Valaris ‘laser-focused’ on ensuring its rig fleet will be fully booked in 2024

With the contract backlog growth for the sixth quarter in a row fueling its hopes for further uplift, the Bermuda-headquartered offshore drilling contractor Valaris is determined to find more employment for its rigs during 2024 to get all the current gaps in fleet assignments filled out, so that, there are no remaining available days.

All offshore drilling players have been reaping the benefits of the multi-year rig demand bonanza, as confirmed by Valaris’ peer, Transocean, which saw another boost in contract backlog in the first quarter of 2024, enabling the rise to $8.9 billion, thanks to higher day rates and fleet utilization.

Valaris’ net income dropped to $26 million in 1Q 2024 from $829 million in the fourth quarter of 2023. This is due to a tax expense of $13 million in 1Q 2024 compared to a tax benefit of $790 million in the fourth quarter.

The firm’s adjusted EBITDA fell to $54 million during the first quarter of 2024 from $58 million in 4Q 2023, said to be primarily due to idle time for several jack-ups that were undergoing contract preparations and special periodic surveys in the first quarter, partially offset by more operating days for the floater fleet. In line with this, the adjusted EBITDAR decreased to $84 million in 1Q 2024 from $96 million in the fourth quarter.

The offshore drilling player’s revenues rose to $525 million in 1Q 2024 from $484 million in the fourth quarter of 2023. Excluding reimbursable items, revenues increased to $453 million due to the Valaris DS-8 drillship starting a contract in late December following its reactivation, and higher revenue efficiency across the floater fleet in the first quarter compared to the fourth quarter. The company explains that this was partially offset by fewer operating days for the jack-up fleet, with several rigs experiencing idle time for contract preparations and special periodic surveys before beginning their next contracts.

The company’s contract drilling expense jumped to $445 million in 1Q 2024 from $402 million in 4Q 2023. The contract drilling expense increased to $414 million during the first quarter of 2024, excluding reimbursable items, compared to $374 million in the fourth quarter of 2023, primarily due to the rise in operating days for the floater fleet and higher repair and maintenance expense.

According to the offshore drilling giant, the cash and cash equivalents and restricted cash fell to $509 million as of March 31, 2024, from $636 million as of December 31, 2023, primarily due to capital expenditures, partially offset by positive operating cash flow. In addition, the firm’s capital expenditures declined to $151 million in 1Q 2024 from $464 million in 4Q 2023 due to the company exercising options to take delivery of the Valaris DS-13 and DS-14 newbuild drillships for an aggregate purchase price of $337 million during the fourth quarter.

Anton Dibowitz, Valaris’ President and CEO, commented: “I am very pleased with our start to 2024 as we delivered strong safety and operational performance during the first quarter as evidenced by fleetwide revenue efficiency of 97%. Our financial results also benefited from more operating days for our most recent drillship reactivation, Valaris DS-8. In addition, we were awarded new contracts and extensions with associated contract backlog of more than $520 million, including a multi-year contract offshore Angola for Valaris 144 at a leading-edge day rate for a benign environment jackup.

“We remain laser-focused on securing work for the remaining available days across our fleet in 2024 and preparing Valaris DS-7 for its expected contract startup in the second quarter. We have an industry-leading track record of executing reactivation projects and look forward to the completion of another successful startup.”

Valaris’ total fleet utilization was 56% during 1Q 2024, compared to 60% for 4Q and 1Q 2023. The firm also delivered revenue efficiency of 97% in 1Q 2024, compared to 93% in 4Q 2023 and 99% in 1Q 2023. 

Based on Valaris’ results, the firm’s floater revenues jumped to $324 million in 1Q 2024 from $263 million in the fourth quarter of 2023. This means that revenues increased to $310 million from $247 million in the fourth quarter, excluding reimbursable items, primarily due to Valaris DS-8, which kicked off a contract in late December following its reactivation, and higher revenue efficiency across the floater fleet in the first quarter compared to the fourth quarter.

The floaters’ contract drilling expense rose to $253 million in 1Q 2024 from $226 million in the previous quarter. Excluding reimbursable items, contract drilling expenses increased to $240 million from $211 million in the fourth quarter, mostly due to more operating days and higher costs associated with planned repairs and maintenance.

The total fleet utilization for floaters was 61% in 1Q 2024, compared to 58% in 4Q and 1Q 2023. On the other hand, the floater segment’s total revenue efficiency was 95% in 1Q 2024, which is higher than 90% in 4Q 2023 but lower than 98% in 1Q 2023.

The company elaborated that its jack-up revenues decreased to $152 million in 1Q 2024 from $179 million in the fourth quarter of 2023. Excluding reimbursable items, revenues went down to $139 million from $170 million in the fourth quarter, primarily due to fewer operating days, with several rigs experiencing idle time for contract preparations and special periodic surveys before embarking on their next contracts.

The jack-up segment’s contract drilling expense went up to $134 million in 1Q 2024 from $123 million in the fourth quarter of 2023, thus, contract drilling expense increased to $122 million from $115 million in the fourth quarter, excluding reimbursable items, mostly due to higher repair and maintenance expense associated with contract preparations and special periodic surveys.

The total fleet utilization for jack-ups was 56% in 1Q 2024, compared to 60% in 4Q and 1Q 2023, while the jack-up segment’s total revenue efficiency was 99% in 1Q 2024, which is higher than 98% in 4Q 2023 but lower than 100% in 1Q 2023.

Valaris outlined that revenues were pushed to $138 million in 1Q 2024 from $134 million in the fourth quarter of 2023, primarily due to a full quarter of operations for the Kingdom 1 jack-up rig, which began its maiden contract during the fourth quarter. This was partially offset by fewer operating days for the rest of the fleet due to more out-of-service days for planned maintenance in the first quarter compared to the fourth quarter.

ARO Drilling’s contract drilling expense increased to $98 million from $88 million in the fourth quarter, mostly due to higher bareboat charter expenses for leased rigs and higher repair costs associated with planned maintenance in the first quarter.

Several rig owners have received temporary suspensions of operations in the Middle East for one or more jack-ups in their fleets, which are rumored to be working for Aramco. Aside from Valaris, ADES, COSL, Arabian Drilling, Borr Drilling,  and Shelf Drilling were also presented with contract suspensions.

Dibowitz concluded: “We continue executing our growth strategy by securing new contracts at significantly higher day rates and building our contract backlog, which has increased over each of the past six consecutive quarters. We see strong customer demand for work that is expected to commence in 2025 and 2026, highlighting the longevity of this upcycle.

“We are focused on securing attractive contracts that support our anticipated earnings and cash flow growth over the next few years and 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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