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    Valaris Ltd (VAL)

    Q1 2024 Earnings Summary

    Reported on Mar 21, 2025 (Before Market Open)
    Pre-Earnings Price$64.06Last close (May 1, 2024)
    Post-Earnings Price$66.20Open (May 2, 2024)
    Price Change
    $2.14(+3.34%)

    What went well

    • Valaris expects significant EBITDA growth in the second half of 2024, driven by rigs commencing contracts and moving to higher day rates, with an anticipated EBITDA increase of almost 80% in Q2 relative to Q1 and a meaningful ramp across the year.
    • The company holds a strong position with 12 of their 13 drillships being high-specification seventh-generation rigs, and is seeing strong customer demand for 2025 and 2026, particularly in Africa and the Mediterranean, which are expected to be bright spots due to increasing CapEx and demand.
    • 97% of Valaris's 2024 revenue guidance at the midpoint is already underwritten, providing high confidence in achieving financial targets.

    What went wrong

    • Valaris needs to secure incremental work for the DS-10 and DPS-5 rigs to reach the midpoint of their $500 million to $600 million EBITDA guidance for 2024. Failure to secure these contracts could result in missing their earnings targets.
    • The company has three high-specification drillships (DS-11, DS-13, and DS-14) that require significant reactivation costs, and they are cautious about reactivating them without contracts that provide meaningful returns. This may lead to prolonged idle periods for these assets, limiting future growth.
    • Much of Valaris's future growth relies on securing contracts for opportunities in Africa and the Mediterranean starting in 2025 and 2026, which are not yet secured. Any delays or failures to secure these contracts could impact future revenues.

    Q&A Summary

    1. EBITDA Guidance and Risks
      Q: Can you confirm EBITDA guidance and risks to midpoint?
      A: Management maintains EBITDA guidance of $500–600 million for 2024. To reach the midpoint, they need incremental work for the DS-10 and DPS-5 rigs. They are actively pursuing opportunities and are confident in securing this work.

    2. Impact of Saudi Rig Suspensions on Jackup Rates
      Q: Will Saudi suspensions pressure jackup day rates?
      A: Of the 22 suspended Saudi jackups, about half are competitive internationally. Management believes these rigs can be absorbed without significant pressure on day rates. They see strong demand and 95% utilization for high-spec units, supporting stable rates.

    3. Reactivation of DS-11, 13, and 14 Rigs
      Q: What are the prospects for DS-11, 13, 14 reactivation?
      A: The DS-11, 13, and 14 are high-spec seventh-generation rigs, and management is in active discussions to deploy them. They are focused on opportunities that provide meaningful returns on reactivation costs. They are confident in reactivating multiple rigs when appropriate.

    4. Contracting Strategy and Rate Expectations
      Q: How do you view rates given sidelined capacity?
      A: Management aims to maximize economics on high-spec assets, targeting term contracts in the mid to high $400,000s, potentially into the $500,000s. They see strong demand in 2025 and 2026 and believe high-spec rigs will command premium rates.

    5. Revenue Underwritten and Guidance Confidence
      Q: How much revenue is underwritten at guidance midpoint?
      A: Approximately 97% of revenue is underwritten at the guidance midpoint. Management is confident but acknowledges the need to secure additional work for certain rigs to reach targets.

    6. Timing of Increased Contract Awards
      Q: When will contract awards increase?
      A: Management expects the pace of contract awards to increase in the second half of the year. They cite a solid tendering environment for 2024 and believe awards will accelerate as complex, long-term programs progress.

    7. Potential for Joint Ventures
      Q: Will you consider JVs for idle rigs?
      A: Management is open to traditional or nontraditional ventures if accretive. They are in active discussions regarding the DS-11, 13, and 14 and will consider JVs if they provide meaningful returns.

    8. Demand Growth in Africa and Mediterranean
      Q: What's the outlook for rigs in Africa Med region?
      A: Management sees opportunities for more than 30 rigs starting in 2025–2026, with half in Africa Med. They note a potential 52% increase in CapEx in Africa, split between shallow and deepwater projects.

    9. Utilization of DPS-5 in U.S. Gulf
      Q: Could DPS-5 work in U.S. Gulf if no Mexico work?
      A: The DPS-5 is both moored and DP capable, offering flexibility. There are opportunities in U.S. Gulf well intervention and P&A work, and management is marketing the rig both domestically and internationally.

    10. Q2 Revenue Efficiency and Progression
      Q: Is strong revenue efficiency continuing in Q2?
      A: Revenue efficiency remains solid in Q2. EBITDA guidance aligns with expectations, with significant growth anticipated in the second half due to rigs returning to work and new contracts commencing.

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