As contract backlog tops $3.9 billion, Valaris upbeat about future rig opportunities

The Bermuda-headquartered offshore drilling contractor Valaris has managed to boost its contract backlog by almost 60% compared to the sum from twelve months ago, thanks to the higher day rates and fleet utilization. The rig owner’s operational and financial performance during the fourth quarter of 2023 enabled it to post strong results. The offshore drilling player’s outlook for a further rise in rig demand remains buoyant in light of the current drilling upcycle.

The current offshore drilling market fundamentals and forecasts for the future point out that this upcycle will be a multi-year one, resulting in a ramp-up in rig demand and tight supply. In line with this, Fortune Business Insights predicts that the offshore drilling market will reach $65.63 billion by 2030. Valaris’ peer, Transocean, tucked a $3.2 billion boost in contract backlog under its belt during 2023, thanks to the upturn in the offshore drilling market propping up higher day rates and fleet utilization.

During Offshore Energy’s interview with Maritime Strategies International (MSI) many aspects of the offshore drilling market were discussed. One of the highlights of this interview is encapsulated in the prediction that the demand for MODUs is expected to go down as countries make progress in their energy transformation endeavors since fewer oil and gas drilling activities will be carried out.

Valaris’ net income rose to $829 million in 4Q 2023, compared to $17 million in the third quarter of 2023. The firm’s adjusted EBITDA increased to $58 million during the fourth quarter of 2023 from $40 million in 3Q 2023, primarily due to more operating days across the fleet and lower reactivation expenses. In line with this, the adjusted EBITDAR jumped to $96 million in 4Q 2023 from $91 million in the third quarter.

The offshore drilling player’s revenues went up to $484 million in 4Q 2023 from $455 million in the third quarter of 2023. Excluding reimbursable items, revenues increased to $453 million from $427 million in 3Q 2023, driven by more operating days across the fleet, including for the Valaris DS-17 drillship that started a contract in early September 2023, following its reactivation, and the Valaris 107 jack-up rig, which began an assignment early in the fourth quarter after being idle for most of the third quarter.

The company’s contract drilling expense rose to $402 million in 4Q 2023 from $391 million in 3Q 2023. The contract drilling expense increased to $374 million during the fourth quarter of 2023, excluding reimbursable items, compared to $369 million in the third quarter of 2023, primarily due to the increase in operating days, partially offset by lower reactivation expense and lower repair and maintenance expense for the jack-up fleet.

According to the offshore drilling giant, the cash and cash equivalents and restricted cash slipped to $636 million as of December 31, 2023, from $1.1 billion as of September 30, 2023, primarily due to capital expenditures and share repurchases, partially offset by positive operating cash flow. In addition, the firm’s capital expenditures increased to $463 million in 4Q 2023 from $106 million in 3Q 2023.

This is primarily due to the exercise of options to take delivery of newbuild Valaris DS-13 and DS-14 drillships for an aggregate purchase price of $337 million during the quarter. Valaris’ total fleet utilization was 60% during 4Q 2023, compared to 57% for 3Q 2023 and 65% in 4Q 2022. The firm also delivered revenue efficiency of 93% in 4Q 2023, compared to 94% in 3Q 2023 and 98% in 4Q 2022. 

Anton Dibowitz, Valaris’ President and Chief Executive Officer, commented: “We continue to execute on our operating leverage by repricing rigs from legacy day rates to meaningfully higher market rates and successfully delivering reactivated rigs with attractive contracts. At the same time, we remain laser focused on delivering high levels of operational performance to our customers, as evidenced by another strong year of revenue efficiency.

“During the fourth quarter, we were awarded new contracts and extensions with associated contract backlog of more than $1.4 billion. These awards include two multi-year drillship contracts at leading-edge day rates and several jack-up contracts across the North Sea, Australia and Trinidad, demonstrating the depth of our customer relationships, track record of operational delivery and broad-based strength of the market.”

Based on Valaris’ results, the firm’s floater revenues jumped to $263 million in 4Q 2023 from $243 million in the third quarter of 2023. This means that revenues increased to $247 million from $232 million in the third quarter, excluding reimbursable items, primarily due to more operating days for the Valaris DS-17 drillship, which commenced its contract with Equinor offshore Brazil in early September, following its reactivation.

This was partially offset by fewer operating days for the Valaris DS-12 drillship due to mobilization and a brief shipyard visit between contracts. The drilling player’s contract drilling expense increased to $226 million in 4Q 2023 from $215 million in the third quarter of 2023. Excluding reimbursable items, contract drilling expense rose to $211 million from $206 million in the third quarter, primarily due to more operating days for the Valaris DS-17 rig, partially offset by lower reactivation expense.

The company elaborated that its jack-up revenues went up to $179 million in 4Q 2023 from $166 million in the third quarter of 2023. Excluding reimbursable items, revenues increased to $170 million from $155 million in the third quarter, primarily due to more operating days for the Valaris 107, 249, and Norway rigs, all of which incurred some idle time during the third quarter.

This was partially offset by fewer operating days for the Valaris 76 and 123 rigs, both of which completed contracts during 4Q and are undergoing contract preparation and planned maintenance work before the start of their next contracts in 2024. Valaris’ contract drilling expense rose to $123 million in 4Q 2023 from $122 million in the third quarter of 2023.

In light of this, the firm’s contract drilling expense increased to $115 million from $114 million in the third quarter, excluding reimbursable items. The company’s contract drilling expense was largely flat on higher revenues primarily due to lower repair and maintenance expenses.

Valaris outlined that revenues increased to $134 million in 4Q 2023 from $122 million in the third quarter 2023, primarily due to the newbuild Kingdom 1 jack-up rig embarking on its maiden contract in November 2023 and more operating days for ARO 4001, following some out-of-service days for planned maintenance during the third quarter.

The contract drilling expense decreased to $88 million from $92 million in the third quarter, primarily due to lower bareboat charter expense, partially offset by more operating days for the owned fleet.

Within its latest fleet status report from last week, Valaris disclosed a wave of new contract awards and extensions for its rigs, with an associated contract backlog of about $1.2 billion, excluding lump sum payments such as mobilization fees and capital reimbursements. The company’s total contract backlog jumped to $3.9 billion.

These new contracts and extensions for three floaters and six jack-ups in the firm’s rig fleet were secured with Petrobras, Equinor, Harbour Energy, TotalEnergies, Shell, Ithaca Energy, Eni, and Anadarko Petroleum Corporation, a wholly-owned subsidiary of Occidental (Oxy), enabling the rig owner to carry out operations in Brazil, the U.S. Gulf of Mexico, the UK sector of the North Sea, Australia, and Trinidad.

Dibowitz concluded: “We remain confident in the strength and duration of this upcycle and the outlook for Valaris is positive. We expect to deliver significant earnings and cash flow growth over the next few years and we intend to return all future free cash flow to shareholders unless there is a better or more value accretive use for it.”

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