Valaris(VAL) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EBITDA increased to $139 million in Q2 2024, up from$54 million in Q1 2024, with adjusted EBITDA including one-time reactivation costs at $150 million [7][28] - Revenue was$610 million, up from $525 million in the prior quarter [28] - Contract drilling expense decreased primarily due to lower reactivation expenses and reduced repair and maintenance costs [30] Business Line Data and Key Metrics Changes - The backlog increased to over$4.3 billion, marking a 42% increase compared to the previous year and the seventh consecutive quarter of backlog growth [5][14] - Average day rates for drillships in backlog increased to $414,000 per day from$338,000 per day [14] - The contracted benign environment floater fleet utilization reached 86%, the highest in nearly a decade [16] Market Data and Key Metrics Changes - Spot Brent crude prices have largely traded above $80 per barrel, with a five-year forward price around$70 per barrel, supporting investment in long-cycle offshore projects [8][9] - Average day rates for seventh-generation drillships increased from approximately $450,000 in H2 2023 to approximately$480,000 in H1 2024 [17] - The global jackup market remains healthy with marketed utilization at 93% [11] Company Strategy and Development Direction - The company is focused on maximizing fleet profitability by securing high utilization and attractive contract economics [10] - There is a strong conviction in the strength and duration of the current upcycle, with expectations for strong customer demand for projects commencing in 2025 and 2026 [5][38] - The company intends to return all future free cash flow to shareholders unless more value-accretive opportunities arise [13][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the structural upcycle of the offshore drilling market, driven by increasing global demand for hydrocarbons and stable oil prices [9][38] - The company anticipates generating meaningful and sustained free cash flow in 2025 and beyond [13][37] - Management noted that the recent suspension of rigs by Saudi Aramco does not fundamentally change the market outlook, as it represents only about 1% of the global marketed jackup fleet [12][50] Other Important Information - The company had cash and cash equivalents of $410 million at the end of the quarter, with total liquidity of$785 million [31] - Capital expenditures for Q3 are expected to be between $90 million and$100 million, with full-year CapEx projected at $450 million to$480 million [35][36] Q&A Session Summary Question: Capital allocation and returning cash flows to shareholders - Management confirmed a commitment to return capital to shareholders and noted that they are generating increasing amounts of cash as legacy contracts roll onto new contracts [41] Question: Dynamics of the DS-17 contract and standby rates - Management highlighted the strong pipeline of opportunities and the high specification of the DS-17, which allowed for an attractive standby rate [43] Question: Insights on jackup suspension notices - Management clarified ongoing discussions regarding potential suspensions and emphasized that the impact on EBITDA is limited compared to the overall backlog [49][50] Question: Market dynamics and future demand for seventh-generation rigs - Management indicated a robust pipeline of opportunities and expressed confidence in the demand for high-specification rigs [54][56] Question: Expectations for M&A activity in the offshore drilling space - Management acknowledged the potential for additional M&A in the industry but emphasized that they are well-positioned with their existing fleet [58]