Valaris Ltd. Q1 FY2024 earnings call

• Strong safety and operational performance in Q1 with no lost time incidents and 97% fleet-wide revenue efficiency. - Backlog grew to over $4 billion, marking the sixth consecutive quarter of increase. - Offshore drilling market supported by oil price increases, tight supply-demand balance, and growth in upstream CapEx and offshore FIDs. - Floater market: Contracted benign environment floater count increased, with longer contract durations and increasing day rates. - Jackup market: Tight with nearly 95% utilization, but some rigs affected by Saudi Aramco contract suspensions. - Harsh environment market: North Sea fundamentals positive with 91% utilization and strong customer interest for 2025 programs. - Capital return program: $200M returned to shareholders last year, repurchase authorization increased to $600M, and intent to return future free cash flow to shareholders.

In the first quarter, adjusted EBITDA was $54 million, and adjusted EBITDAR (adding back onetime reactivation costs) was $84 million. Revenue was $525 million. For the floater market, the contracted benign environment floater count increased to its highest point since late 2016, with marketed utilization for high-specification seventh-generation drillships at 92% globally. The jackup market was tight with marketed utilization nearly 95% and the contracted rig count at a near-decade high. The harsh environment market in the North Sea had 91% utilization, with rigs fully contracted for 2024.

• Second quarter revenue expected $580-$600M, adjusted EBITDA $85-$105M. - Full year 2024 revenue mostly contracted, EBITDA guidance $500-$600M (need incremental work on DS-10 and DPS-5 to reach midpoint). - Full year 2024 CapEx expected $420-$460M, $30M higher than prior guidance due to contract preparation and survey costs for VALARIS 144.

• Saudi Aramco contract suspensions for 22 rigs, with potential impact on day rates if suspended rigs flood the market. - Volatility in the jackup market if some suspended rigs return to the international market too quickly. - Uncertainty in securing incremental work for DS-10 and DPS-5 to reach full year EBITDA guidance midpoint.

Q: Greg Lewis asked about the 144 jackup contract, timing, mobilization cost.

A: Matt Lyne said discussions ongoing late 2023, contract signed March 2024, mobilization cost assumed <$10M. Anton Dibowitz reiterated contract signed after Saudi announcement.

Q: Eddie Kim asked about jackup market pressure on day rates.

A: Matt Lyne said half of suspended rigs competitive in other markets, jackup utilization high, not indicative of longer-term trend. Anton Dibowitz said suspended rigs can be absorbed orderly.

Q: David Smith asked about 2024 EBITDA guidance and DPS-5 opportunities.

A: Christopher Weber said maintaining guidance, need incremental work on DS-10 and DPS-5. Anton Dibowitz and Matt Lyne discussed DPS-5's capabilities and market opportunities.

Q: Fredrik Stene asked about contracting strategy and reactivation of sideline rigs.

A: Anton Dibowitz said 12 of 13 ships are seventh-generation, focus on getting all 3 sideline rigs to work, confident in reactivation ability.

Q: Kurt Hallead asked about contract award cadence and reactivation of DS-11,13,14.

A: Anton Dibowitz said pace of contracting to increase, 11,13,14 are fungible, organization has ability to reactivate in parallel.

Q: Doug Becker asked about contract likelihood for sideline rigs and JVs.

A: Anton Dibowitz said in active discussions, will consider JVs if accretive. Christopher Weber added criteria of meaningful return on reactivation costs.

Q: Doug Becker asked about 2Q revenue efficiency.

A: Anton Dibowitz said revenue efficiency solid, ramp towards third and fourth quarters. Christopher Weber detailed drivers of Q2 revenue growth like more operating days on floater fleet and jackups returning to work.