Valaris(US:VAL)2022-08-02 18:28Financial 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]