Valaris(VAL)2023-08-02 15:39Financial Data and Key Metrics Changes - Adjusted EBITDA for Q2 2023 was $15 million, down from $28 million in the prior quarter, while adjusted EBITDA adding back one-time reactivation costs was $59 million, up from $55 million in the prior quarter [25] - Revenues decreased to $390 million from $408 million, primarily due to fewer operating days for the jackup fleet and lower mobilization and demobilization revenues [25][26] - Contract drilling expense decreased to $348 million from $356 million, primarily due to lower costs for idle rigs and lower repair and maintenance costs [27] Business Line Data and Key Metrics Changes - Jackup revenues decreased due to fewer operating days and lower mobilization revenues, particularly for Valaris 249, which completed its contract [26] - Floater revenues increased due to more operating days and a higher average day rate, primarily related to Valaris DS-12 [26] - Reactivation expense increased to $44 million from $26 million, driven by the commencement of a reactivation project for Valaris DS-8 [27] Market Data and Key Metrics Changes - Spot Brent crude prices moved above $80 per barrel, with five-year forward prices remaining above $65 per barrel, supporting offshore project investments [6][7] - Active utilization for sixth and seventh generation drillships has exceeded 90% for over 12 months, indicating strong demand [7] - The number of contracted jackups recently surpassed 400 for the first time since mid-2015, with active utilization above 90% [11] Company Strategy and Development Direction - The company intends to exercise purchase options for newbuild drillships VALARIS DS-13 and DS-14, viewing them as compelling investment opportunities [18][22] - The fleet strategy focuses on maintaining a critical mass of rigs in priority basins to benefit from economies of scale [16] - The company aims to return all future free cash flow to shareholders unless better investment opportunities arise [21][44] Management's Comments on Operating Environment and Future Outlook - The outlook for the offshore drilling market remains positive, with increasing demand and constrained supply tightening the market [22] - Management noted that the ultra-deepwater market is experiencing a strong upcycle, with increased contract durations and day rates [11][22] - The harsh environment jackup market in the North Sea is expected to remain challenging through 2024 [12][15] Other Important Information - The company announced an increase in its share repurchase authorization to $300 million, with a target of repurchasing $200 million by year-end 2023 [20][44] - ARO Drilling, a joint venture with Saudi Aramco, is expected to deliver newbuild rigs by the end of 2023, marking a significant growth milestone [19] Q&A Session All Questions and Answers Question: Regarding the purchase options on DS-13 and DS-14 - Management confirmed the intention to exercise the purchase options, emphasizing the need for attractive contracts before reactivating these rigs [46][47] Question: Thoughts on M&A opportunities - Management stated that while they are open to M&A opportunities, they are currently focused on organic growth and maximizing the potential of their existing high-spec fleet [48][49] Question: Characterization of leading-edge rates for jackups - Management noted that leading-edge rates for jackups are geographically diverse, with strong rates observed in regions outside the North Sea [52][53] Question: Future of leased rigs to ARO - Management expressed confidence in the long-term sustainability of the Saudi market and the potential for attractive opportunities for leased rigs [54] Question: Insights on pricing strategy for drillships - Management indicated that the pricing strategy will balance long-term contracts with opportunistic contracts at leading-edge rates, reflecting the tightening supply-demand balance [57][60]