Industry Overview - The Zacks Oil and Gas - Drilling industry includes companies that provide rigs and services for oil and gas exploration and development, with operations both onshore and offshore [2] - Drilling for hydrocarbons is capital-intensive and technically challenging, with future performance largely dependent on contracting activity rather than oil or gas prices [2] - Offshore drilling companies exhibit higher volatility compared to onshore firms, with their share prices more closely correlated to oil prices [2] Current Challenges - The U.S. rig count has decreased by approximately 18% over the past year, reversing post-pandemic recovery gains and raising concerns about future contracts and operational performance [3][4] - Excess capacity and intense pricing competition are squeezing profit margins, limiting revenue growth and challenging companies' profitability [4] - The industry's earnings estimates for 2025 have declined by 57.1% over the past year, indicating a negative outlook for earnings growth [9] Global Opportunities - International demand for drilling services is experiencing a significant increase, with the highest levels of activity in over a decade, driven by rising tendering and rig awards [5] - This growth in international operations is expected to enhance revenues and contribute to long-term sector stability [5] Regional Dynamics - Saudi Arabia's decision to freeze its Maximum Sustainable Capacity at 12 million barrels per day and halt expansion plans has raised concerns about future revenue opportunities from Middle Eastern projects [6] Industry Performance - The Zacks Oil and Gas - Drilling industry has underperformed compared to the broader Zacks Oil - Energy sector and the S&P 500, with a decline of 29% over the past year [11] - The industry's current Zacks Industry Rank is 225, placing it in the bottom 9% of 248 Zacks industries, indicating challenging near-term prospects [7][8] Valuation Metrics - The industry is currently trading at an EV/EBITDA ratio of 7.52X, significantly lower than the S&P 500's 18.36X but above the sector's 3.47X [14] - Over the past five years, the industry's EV/EBITDA has ranged from a low of 7.16X to a high of 24.81X, with a median of 14.66X [14] Notable Companies - **Valaris Limited**: Holds a diverse fleet of rigs and has a market capitalization of $3.2 billion, with a projected earnings growth of 16.7% for 2025 [17] - **Transocean**: Known for its modern fleet and focus on ultra-deepwater drilling, with a market capitalization of $3.3 billion [20] - **Patterson-UTI Energy**: Benefits from advanced rig technology and strategic acquisitions, with a market capitalization of $3.2 billion [23]

Company Overview - Valaris Limited (NYSE: VAL) is the largest offshore drilling company, originating from the former Ensco, which merged with Rowan Companies in 2019 and rebranded as Valaris [1] Leadership and Expertise - Oriol Madaula is highlighted as an experienced actuary with a strong interest in value investing, particularly in the shipping sector, and has a practical approach to the financial world [1] Investment Strategy - The company employs a value investing approach, focusing on both long and short positions, and utilizes options for hedging purposes to optimize investment returns [1]

Financial Data and Key Metrics Changes - Revenue for Q3 2024 was $643 million, an increase from $610 million in the previous quarter [49] - Adjusted EBITDA rose to $150 million from $139 million in the prior quarter, driven by strong operational performance [49][50] - Free cash flow improved to $111 million, with $100 million of shares repurchased during the quarter [10][52] Business Line Data and Key Metrics Changes - Fleet-wide revenue efficiency was 98%, marking the third consecutive quarter of at least 97% efficiency [11] - The jack-up market remains healthy with contracted rig counts and utilization stable, with marketed utilization for the global jack-up fleet at 93% [25][29] Market Data and Key Metrics Changes - Global demand for hydrocarbons continues to rise, with deepwater production expected to play a significant role [17] - Average day rates for seventh-generation drillships increased to approximately $500,000 in Q3 2024 [22] - Marketed utilization for the global jack-up fleet is currently 93%, with day rates in the North Sea in the mid-100,000s [25][29] Company Strategy and Development Direction - The company is focused on securing attractive long-term contracts and managing its fleet prudently to support earnings and cash flow growth [9][60] - There is a robust pipeline of future opportunities in 2026 and beyond, despite some customer demand being deferred [9][60] - The company is committed to returning all future free cash flow to shareholders unless better opportunities arise [10][61] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength and duration of the current upcycle, despite some customer demand being deferred [9][60] - The company noted that while there are headwinds due to equipment availability and regulatory delays, projects are being delayed rather than canceled [20] - Management highlighted the importance of deepwater production in meeting global energy needs and the compelling economics of offshore projects [17][93] Other Important Information - The company received the Safety Leadership Award for its restricted zone analysis tool, enhancing safety in offshore operations [14] - The company has repurchased a total of $300 million in shares since the program began, with $300 million remaining under the authorization [52] Q&A Session Summary Question: Expectations on day rates trajectory - Management indicated that day rates may see some variety, with customers willing to pay solid rates for high-specification assets [64][65] Question: Customer demand deferral details - Management clarified that deferrals are primarily in deepwater projects, with delays in FPSO availability impacting timelines [66][67] Question: Cost reduction during warm stacking - Management explained that costs can be reduced to around $60,000 per day during warm stacking, with a ramp-up period of about 90 days to return to work [71][72] Question: M&A opportunities and consolidation - Management believes there is room for consolidation in the offshore drilling market but emphasized that Valaris is not compelled to pursue M&A for scale [79][80] Question: Timeline for activating sidelined assets - Management stated that the activation of sidelined assets will depend on market opportunities, with a focus on keeping the active fleet utilized [82][84]

Financial Performance - Net income for the three months ended September 30, 2024, was $62.9 million, compared to $17.0 million for the same period in 2023, representing a 269% increase[13] - For the nine months ended September 30, 2024, net income was $239.2 million, significantly up from $38.3 million in 2023, marking a 524% increase[13] - Comprehensive income attributable to Valaris for the three months ended September 30, 2024, was $64.7 million, compared to $12.9 million in 2023, an increase of 400%[13] - The company reported net cash provided by operating activities of $230.8 million for the nine months ended September 30, 2024, compared to $170.8 million for the same period in 2023, an increase of 35%[19] - The Company reported basic earnings per share of $64.6 million for the three months ended September 30, 2024, compared to $12.9 million for the same period in 2023[67] - Operating income for Q3 2024 was $94.9 million, compared to $16.6 million for Q3 2023, reflecting improved performance across segments[100] - Operating income for the nine months ended September 30, 2024, was $233.1 million, compared to $15.2 million in the same period of 2023, reflecting a significant improvement[102][103] Assets and Liabilities - Total current liabilities decreased to $692.3 million as of September 30, 2024, down from $744.3 million at the end of 2023, a reduction of approximately 7.4%[15] - Cash and cash equivalents decreased to $379.3 million as of September 30, 2024, from $620.5 million at the end of 2023, a decline of 39%[16] - Total liabilities decreased to $2,209.6 million as of September 30, 2024, compared to $2,325.2 million at the end of 2023, a decrease of approximately 5%[15] - Retained earnings increased to $1,265.2 million as of September 30, 2024, from $1,025.5 million at the end of 2023, an increase of 23.4%[17] - Total Valaris shareholders' equity rose to $2,114.9 million as of September 30, 2024, compared to $1,987.6 million at the end of 2023, an increase of 6.4%[17] - Other liabilities decreased to $404.4 million as of September 30, 2024, from $471.7 million at December 31, 2023[108] Revenue and Expenses - For Q3 2024, consolidated total revenues were $643.1 million, with segment revenues of $389.0 million from Floaters, $213.7 million from Jackups, and $113.7 million from ARO[99] - Revenues for the nine months ended September 30, 2024, totaled $1,778.2 million, a 37% increase from $1,300.4 million in the same period of 2023[102][103] - Contract drilling expenses (exclusive of depreciation) increased to $1,345.6 million in 2024 from $1,141.6 million in 2023, indicating a rise of approximately 18%[102][103] - The company reported a loss on impairment of $28.4 million for the nine months ended September 30, 2024[102] ARO Performance - ARO's revenues for the three months ended September 30, 2024, were $113.7 million, compared to $121.5 million for the same period in 2023[46] - ARO reported a net loss of $54.0 million for the three months ended September 30, 2024, compared to a net loss of $1.3 million for the same period in 2023[46] - The equity in losses of ARO for the three months ended September 30, 2024, was $(23.8) million, compared to $2.4 million for the same period in 2023[50] - ARO is expected to purchase 20 newbuild jackup rigs over an approximate 10-year period, with the first two already delivered and operational[43] Shareholder Activities - During Q3 2024, the company repurchased 1.8 million shares at an aggregate cost of approximately $100.0 million, averaging $57.02 per share[82] - The company had approximately $300.0 million available for share repurchases under the authorized Share Repurchase Program[81] - For the nine months ended September 30, 2023, the company repurchased 2.3 million shares at an aggregate cost of approximately $150.0 million, averaging $66.24 per share[82] Tax and Regulatory Matters - The company utilized a discrete effective tax rate method for calculating income taxes for the three and nine months ended September 30, 2024[83] - Discrete income tax expense for Q3 2024 was $0.5 million, with a tax benefit of $70.0 million for the nine months ended September 30, 2024, primarily due to changes in unrecognized tax benefits and prior period tax matters[84] - Luxembourg tax assessments resulted in a revised aggregate tax assessment of approximately €60.0 million (about $65.0 million), with a tax benefit of approximately $65.0 million recognized in Q2 2024 after a favorable decision from tax authorities[87] - The Organization for Economic Co-operation and Development introduced a new global minimum tax of 15% effective January 1, 2024, with no significant impact on financial statements for the three and nine months ended September 30, 2024[88] Geographic Revenue Distribution - Consolidated revenues for Brazil reached $380.5 million for the nine months ended September 30, 2024, compared to $117.4 million for the same period in 2023[116] - The U.S. Gulf of Mexico generated $273.7 million in revenues for the nine months ended September 30, 2024, an increase from $253.3 million in the prior year[116] - The United Kingdom contributed $273.1 million in revenues for the nine months ended September 30, 2024, compared to $192.6 million in the same period of 2023[116] - Australia reported revenues of $195.8 million for the nine months ended September 30, 2024, up from $148.3 million in the previous year[116] - Angola's revenues were $141.3 million for the nine months ended September 30, 2024, compared to $160.1 million in the same period of 2023[116] - Other countries collectively generated $513.8 million in revenues for the nine months ended September 30, 2024, compared to $428.7 million in the prior year[116] - The geographic concentration indicates that Brazil, U.S. Gulf of Mexico, and the United Kingdom are significant contributors to the overall revenue, each exceeding 10% of total revenues[116]

Valaris Limited (VAL) came out with quarterly earnings of $0.88 per share, missing the Zacks Consensus Estimate of $1.36 per share. This compares to earnings of $0.17 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of -35.29%. A quarter ago, it was expected that this company would post earnings of $0.96 per share when it actually produced earnings of $2.03, delivering a surprise of 111.46%. Over the last four quarters, the compa ...

Anastasia Yakovleva Valaris - Actual Results vs. Guidance Q2/2024 Q1/2024 Guidance Actual Guidance Actual 490-500 525 580-600 610 Revenue Contract Drilling Expenses 430-440 445 460-470 439 General & Administrative Expenses 27 27 30 33 Capital Expenditures 145-155 151 100-110 110 Adjusted EBITDA 30-40 54 85-105 139 Note: Valaris Limited (NYSE: VAL) has been covered by me previously, so investors should view this as an update to my earlier articles on the company. Two weeks ago, leading offshore driller Valar ...

Financial Data and Key Metrics Changes - Adjusted EBITDA increased to $139 million in Q2 2024, up from $54 million in Q1 2024, with adjusted EBITDA including one-time reactivation costs at $150 million [7][28] - Revenue was $610 million, up from $525 million in the prior quarter [28] - Contract drilling expense decreased primarily due to lower reactivation expenses and reduced repair and maintenance costs [30] Business Line Data and Key Metrics Changes - The backlog increased to over $4.3 billion, marking a 42% increase compared to the previous year and the seventh consecutive quarter of backlog growth [5][14] - Average day rates for drillships in backlog increased to $414,000 per day from $338,000 per day [14] - The contracted benign environment floater fleet utilization reached 86%, the highest in nearly a decade [16] Market Data and Key Metrics Changes - Spot Brent crude prices have largely traded above $80 per barrel, with a five-year forward price around $70 per barrel, supporting investment in long-cycle offshore projects [8][9] - Average day rates for seventh-generation drillships increased from approximately $450,000 in H2 2023 to approximately $480,000 in H1 2024 [17] - The global jackup market remains healthy with marketed utilization at 93% [11] Company Strategy and Development Direction - The company is focused on maximizing fleet profitability by securing high utilization and attractive contract economics [10] - There is a strong conviction in the strength and duration of the current upcycle, with expectations for strong customer demand for projects commencing in 2025 and 2026 [5][38] - The company intends to return all future free cash flow to shareholders unless more value-accretive opportunities arise [13][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the structural upcycle of the offshore drilling market, driven by increasing global demand for hydrocarbons and stable oil prices [9][38] - The company anticipates generating meaningful and sustained free cash flow in 2025 and beyond [13][37] - Management noted that the recent suspension of rigs by Saudi Aramco does not fundamentally change the market outlook, as it represents only about 1% of the global marketed jackup fleet [12][50] Other Important Information - The company had cash and cash equivalents of $410 million at the end of the quarter, with total liquidity of $785 million [31] - Capital expenditures for Q3 are expected to be between $90 million and $100 million, with full-year CapEx projected at $450 million to $480 million [35][36] Q&A Session Summary Question: Capital allocation and returning cash flows to shareholders - Management confirmed a commitment to return capital to shareholders and noted that they are generating increasing amounts of cash as legacy contracts roll onto new contracts [41] Question: Dynamics of the DS-17 contract and standby rates - Management highlighted the strong pipeline of opportunities and the high specification of the DS-17, which allowed for an attractive standby rate [43] Question: Insights on jackup suspension notices - Management clarified ongoing discussions regarding potential suspensions and emphasized that the impact on EBITDA is limited compared to the overall backlog [49][50] Question: Market dynamics and future demand for seventh-generation rigs - Management indicated a robust pipeline of opportunities and expressed confidence in the demand for high-specification rigs [54][56] Question: Expectations for M&A activity in the offshore drilling space - Management acknowledged the potential for additional M&A in the industry but emphasized that they are well-positioned with their existing fleet [58]

Valaris Limited (VAL) came out with quarterly earnings of $2.03 per share, beating the Zacks Consensus Estimate of $0.96 per share. This compares to loss of $0.29 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 111.46%. A quarter ago, it was expected that this company would post earnings of $0.40 per share when it actually produced earnings of $0.35, delivering a surprise of -12.50%. Over the last four quarters, the company h ...

Valaris Ltd. (VAL) , an offshore drilling contractor, has mobilized its 123 jack-up rig toward the Selene well in the Southern North Sea. The Valaris 123 jack-up rig is slated to drill the Selene exploration well in the license P2437, operated by the British energy major, Shell. Shell's partner, Deltic Energy, stated that the jack-up rig was mobilized on Jul 21, and is expected to reach its destination shortly. The duration of the journey will be determined by the weather conditions during its transit. The ...

Valaris - Actual Results vs. Guidance Valaris Limited (NYSE: VAL) has been covered by me previously, so investors should view this as an update to my earlier articles on the company. Last month, leading offshore driller Valaris reported Q1/2024 results handily above expectations, mostly due to improved revenue efficiency. Revenues also benefited from the drillship VALARIS-DS 8 commencing its contract with Petrobras (PBR) offshore Brazil during the quarter. Adjusted EBITDA of $54 million was also well above ...