabilities | $73.7 | $87.2 | | Noncurrent contract liabilities | $68.1 | $71.4 | Amortization of Contract Liabilities and Deferred Costs (in millions) | Category | 2025 (Remaining) | 2026 | 2027 | 2028 and Thereafter | Total | | :--- | :--------------- | :--- | :--- | :------------------ | :---- | | Contract liabilities | $28.2 | $42.1 | $59.6 | $11.9 | $141.8 | | Deferred costs | $22.1 | $28.6 | $5.3 | $— | $56.0 | [Note 3 - Equity Method Investment in ARO](index=14&type=section&id=Note%203%20-%20Equity%20Method%20Investment%20in%20ARO) This note details the company's 50/50 unconsolidated joint venture with Saudi Aramco, ARO - ARO is a **50/50 unconsolidated joint venture** with Saudi Aramco, owning nine jackup rigs and leasing seven from Valaris as of June 30, 2025[39](index=39&type=chunk) Equity in Earnings (Losses) of ARO (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | 50% interest in ARO net loss | $(4.3) | $(3.4) | $(4.8) | $(4.2) | | Amortization of basis differences | $3.2 | $3.1 | $6.3 | $6.3 | | Equity in earnings (losses) of ARO | $(1.1) | $(0.3) | $1.5 | $2.1 | Notes Receivable from ARO (in millions) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Principal amount | $376.6 | $376.6 | | Discount | $(68.1) | $(80.4) | | Carrying value | $308.5 | $296.2 | [Note 4 - Fair Value Measurements](index=16&type=section&id=Note%204%20-%20Fair%20Value%20Measurements) This note provides the carrying values and estimated fair values of the company's financial instruments Carrying Values and Estimated Fair Values of Financial Instruments (in millions) | Instrument | June 30, 2025 Carrying Value | June 30, 2025 Estimated Fair Value | Dec 31, 2024 Carrying Value | Dec 31, 2024 Estimated Fair Value | | :--- | :--- | :--- | :--- | :--- | | 2030 Second Lien Notes | $1,084.3 | $1,130.1 | $1,082.7 | $1,112.7 | | Notes Receivable from ARO | $308.5 | $379.4 | $296.2 | $378.3 | - Fair value of 2030 Second Lien Notes is determined using **Level 1 inputs** (quoted market prices), while Notes Receivable from ARO uses **Level 2 inputs** (income approach with comparable yield and country-specific risk premium)[50](index=50&type=chunk) [Note 5 - Property and Equipment](index=17&type=section&id=Note%205%20-%20Property%20and%20Equipment) This note details the composition of property and equipment and outlines recent asset divestitures Property and Equipment (in millions) | Category | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Drilling rigs and equipment | $1,829.3 | $1,660.9 | | Work-in-progress | $583.6 | $607.6 | | Total property and equipment, at cost | $2,461.6 | $2,309.4 | - Agreement to sell VALARIS 247 for approximately **$108.0 million**, with an expected pre-tax gain of **$87.0 million** upon completion in H2 2025[52](index=52&type=chunk) - Three semisubmersible rigs (VALARIS DPS-3, DPS-5, DPS-6) were retired and sold for recycling for **$10.0 million**, resulting in a **$7.8 million impairment loss** in Q1 2025[53](index=53&type=chunk)[54](index=54&type=chunk) - VALARIS 75 was sold for approximately **$24.0 million**, generating a pre-tax gain of **$23.0 million**[55](index=55&type=chunk) [Note 6 - Pension and Other Post-retirement Benefits](index=18&type=section&id=Note%206%20-%20Pension%20and%20Other%20Post-retirement%20Benefits) This note outlines the components of net periodic pension and retiree medical (income) loss Net Periodic Pension and Retiree Medical (Income) Loss (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Interest cost | $7.8 | $7.4 | $15.4 | $14.8 | | Expected return on plan assets | $(7.3) | $(7.9) | $(14.5) | $(15.8) | | Amortization of net gain | $(0.2) | $(0.2) | $(0.4) | $(0.4) | | Net periodic pension and retiree medical (income) loss | $0.3 | $(0.7) | $0.5 | $(1.4) | [Note 7 - Earnings Per Share](index=18&type=section&id=Note%207%20-%20Earnings%20Per%20Share) This note provides a reconciliation of weighted-average shares used in basic and diluted EPS computations Weighted-Average Shares Outstanding for EPS (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Basic | 71.1 | 72.4 | 71.1 | 72.4 | | Effect of stock equivalents | 0.2 | 1.3 | 0.2 | 1.3 | | Diluted | 71.3 | 73.7 | 71.3 | 73.7 | - Anti-dilutive share awards totaled **255,000 and 274,000** for the three and six months ended June 30, 2025, respectively[60](index=60&type=chunk) - **5,470,900 warrants** outstanding as of June 30, 2025, exercisable at $131.88 per share and expiring April 29, 2028, were anti-dilutive for all periods presented[62](index=62&type=chunk) [Note 8 - Debt](index=19&type=section&id=Note%208%20-%20Debt) This note describes the company's debt structure, including its 2030 Second Lien Notes and 2028 Credit Agreement - The company issued **$1.1 billion** aggregate principal amount of 2030 Second Lien Notes, maturing April 30, 2030, with an **8.375% interest rate**[63](index=63&type=chunk) - A senior secured revolving credit agreement (2028 Credit Agreement) provides for up to **$375.0 million** in borrowings, with a **$150.0 million** sublimit for letters of credit, maturing April 3, 2028[65](index=65&type=chunk) - As of June 30, 2025, the company was in **material compliance with all debt covenants** and had no outstanding amounts under the 2028 Credit Agreement[64](index=64&type=chunk)[68](index=68&type=chunk) [Note 9 - Shareholders' Equity](index=20&type=section&id=Note%209%20-%20Shareholders'%20Equity) This note details changes in shareholders' equity and the status of the share repurchase program Shareholders' Equity Activity (Six Months Ended June 30, 2025, in millions) | Metric | Dec 31, 2024 | Mar 31, 2025 | June 30, 2025 | | :--- | :----------- | :----------- | :------------ | | Additional Paid-in Capital | $1,113.3 | $1,118.6 | $1,124.6 | | Retained Earnings | $1,398.9 | $1,361.0 | $1,476.1 | | Accumulated Other Comprehensive Income | $34.2 | $35.3 | $36.9 | | Total Valaris Shareholders' Equity | $2,238.5 | $2,250.9 | $2,329.7 | - The company has a **$600.0 million** share repurchase program, with approximately **$275.0 million** available as of June 30, 2025[70](index=70&type=chunk)[71](index=71&type=chunk) - **No share repurchases** were made during the three and six months ended June 30, 2025 and 2024[71](index=71&type=chunk) [Note 10 - Income Taxes](index=21&type=section&id=Note%2010%20-%20Income%20Taxes) This note details the company's income tax provision calculation and discusses recent tax matters - In Q1 2025, the company changed its income tax provision calculation to apply the **estimated annual effective tax rate**, moving away from the discrete effective tax rate method[72](index=72&type=chunk) - A **$168.8 million deferred tax expense** was recognized in Q1 2025 due to a valuation allowance on deferred tax assets, linked to the retirement of semisubmersible rigs[73](index=73&type=chunk) - The consolidated effective tax rate for the three and six months ended June 30, 2025, excluding discrete items, was **15.2%**[74](index=74&type=chunk) - A **$65.0 million tax benefit** was recognized in Q2 2024 due to a favorable decision from Luxembourg tax authorities rescinding prior assessments[77](index=77&type=chunk) - A settlement with Australian tax authorities in Q4 2024 for A$4.0 million resulted in the release of approximately **$18.0 million** of uncertain tax position liability, and **A$42.0 million ($26.0 million)** in refunds received in Q1 2025[79](index=79&type=chunk) - An unfavorable Malaysian tax assessment of approximately **$28.0 million** for 2012-2017 is being contested, with payments made under a seven-month plan as of June 30, 2025[78](index=78&type=chunk) [Note 11 - Contingencies](index=23&type=section&id=Note%2011%20-%20Contingencies) This note details various contingencies, including ARO funding obligations and legal matters - Valaris has a potential obligation to fund ARO for newbuild jackup rigs, with its commitment reduced to **$1.1 billion** after the delivery of Kingdom 2[81](index=81&type=chunk)[82](index=82&type=chunk) - Outstanding letters of credit totaled **$30.0 million** as of June 30, 2025, with **$11.2 million** in collateral deposits[83](index=83&type=chunk) - In patent litigation, Valaris was awarded **$7.4 million** for legal fees and is liable for **$7.9 million** in damages to Transocean Ltd[84](index=84&type=chunk) - A Brazil administrative proceeding seeking **$110.0 million** in damages was dismissed against Valaris in July 2025[86](index=86&type=chunk)[87](index=87&type=chunk) [Note 12 - Segment Information](index=24&type=section&id=Note%2012%20-%20Segment%20Information) This note provides disaggregated financial and operational information for the company's four segments - Valaris operates in four segments: **Floaters** (drillships, semisubmersibles), **Jackups**, **ARO** (joint venture), and **Other** (management services, ARO lease arrangements)[89](index=89&type=chunk) Operating Income by Segment (Three Months Ended June 30, 2025, in millions) | Segment | Operating Revenues | Operating Expenses | Operating Income | | :--- | :--- | :--- | :--- | | Floaters | $326.9 | $183.0 | $129.3 | | Jackups | $238.0 | $148.6 | $74.8 | | ARO | $139.9 | $96.4 | $8.2 | | Other | $50.3 | $26.9 | $20.6 | | Consolidated Total | $615.2 | $395.7 | $164.1 | Geographic Distribution of Drilling Rigs (as of June 30, 2025) | Region | Floaters | Jackups | Other | Total Valaris | ARO | | :--- | :--- | :--- | :--- | :--- | :-- | | Europe | 6 | 11 | — | 17 | — | | Middle East & Africa | 1 | 7 | 7 | 15 | 9 | | North & South America | 6 | 5 | — | 11 | — | | Asia & Pacific Rim | 2 | 4 | — | 6 | — | | Total | 15 | 27 | 7 | 49 | 9 | [Note 13 - Supplemental Financial Information](index=27&type=section&id=Note%2013%20-%20Supplemental%20Financial%20Information) This note provides supplemental details for various balance sheet and income statement line items Accounts Receivable, Net (in millions) | Category | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Trade | $489.2 | $502.4 | | Income tax receivables | $51.5 | $76.2 | | Other | $30.0 | $9.2 | | Allowance for doubtful accounts | $(16.5) | $(16.6) | | Total | $554.2 | $571.2 | Accrued Liabilities and Other (in millions) | Category | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Income and other taxes payable | $90.8 | $57.2 | | Personnel costs | $81.1 | $89.2 | | Current contract liabilities (deferred revenues) | $73.7 | $87.2 | | Lease liabilities | $34.6 | $28.0 | | Accrued claims | $22.2 | $39.5 | | Accrued interest | $15.4 | $15.3 | | Other | $28.6 | $34.6 | | Total | $346.4 | $351.0 | - Customer concentration: **Petrobras (13%)**, **BP (12%)**, **Azule Energy (9%)**, and **Equinor (7%)** contributed significantly to total revenues for the six months ended June 30, 2025[101](index=101&type=chunk) - Geographic concentration: **Brazil ($318.2M)**, **United Kingdom ($198.5M)**, **Gulf of America ($191.9M)**, **Australia ($163.2M)**, and **Angola ($110.1M)** were key revenue-generating regions for the six months ended June 30, 2025[101](index=101&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operating results, backlog, business environment, and market risks [Executive Summary](index=30&type=section&id=EXECUTIVE%20SUMMARY) Valaris is a leading offshore driller facing macroeconomic uncertainties and inflationary pressures - Valaris is a leading provider of offshore contract drilling services, owning the world's largest fleet with **49 rigs** and a **50% equity interest in ARO** (9 additional rigs) as of July 31, 2025[103](index=103&type=chunk) - Offshore drilling demand is influenced by macroeconomic uncertainty, increased trade tariffs, and OPEC+ oil production decisions, leading to a decline in Brent crude oil prices to approximately **$68 per barrel** in Q2[104](index=104&type=chunk) - **Inflationary pressures** continue to increase personnel costs and prices for goods/services, with costs expected to rise further due to potential tariffs[107](index=107&type=chunk) [Backlog](index=31&type=section&id=Backlog) The company's contract drilling backlog increased significantly due to new multi-year floater contracts Contract Backlog (in millions) | Segment | July 24, 2025 | February 18, 2025 | | :--- | :------------ | :---------------- | | Floaters | $2,744.2 | $2,024.0 | | Jackups | $1,353.8 | $1,313.0 | | Other | $616.4 | $271.5 | | Total | $4,714.4 | $3,608.5 | | ARO (100%) | $2,349.3 | $1,422.9 | - Floater backlog increased by approximately **$1.2 billion** due to multi-year contracts for VALARIS DS-16, DS-18, DS-10, and DS-15[110](index=110&type=chunk) - Other backlog increased by approximately **$407.0 million** due to five-year contract extensions for five rigs leased to ARO (VALARIS 116, 140, 141, 146, 250)[110](index=110&type=chunk) [Business Environment](index=32&type=section&id=BUSINESS%20ENVIRONMENT) Floater and jackup utilization moderated due to a slowdown in contracting and contract suspensions - Floater utilization declined to **86%** of the global marketed fleet by June 30, 2025, from a peak of 128 rigs in April 2024 to 119[111](index=111&type=chunk) - **Six benign environment floaters** have been retired since the beginning of 2025, including three Valaris rigs[112](index=112&type=chunk) - Global jackup utilization moderated to **90%** at June 30, 2025, down from 94% in early 2024, primarily due to Saudi Aramco suspending contracts for 37 rigs[113](index=113&type=chunk)[114](index=114&type=chunk) - Approximately **28% of the current global jackup fleet is over 40 years old**, with only 11 newbuild jackups remaining at shipyards[115](index=115&type=chunk) [Results of Operations](index=33&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes operating results, detailing changes in revenues and expenses and their key drivers [Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025](index=33&type=section&id=Three%20Months%20Ended%20June%2030%2C%202025%20Compared%20to%20Three%20Months%20Ended%20March%2031%2C%202025) Operating income increased 15% QoQ, driven by lower operating expenses from a legal accrual reversal Condensed Consolidated Results of Operations (QoQ, in millions) | Metric | Q2 2025 | Q1 2025 | Change | % Change | | :--- | :------ | :------ | :----- | :------- | | Total operating revenues | $615.2 | $620.7 | $(5.5) | (1)% | | Total operating expenses | $450.0 | $480.3 | $(30.3) | (6)% | | Operating income | $164.1 | $143.0 | $21.1 | 15% | | Net income (loss) attributable to Valaris | $115.1 | $(37.9) | $153.0 | NM | - Revenues decreased by **$5.5 million**, primarily due to **$27.9 million** lower revenues for VALARIS DS-12 (contract completion) and a **$7.3 million** termination fee in the preceding quarter, partially offset by **$18.2 million** from VALARIS 144 (new contract) and a **$10.3 million** net increase in average daily revenues for the remaining fleet[120](index=120&type=chunk) - Contract drilling expense decreased by **$18.8 million**, driven by a **$17.1 million** partial reversal of a legal matter accrual, **$6.3 million** lower amortized mobilization costs, and **$4.3 million** decrease in expenses for retired semis and warm-stacked VALARIS DS-12[121](index=121&type=chunk) - General and administrative expense decreased by **$5.6 million**, primarily due to a **$7.4 million** cost recovery award for a legal matter[123](index=123&type=chunk) [Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024](index=35&type=section&id=Six%20Months%20Ended%20June%2030%2C%202025%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202024) Operating income surged 122% YoY, driven by a 9% revenue increase and a 7% decrease in operating expenses Condensed Consolidated Results of Operations (YoY, in millions) | Metric | H1 2025 | H1 2024 | Change | % Change | | :--- | :------ | :------ | :----- | :------- | | Total operating revenues | $1,235.9 | $1,135.1 | $100.8 | 9% | | Total operating expenses | $930.3 | $999.0 | $(68.7) | (7)% | | Operating income | $307.1 | $138.2 | $168.9 | 122% | | Net income attributable to Valaris | $77.2 | $175.1 | $(97.9) | (56)% | - Revenues increased by **$100.8 million**, driven by **$69.9 million** from VALARIS DS-7 (reactivation), **$35.8 million** from VALARIS 247 (return to work), and **$115.4 million** from higher average daily revenues, partially offset by **$142.5 million** from fewer operating days[127](index=127&type=chunk) - Contract drilling expense decreased by **$86.2 million**, primarily due to **$24.0 million** lower costs for retired semis, **$17.8 million** decrease for VALARIS DS-7 (reactivation costs in prior year), **$13.5 million** lower costs for warm-stacked rigs, and a **$17.1 million** partial reversal of a legal matter accrual[128](index=128&type=chunk) - General and administrative expenses decreased by **$15.8 million**, mainly due to a **$7.4 million** cost recovery award and lower professional fees/long-term incentive compensation[130](index=130&type=chunk) [Rig Counts, Utilization and Average Daily Revenue](index=37&type=section&id=Rig%20Counts%2C%20Utilization%20and%20Average%20Daily%20Revenue) This section provides key operational metrics, showing a smaller fleet but high utilization and higher day rates Total and Active Offshore Drilling Rigs | Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :------------ | :------------- | :------------ | | Total Fleet - Valaris | 49 | 52 | 53 | | ARO | 9 | 9 | 9 | | Active Fleet - Valaris | 37 | 37 | 40 | | ARO | 9 | 9 | 9 | - Valaris's total floater fleet decreased from **18 to 15 rigs** due to the sale of VALARIS DPS-3, DPS-5, and DPS-6 in Q2 2025[133](index=133&type=chunk)[135](index=135&type=chunk) Rig Utilization and Average Daily Revenue (Six Months Ended June 30) | Metric | H1 2025 | H1 2024 | | :--- | :------ | :------ | | Rig Utilization - Active Fleet (Total Valaris) | 89% | 86% | | Rig Utilization - Active Fleet (ARO) | 86% | 86% | | Average Daily Revenue (Floaters) | $381,000 | $327,000 | | Average Daily Revenue (Jackups) | $135,000 | $114,000 | | Average Daily Revenue (Other) | $47,000 | $41,000 | | Average Daily Revenue (Total Valaris) | $181,000 | $160,000 | | Average Daily Revenue (ARO) | $110,000 | $102,000 | [Operating Income by Segment](index=38&type=section&id=Operating%20Income%20by%20Segment) This section analyzes operating income by segment, detailing revenue and expense drivers for each [Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025 (Segment)](index=39&type=section&id=Three%20Months%20Ended%20June%2030%2C%202025%20Compared%20to%20Three%20Months%20Ended%20March%2031%2C%202025%20(Segment)) Jackups' operating income increased significantly, while Floaters' income slightly decreased Operating Income by Segment (QoQ, in millions) | Segment | Q2 2025 Operating Income | Q1 2025 Operating Income | Change | | :--- | :--- | :--- | :----- | | Floaters | $129.3 | $130.6 | $(1.3) | | Jackups | $74.8 | $57.8 | $17.0 | | ARO | $8.2 | $13.3 | $(5.1) | | Other | $20.6 | $17.1 | $3.5 | | Consolidated Total | $164.1 | $143.0 | $21.1 | - Floater revenues decreased by **$36.3 million (10%)** due to VALARIS DS-12 contract completion and lower amortization of mobilization/upgrade revenues for VALARIS DS-17[143](index=143&type=chunk) - Jackup revenues increased by **$26.1 million (14%)**, driven by **$18.2 million** from VALARIS 144's new contract and **$10.3 million** from higher average daily rates, partially offset by a **$7.3 million** termination fee in the prior quarter[147](index=147&type=chunk) - ARO revenue increased by **$5.2 million (4%)** due to higher average daily revenues from new contract extensions, partially offset by fewer operating days for scheduled repairs[150](index=150&type=chunk) [Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 (Segment)](index=42&type=section&id=Six%20Months%20Ended%20June%2030%2C%202025%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202024%20(Segment)) Floaters' and Jackups' operating income increased significantly YoY due to lower costs and higher revenues Operating Income by Segment (YoY, in millions) | Segment | H1 2025 Operating Income | H1 2024 Operating Income | Change | | :--- | :--- | :--- | :----- | | Floaters | $259.9 | $170.2 | $89.7 | | Jackups | $132.6 | $59.7 | $72.9 | | ARO | $21.5 | $20.1 | $1.4 | | Other | $37.7 | $43.1 | $(5.4) | | Consolidated Total | $307.1 | $138.2 | $168.9 | - Floater revenues decreased by **$4.5 million (1%)** due to fewer operating days for retired/warm-stacked rigs, partially offset by **$69.9 million** from VALARIS DS-7's reactivation and **$75.5 million** from higher average daily revenues[155](index=155&type=chunk) - Jackup revenues increased by **$91.8 million (30%)**, driven by **$35.8 million** from VALARIS 247's return to work, **$31.2 million** from higher average daily revenues, and **$17.5 million** from more operating days[158](index=158&type=chunk) - ARO revenue increased by **$12.1 million (5%)**, primarily from Kingdom 2 and VALARIS 108, higher average daily revenues, and more operating days, partially offset by **$45.6 million** from contract terminations[160](index=160&type=chunk) [Other Income (Expense)](index=44&type=section&id=Other%20Income%20(Expense)) This section analyzes changes in non-operating income and expenses, including interest and asset sales [Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025 (Other Income)](index=44&type=section&id=Three%20Months%20Ended%20June%2030%2C%202025%20Compared%20to%20Three%20Months%20Ended%20March%2031%2C%202025%20(Other%20Income)) Other income decreased significantly due to gains from asset sales recognized in the prior quarter Other Income (Expense), Net (QoQ, in millions) | Metric | Q2 2025 | Q1 2025 | | :--- | :------ | :------ | | Interest income | $15.1 | $14.4 | | Interest expense, net | $(24.8) | $(24.3) | | Net gain (loss) on sale of property | $0.8 | $27.1 | | Net foreign currency exchange gains (losses) | $(9.1) | $(5.2) | | Other, net | $(18.4) | $11.3 | - Net gains on sale of property in the preceding quarter included **$23.0 million** from VALARIS 75 and **$4.0 million** from an office in Angola[165](index=165&type=chunk) - Net foreign currency exchange losses increased from **$5.2 million** in Q1 2025 to **$9.1 million** in Q2 2025, driven by unfavorable movements in euros and Australian dollars[166](index=166&type=chunk) [Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 (Other Income)](index=44&type=section&id=Six%20Months%20Ended%20June%2030%2C%202025%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202024%20(Other%20Income)) Other income decreased significantly YoY due to lower interest income and unfavorable currency movements Other Income (Expense), Net (YoY, in millions) | Metric | H1 2025 | H1 2024 | | :--- | :------ | :------ | | Interest income | $29.5 | $52.0 | | Interest expense, net | $(49.1) | $(40.3) | | Net gain (loss) on sale of property | $27.9 | $(0.1) | | Net foreign currency exchange gains (losses) | $(14.3) | $7.9 | | Other, net | $(7.1) | $21.0 | - Interest income decreased by **$22.5 million (43%)**, mainly due to a **$19.5 million** decrease in interest from ARO Notes Receivable (prior year non-cash interest income and lower interest rates) and **$3.0 million** lower interest on cash equivalents[167](index=167&type=chunk) - Interest expense increased by **$8.8 million (22%)**, primarily due to lower capitalized interest for VALARIS DS-13 and DS-14[168](index=168&type=chunk) - Net foreign currency exchange shifted from **$7.9 million gain** in H1 2024 to **$14.3 million loss** in H1 2025, driven by unfavorable movements in euros, Brazilian real, and British pounds[170](index=170&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company maintains a strong liquidity position with significant cash, available credit, and no near-term debt maturities [Liquidity](index=45&type=section&id=Liquidity) Valaris expects to fund liquidity needs from cash, operations, and its revolving credit facility - Short-term liquidity needs are expected to be met by cash and cash equivalents and cash flows from operations[171](index=171&type=chunk) - Long-term liquidity needs will be funded by cash, operations, Notes Receivable from ARO, and ARO earnings distributions, with potential future debt/equity issuances[171](index=171&type=chunk) - Cash and cash equivalents were **$503.4 million** as of June 30, 2025, with **$375.0 million** available under the 2028 Credit Agreement[172](index=172&type=chunk) [Financing](index=45&type=section&id=Financing) The company's financing structure includes $1.1 billion in notes and a $375.0 million credit agreement - The company has **$1.1 billion** in 2030 Second Lien Notes, maturing April 30, 2030, with an **8.375% interest rate**[173](index=173&type=chunk) - The 2028 Credit Agreement provides for up to **$375.0 million** in borrowings, including a **$150.0 million** sublimit for letters of credit[174](index=174&type=chunk) [Cash Flows and Capital Expenditures](index=46&type=section&id=Cash%20Flows%20and%20Capital%20Expenditures) Operating cash flow increased significantly, while capital expenditures were focused on maintenance and upgrades Cash Flows and Capital Expenditures (Six Months Ended June 30, in millions) | Metric | 2025 | 2024 | | :--- | :----- | :----- | | Net cash provided by operating activities | $275.9 | $37.8 | | Capital expenditures | $(167.4) | $(261.5) | - Operating cash flow for H1 2025 was **$275.9 million**, primarily from **$307.1 million** operating income and **$26.0 million** Australian tax refunds[175](index=175&type=chunk) - Expected capital expenditures for 2025 are **$375.0 million to $415.0 million**, mainly for maintenance and upgrades[178](index=178&type=chunk) [Investment in ARO and Notes Receivable from ARO](index=47&type=section&id=Investment%20in%20ARO%20and%20Notes%20Receivable%20from%20ARO) The company expects future cash from ARO through note maturities and potential earnings distributions - Cash is expected from ARO through the maturity of Notes Receivable and distribution of earnings[180](index=180&type=chunk) - ARO's earnings distributions are at the discretion of its board and influenced by liquidity and capital requirements; **no cash distributions have been made since formation**[181](index=181&type=chunk) Notes Receivable from ARO Maturity Schedule (as of June 30, 2025, in millions) | Maturity Date | Principal Amount | | :--- | :--- | | October 2027 | $213.6 | | October 2028 | $163.0 | | Total | $376.6 | [Share Repurchase Program](index=47&type=section&id=Share%20Repurchase%20Program) The company has $275.0 million remaining under its share repurchase program, with no recent activity - The board authorized a share repurchase program of up to **$600.0 million**[184](index=184&type=chunk) - Approximately **$275.0 million** remained available for share repurchases as of June 30, 2025[184](index=184&type=chunk) - **No share repurchases** were made during the three and six months ended June 30, 2025 and 2024[184](index=184&type=chunk) [Other Commitments](index=48&type=section&id=Other%20Commitments) Valaris has outstanding letters of credit and a potential funding obligation for ARO's newbuild rigs - Contingently liable for **$30.0 million** under outstanding letters of credit, with **$11.2 million** in collateral deposits as of June 30, 2025[185](index=185&type=chunk) - Potential obligation to fund ARO for newbuild jackup rigs, with commitment reduced to **$1.1 billion** after Kingdom 2 delivery[186](index=186&type=chunk)[187](index=187&type=chunk) - ARO ordered Kingdom 3 for approximately **$300.0 million**, with a 25% down payment made from cash on hand[187](index=187&type=chunk) [Tax Assessments](index=48&type=section&id=Tax%20Assessments) The company is contesting a Malaysian tax assessment and recently settled assessments in Australia - Contesting a Malaysian tax assessment of approximately **$28.0 million** for 2012-2017; all payments under a seven-month plan completed as of June 30, 2025[188](index=188&type=chunk) - Settled Australian tax assessments for A$4.0 million in December 2024, releasing **$18.0 million** of uncertain tax liability and receiving **A$42.0 million ($26.0 million)** in refunds in Q1 2025[189](index=189&type=chunk) [Divestitures](index=49&type=section&id=Divestitures) Valaris continues to monetize non-core assets to enhance shareholder value and liquidity - Agreement to sell VALARIS 247 for approximately **$108.0 million**, with an expected pre-tax gain of **$87.0 million**[191](index=191&type=chunk) - Sold VALARIS 75 for **$24.0 million**, resulting in a pre-tax gain of approximately **$23.0 million**[192](index=192&type=chunk) - Three semisubmersible rigs (VALARIS DPS-3, DPS-5, DPS-6) were sold for recycling for total cash proceeds of **$10.0 million**[193](index=193&type=chunk) [Market Risk](index=49&type=section&id=MARKET%20RISK) The company is exposed to interest rate risk and foreign currency risk from its global operations [Interest Rate Risk](index=49&type=section&id=Interest%20Rate%20Risk) Valaris is exposed to interest rate risk on its fixed-rate notes and variable-rate credit agreement - Exposed to interest rate risk on fixed-interest rate 2030 Second Lien Notes and variable-rate borrowings under the 2028 Credit Agreement[195](index=195&type=chunk)[196](index=196&type=chunk) - Notes Receivable from ARO bear interest based on the one-year term SOFR rate plus 2.10%, with the 2025 rate already determined[197](index=197&type=chunk) - A hypothetical **1% decrease to SOFR** would decrease 2025 interest income by **$3.8 million**[197](index=197&type=chunk) [Foreign Currency Risk](index=50&type=section&id=Foreign%20Currency%20Risk) The company is exposed to foreign currency risk as some revenues and expenses are in other currencies - Functional currency is the U.S dollar, but exposed to foreign currency exchange risk due to revenues and expenses in other currencies[198](index=198&type=chunk) - The company **does not currently hedge** its foreign currency risk[198](index=198&type=chunk) [Critical Accounting Policies](index=50&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) The company's critical accounting policies require significant judgment and estimates - Critical accounting policies, requiring significant judgment and estimates, include **property and equipment**, **income taxes**, and **pension and other post-retirement benefits**[200](index=200&type=chunk) [New Accounting Pronouncements](index=50&type=section&id=New%20Accounting%20Pronouncements) Information on new accounting pronouncements is provided in Note 1 of the financial statements - Information on new accounting pronouncements is provided in Note 1 to the condensed consolidated financial statements[201](index=201&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item incorporates by reference the market risk disclosures from the MD&A section - Market risk disclosures are incorporated from 'Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk'[202](index=202&type=chunk) [Item 4. Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025 - Disclosure controls and procedures were **effective** as of June 30, 2025[204](index=204&type=chunk) - **No material changes** in internal control over financial reporting occurred during the quarter ended June 30, 2025[205](index=205&type=chunk) [PART II - OTHER INFORMATION](index=52&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) This section details ongoing legal proceedings, which are not expected to have a material adverse effect [Environmental Matters](index=52&type=section&id=Environmental%20Matters) The company is contesting assessments for drilling fluid spills in Brazil and has recorded a small liability - Subject to pending notices of assessment for drilling fluid spills in Brazil (2008-2019), with a **$0.5 million liability** as of June 30, 2025[208](index=208&type=chunk) [Other Matters](index=52&type=section&id=Other%20Matters) The company is involved in various other routine lawsuits and investigations incidental to its business [Item 1A. Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) This item refers readers to the comprehensive risk factor discussion in the annual report on Form 10-K - Significant risk factors are detailed in the **annual report on Form 10-K** for the year ended December 31, 2024[211](index=211&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item reiterates the status of the company's share repurchase program - The company has a **$600.0 million** share repurchase program, with approximately **$275.0 million** remaining available as of June 30, 2025[212](index=212&type=chunk) - **No share repurchases** were made during the three months ended June 30, 2025[212](index=212&type=chunk) [Item 5. Other Information](index=52&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[213](index=213&type=chunk) [Item 6. Exhibits](index=53&type=section&id=Item%206.%20Exhibits) This item lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - Includes certifications (Sarbanes-Oxley Sections 302 and 906) and XBRL Instance Document, Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[214](index=214&type=chunk) [Signatures](index=54&type=section&id=SIGNATURES) This section contains the required signatures confirming the report's submission on behalf of Valaris Limited - The report is signed by Christopher T Weber, Senior Vice President and Chief Financial Officer, and Melissa Barron, Controller, on July 31, 2025[220](index=220&type=chunk)

Core Viewpoint - Valaris Limited reported quarterly earnings of $1.61 per share, exceeding the Zacks Consensus Estimate of $1.16 per share, but down from $2.03 per share a year ago, indicating a significant earnings surprise of +38.79% [1][2] Financial Performance - The company achieved revenues of $615.2 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 6.41% and showing a slight increase from $610.1 million year-over-year [2] - Over the last four quarters, Valaris has surpassed consensus EPS estimates two times and topped revenue estimates four times [2] Stock Performance - Valaris shares have increased approximately 15.2% since the beginning of the year, outperforming the S&P 500's gain of 8.3% [3] - The stock's immediate price movement will depend on management's commentary during the earnings call and future earnings expectations [3][4] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $1.00 on revenues of $559.74 million, and for the current fiscal year, it is $2.65 on revenues of $2.21 billion [7] - The estimate revisions trend for Valaris was unfavorable prior to the earnings release, resulting in a Zacks Rank 5 (Strong Sell) for the stock, indicating expected underperformance in the near future [6] Industry Context - The Oil and Gas - Drilling industry, to which Valaris belongs, is currently ranked in the bottom 4% of over 250 Zacks industries, suggesting potential challenges ahead [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact Valaris's stock performance [5]