Q4 2023 Valaris Limited Earnings Call

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Operator: Thanks for watching! Good day, and welcome to the Valaris fourth quarter 2023 results conference call. All participants will be in listen only mode.

Good day and welcome to the Polaris first quarter 2023 results conference call all participants will be in listen only mode.

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Operator: And to withdraw your question, please press the star, then 2. Please note that this event is being recorded. Today we are experiencing national AT&T coverage issues. Should the presentation be interrupted at any time, we will attempt to reconnect and continue. During Q&A, if we experience an interruption, we will do our best to continue, but we may separately connect with analysts after the call. We appreciate your patience. I would now like to turn the conference over to Darren Gibbons, Vice President of Investor Relations and Treasurer. Please go ahead.

Please note. This event is being recorded today.

We are experiencing national AT&T Capri tissues. She had the presentation be interrupted at any time, we will attempt to reconnect and continue.

During Q&A, if we experience an interruption, we will do our best to continue that may separately connect with analysts after the call. We appreciate your patience.

I would now like to turn the conference over to Darin Gibbons, Vice President of Investor Relations and Treasurer. Please go ahead.

Darren Gibbons: Welcome everyone to the Valaris fourth quarter, 2023 conference call with me today, our president and CEO Anton Dubovits, senior vice president and CFO, Chris Weber, senior vice president and CCO, Matt Line, and other members of our Executive Management Team. We issued our press release, which is available on our website at Valaris.com. Any comments we make today about expectations are forward-looking statements and are subject to risks and uncertainty. Many factors could cause actual results to differ materially from our expectations. Please refer to our press release and SEC filings on our website that define forward-looking statements and list risk factors and other events that could impact future results. Also, please note that the company undertakes no duty to update forward-looking statements.

Welcome everyone to the Valores fourth quarter 2023 conference call with me today are president and CEO Anton deposits Senior Vice President and CFO, Chris Weber Senior Vice President and C. C O Matt line and other members of our executive management team, we issued our press release.

It is available on our website at Valores dotcom.

Any comments, we make today about expectations are forward looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially from our expectations.

Please refer to our press release and SEC filings on our website that define forward looking statements and list risk factors and other events that could impact future results.

Also please note that the company undertakes no duty to update forward looking statements <unk>.

Darren Gibbons: During this call, we will refer to GAAP and non-GAAP financial measures. Please see the press release on our website for additional information and required reconciliation. As a reminder, last week we issued our most recent fleet status report, which provides details on contracts across our rigged fleet. An updated investor presentation will be available on our website after the call. Now I'll turn the call over to Anton Dibovitz, President and CEO. Thanks, Darren, and good morning and afternoon to everyone.

During this call we will refer to GAAP and non-GAAP financial measures. Please see the press release on our website for additional information and required reconciliations.

As a reminder, last week, we issued our most recent fleet status report, which provides details on contracts across our rig fleet.

An updated investor presentation will be available on our website. After the call now I'll turn the call over to Anton Debits, President and CEO.

Thanks, Darren and good morning, and afternoon to everyone.

Anton Dubovits: During today's call, I will begin with an overview of our performance during the quarter, then provide some high-level commentary on the outlook for the offshore drilling market, and finish with an update on our capital return program. I'll then hand the call over to Matt to discuss the floater and jackup markets in more detail and provide an overview of our recent contracting success and our contracting outlook for 2024. After that, Chris will discuss our financial results and guidance before I wrap up the call with some closing comments.

During today's call I will begin with an overview of our performance during the quarter.

Then provide some high level commentary on the outlook for the offshore drilling market and finish with an update on our capital return program.

I'll, then hand, the call over to Matt to discuss the floater and Jackup markets in more detail and provide an overview of our recent contracting success in a contracting outlook for 'twenty 'twenty four.

After that Chris will discuss our financial results and guidance before I wrap up the call with some closing comments.

Anton Dubovits: Before I discuss the quarter, I want to highlight some key points about our business that we will cover in more detail during this call. First, we remain confident in the strength and duration of this upcycle, and the outlook for Valaris is positive, with increasing demand and constrained supply tightening the market. Second, we continue to execute on the commercial front, with nearly $3 billion of new contract backlog secured during 2023 at meaningfully improved day rates. Today, we sit with a total contract backlog of more than $3.9 billion, a nearly 60% increase from 12 months ago, and our contracted revenue coverage of more than 90% in 2024 underpins the meaningful improvement we expect in this year's financial results. Third, we are maintaining our 2024 EBITDA guidance range of $500 to $600 million. And finally, we continue to demonstrate our commitment to returning capital to shareholders. We repurchased $200 million of shares in 2023, and we are now increasing our share repurchase authorization from $300 to $600 million, starting with operations.

Before I discuss the quarter I want to highlight some key points about our business that we will cover in more detail during this call.

First we remain confident in the strength and duration of this up cycle and the outlook for Polaris is positive with increasing demand and constrained supply tightening in the market.

Second we continued to execute on the commercial front with nearly $3 billion of new contract backlog secured during 'twenty twenty-three at meaningfully improved day rates today.

Today, we sit with total contract backlog of more than $3.9 billion and nearly 60% increase from 12 months ago.

Our contracted revenue coverage of more than 90% in 'twenty 'twenty four underpins the meaningful improvement we expect in this year's financial results.

Third we are maintaining our 'twenty 'twenty four EBITDA guidance range of $500 million to $600 million.

And finally, we continue to demonstrate our commitment to returning capital to shareholders, we repurchased $200 million of shares in 2023 and we are now increasing our share repurchase authorization from $300 million to $600 million.

Starting with operations operating.

Anton Dubovits: Operating safely and efficiently remains our top priority, and we ended the year with positive momentum, with the fourth quarter's safety performance being the strongest of the year. We remain focused on continued improvement, and I would like to thank all our offshore crews and onshore personnel for their dedication to following our safe systems of work and keeping safety top of mind wherever we operate around the world. Of particular note, we had several rigs celebrate safety milestones during the quarter, and I'd like to congratulate Valaris Norway, 72, 110, and 115 for each reaching three years without a recordable incident, a fantastic achievement by these teams. We're equally proud of Valaris 110 for being awarded Total Energy's and North Oil Company's Global Jockup Rig of the Year. Great example of our focus on safe and efficient operations and our collaborative approach to working with our customers. I also want to congratulate the entire Valaris team for the successful reactivation of Valaris DS8.

Operating safely and efficiently remains our top priority and we ended the year with positive momentum with the fourth quarters safety performance being the strongest of the year.

We remain focused on continued improvement and I would like to thank all of our offshore crews and onshore personnel for their dedication to following a safe systems of work and keeping safety top of mind wherever we operate around the world.

Of particular note, we had several rigs celebrates safety milestones during the quarter and I'd like to congratulate the Polaris, Norway 70 to 110 and $1 15 for each reaching three years without a recordable incident and fantastic achievement by these teams.

We're equally proud to Polaris 110 for being award total energies and north oil companies global Jackup rig of the year.

A great example of our focus on safe and efficient operations and a collaborative approach to working with our customers.

I also want to congratulate the entire Valero team for the successful reactivation of hilarious D. S. Eight.

Anton Dubovits: The team completed the reactivation and executed a best-in-class importation into Brazil and customer acceptance with Petrobras, enabling the rig to commence its contract ahead of schedule. This marked the fifth drill ship reactivation that we've completed since early 2022 and our second during 2023 following the start-up of DS-17 in September. We continue to make good progress on reactivating DS7 and look forward to adding another drill ship to the active fleet later this year for a two and a half year contract offshore West Africa. Our industry-leading ability to execute these complex projects has been an important part of our growth story and a key driver for the meaningful improvement that we expect to see in our financial results in 2024 and beyond. Moving to our financial performance for the quarter, we generated adjusted EBITDA of $58 million and adjusted EBITDAR of $96 million, adding back one-time reactivation costs of $96 million.

The team completed the reactivation and executed a best in class importation into Brazil, and customer acceptance with Petrobras, enabling the rig to commence its contract ahead of schedule.

This marked the fifth drillship reactivation that we've completed since early 2022 and our second during 2023 following the startup of Dia 17 in September.

We continue to make good progress on reactivate, India, seven and look forward to adding another drillship to the active fleet later this year for a two and a half year contract offshore West Africa.

Our industry, leading ability to execute these complex projects has been an important part of our growth story and a key driver for the meaningful improvement that we expect to see in our financial results in 'twenty 'twenty four and beyond.

Moving to our financial performance for the quarter, we generated adjusted EBITDA of $58 million and adjusted EBITDAR, adding back one time reactivation costs of $96 million, Chris will provide further details on our financial results and guidance a little later.

Anton Dubovits: Chris will provide further details on our financial results and guidance a little later, while turning our attention to the market. Commodity prices remain supportive of continued investment in long-cycle offshore projects, with the five-year Brent crude price around $70 per barrel, a level at which approximately 90% of undeveloped offshore reserves are expected to be profitable. In addition, the growing global demand for hydrocarbons means that these barrels will be needed to meet the world's energy needs.

Turning our attention to the market.

Commodity prices remain supportive for continued investment in long cycle offshore projects with the five year, Brent Ford price around $70 per barrel a level at which approximately 90% of undeveloped offshore reserves are expected to be profitable.

In addition, growing global demand for hydrocarbons means that these barrels will be needed to meet the world's energy needs.

Anton Dubovits: According to data from Restart, offshore upstream capex is expected to increase by 10% in 2024 and at a compound annual growth rate of 6% over the next three years. The floater market continues to develop positively. This is evident in the customer activity we are seeing, with a growing pipeline of opportunities that are providing increased terms with longer lead times, a great sign for the duration of the current upside.

According to data from restart offshore upstream Capex is expected to increase by 10% in 2024 and at a compound annual growth rate of 6% over the next three years.

The Florida market continues to develop positively this is evident in the customer activity, we have seen with a growing pipeline of opportunities that are providing increased term wouldn't with longer lead times, a great sign for the duration of the current up cycle.

Anton Dubovits: However, as we mentioned in our previous quarterly call, considering lengthening contract lead times, customer-acquired upgrades, and repositioning rigs for work, we would expect to see some gaps in schedules across the industry during 2024. Looking at pricing, leading-edge day rates continue to be in the mid to high 400s, as demonstrated by our two most recent drill subfixtures, and we believe that they will continue to move higher over time as the remaining stacked and new build capacity continues to diminish and the total supply and demand balance further tightens. We believe that 2 to 3 year programs are likely to be awarded at, or close to, leading edge rates, while we may see lower rates for some of the 5 year plus opportunities, as some contractors may be willing to accept a lower rate to secure long-term duration and backlog.

However, as we mentioned in our previous quarterly call considering lengthening contract lead times customer quite upgrades and repositioning rigs for work, we would expect to see some gaps in schedules across the industry during 2024.

Looking at pricing, leading edge day rates continue to be in the mid to high four hundreds as demonstrated by our two most recent drillship fixtures and we believe that they will continue to move higher over time as the remaining stacked and newbuild capacity continues to diminish and the total supply and demand balance for the Titans.

We believe that two to three year programs are likely to be awarded at or close to leading edge rates. While we may see lower rates for some of the five year plus opportunities at some contractors may be willing to accept a lower rate to secure long term duration and backlog.

Anton Dubovits: Similarly, we may see somewhat lower rates on shorter-term gap fill jobs to avoid rigs becoming idle. For Valaris, we are focused on maximizing the profitability of our fleet by keeping our active rigs highly utilized and securing the best contract economics possible in each unique bidding situation. Our recent purchase of New Build Drill Ships Valaris DS-13 and DS-14 at highly attractive prices demonstrates our confidence in the strength and duration of the upcycle, and we will be disciplined in waiting for the right opportunities to reactivate these rigs and Valaris DS11.

Similarly, we may see somewhat lower rates on shorter term gap fill jobs to avoid rigs becoming idle.

For Polaris, we are focused on maximizing the profitability of our fleet by keeping our active rigs highly utilized and securing the best contract economics possible in each unique bidding situation.

Our recent purchase of Newbuild Drillships, <unk>, DS 13, and DS 14 at highly attractive prices demonstrates our confidence in the strength and duration of the up cycle and we will be disciplined in waiting for the right opportunities to reactivate these rigs and Polaris D. S 11.

Moving to shallow water.

Anton Dubovits: While the recent announcement from Saudi Arabia has created some uncertainty, we remain positive on the outlook for the Jakab market. First, we expect that Saudi Arabia will continue to be the largest jack-up market in the world for the foreseeable future. We understand the recent announcement reflects a change in the timing and pace at which Saudi will develop their resources, given that they currently hold about 3 million barrels of spare capacity. The delay in increasing maximum sustainable capacity from 12 to 13 million barrels per day is expected to be focused on the expansion of just two oil fields, Safania and Manifa, and we do not think it changes the Kingdom's long-term view on the need for these resources given their expectations of growing oil demand.

While the recent announcement from Saudi Arabia has created some uncertainty we remain positive on the outlook for the Jackup market.

First we expect that Saudi Arabia will continue to be the largest jackup market in the world for the foreseeable future.

We understand the recent announcement reflects the change in the timing and pace at which Saudi will develop their resources given that they currently hold about 3 million barrels of spare capacity.

The delay in increasing maximum sustainable capacity from 12 to 13 million barrels per day is expected to be focused on the expansion of just two oilfields sulfinyl and maneuver and we do not think it changes the kingdom's long term view on the need for these resources given their expectations for growing oil demand.

Anton Dubovits: Second, the global jack-up market is extremely tight, with active utilization approaching 95% and the contracted rig count at its highest level in nearly nine years, and we continue to see incremental demand coming into the market outside of Saudi Arabia, which Matt will talk about a little bit later. And finally, approximately 90 contracted jackups, representing more than 20% of the contracted global jackup fleet, are at least 40 years old, meaning it is likely that some of these rigs will be retired, and the overall number of jackups in the global fleet will decline further over time.

Second the global Jackup market is extremely tight with active utilization approaching 95% and the contracted rig count at its highest level in nearly nine years and.

And we continue to see incremental demand coming to market outside of Saudi Arabia, which Matt will talk about a little bit later.

And finally, approximately 90 contracted jackups, representing more than 20% of the contracted global Jackup fleet I at least 40 years old.

Meaning it is likely that some of these rigs will be retired and the overall number of jackups in the global fleet will decline further over time.

Anton Dubovits: Regarding our business, we have 8 rigs leased to Arrow, our unconsolidated joint venture with Saudi Aramco, with an additional 2 rigs scheduled to commence leases this year. For context, the charter revenue on all our lease rigs accounts for just 5% of our contract background. Aramco and the Kingdom remain fully committed to Arrow, including its new build program, which is a cornerstone project of the Saudi Vision 2030 program, and we think that the recent Saudi announcement will have minimal, if any, impact on our business. Moving now to an update on our capital return program. We expect to deliver significant earnings and cash flow growth over the next few years as we reprice rigs to market day rates and reactivated rigs go back to work, and we intend to return all future free cash flow to shareholders unless there is a better or more value-accretive use for it. We continue to demonstrate our commitment to returning capital to shareholders.

Regarding our business, we have eight rigs lease to arrow, our unconsolidated joint venture with Saudi Aramco with an additional two rigs scheduled to commence leases this year.

For context, the charter revenue on all our leased rigs accounts for just 5% of our contract backlog.

Ram co and the Kingdom remained fully committed to arrow, including its Newbuild program, which is a cornerstone project of the Saudi vision 2030 program and we think that the recent Saudi announcement will have minimal if any impact on our business.

Moving now to an update on our capital return program.

We expect to deliver significant earnings and cash flow growth over the next few years as we reprice rigs to market day rates and reactivated rigs go back to work.

And we intend to return all future free cash flow to shareholders, unless there is a better or more value accretive use for it.

We continued to demonstrate our commitment to returning capital to shareholders last year, we authorized a $300 million share repurchase program and returned $200 million to shareholders and we are now increasing the authorization to $600 million pre.

Matt: Last year, we authorized a $300 million share repurchase program and returned $200 million to shareholders, and we are now increasing the authorization to six hundred million dollars, providing increased capacity to opportunistically repurchase shares. Now, I'll hand the call over to Matt to discuss the floater and jackup markets in more detail and to provide an overview of our recent contracting success and our contracting outlook for 2024. Thanks, Anton, and good morning and afternoon, everyone.

Providing increased capacity to opportunistically repurchase shares.

Now I'll hand, the call over to Matt to discuss the floater and Jackup markets in more detail and to provide an overview of our recent contracting success in a contracting outlook for 2024.

Thanks, Anton and good morning, and afternoon everyone.

Matt: Since the beginning of the fourth quarter, we have secured new contracts and extensions with an associated contract backlog of approximately $1.5 billion. These awards have increased our total backlog to more than $3.9 billion, representing an almost 60% increase over the past 12 months. More than $1 billion of this new backlog is for the floater fleet, including multi-year contracts for drillships Valaris DS4 and DS16. DS-4 was awarded a nearly three-year contract with Petrobras Offshore Brazil, and DS-16 received a two-year contract extension with Oxy in the U.S. Gulf of Mexico.

Since the beginning of the fourth quarter, we have secured new contracts and extensions with an associated contract backlog of approximately $1 5 billion. These awards have increased our total backlog to more than $3 9 billion, representing an almost 60% increase over the past 12 months.

More than 1 billion of this new backlog is for the floater fleet, including multi year contracts for Drillships Florist D. S. Four and D. S 16.

D. S. Four was awarded a nearly three year contract with Petrobras offshore, Brazil and D. S. 16 received a two year contract extension with oxy in the U S. Gulf of Mexico. Importantly, these contracts are expected to contribute to a meaningful improvement in financial results with day rates transitioning from legacy rates in the low two hundreds to leading edge.

Matt: Importantly, these contracts are expected to contribute to a meaningful improvement in financial results, with day rates transitioning from legacy rates in the low 200s to leading-edge day rates. We have also been awarded several new jack-up contracts across the North Sea, Trinidad, and Australia, which together added nearly $500 million in backlog, demonstrating the broad-based strength of the shallow water market. Most notably, we received a three-year contract extension for Valaris 120 with Harbour Energy in the UK North Sea. This extension is expected to commence in the third quarter of 2025 at a day rate that is meaningfully higher than the current spot, indicative of an improving North Sea jackup market. Moving now to some commentary on our major markets, starting with floaters. The contracted benign environment floater count reached 123 during the fourth quarter, its highest point since late 2016, and utilization for the active 6th and 7th generation drill ships was at 93%.

Day rates.

We are also awarded several new jackup contracts across the North Sea, Trinidad in Australia, which combined added nearly 500 million in backlog demonstrating the broad based strength the shallow water market. Most notably we received a three year contract extension for Valores y dollars.

'twenty with Harper energy in the U K North Sea. This extension is expected to commence in the third quarter of 2025 at a day rate that is meaningfully higher than the current spot rates indicative of an improving north sea jackup market.

Moving now to some commentary on our major markets, starting with floaters, the contracted benign environment floater count reached 123 during the fourth quarter its highest point since late 2016.

And utilization for the active six and seventh generation Drillships was at 93%. We continue to see a strong pipeline of opportunities for floaters and we are currently tracking approximately 30 prospects each with an expected duration of greater than one year that are estimated to commence before the end of 2026.

Matt: We continue to see a strong pipeline of opportunities for floaters, and we are currently tracking approximately 30 prospects, each with an expected duration of greater than one year, that are estimated to commence before the end of 2026. We anticipate that approximately half of these opportunities will need to be met by either incremental reactivations of stacked and stranded nude builds or active rigs moving regions. This compares favorably to a pool of approximately 10 drill ships across the stacked and new-built fleet that are considered likely reactivation candidates in today's market. In terms of timing, we estimate that a handful of these 30 opportunities will commence later this year, with the remainder likely to be evenly weighted between 2025 and 2026. We continue to see Brazil being a key driver of ultra-deep water flow to demand.

We anticipate that approximately half of these opportunities will need to be met by either incremental reactivation of stacked and strained at new builds or active rigs moving regions.

This compares favorably to a pool of approximately 10 drillships across the stack to Newbuild fleet that are considered likely reactivation candidates in today's market.

In terms of timing, we estimate that a handful of these 30 opportunities will commence later this year with the remainder likely to be evenly weighted between 2025 and 2026.

We continue to see Brazil, being a key driver of ultra deepwater floater demand and Petrobras currently has opportunities for five rigs across its SAP here and Hanker door development outstanding.

Matt: And Petrobras currently has opportunities for five rigs across its Sepia and Hancadora developments. In addition, we anticipate that Petrobras is likely to come to market for additional rigs beyond the two active tenders, and we believe that these opportunities combined could increase the floater count offshore Brazil by up to three additional rates. We are currently tracking more than a dozen opportunities off the coast of Africa. We are excited by the prospect of increased activity in this region, with several large IOCs expected to add rigs over the next few years, including some long-term programs that could cover multiple operating locations that may be attractive opportunities for both our active fleet and the DS-11, 13, and 14. Brazil and Africa combined account for approximately two-thirds of the total opportunities, with the remainder spread across other parts of South America, Southeast Asia, and the Gulf of Mexico, and primarily with large IOCs.

In addition, we anticipate that Petrobras are likely to come to market for additional rigs beyond the two active tenders and we believe that these opportunities combined could increase the floater count offshore Brazil by up to three additional rigs. We are currently tracking more than a dozen opportunities off the coast of Africa. We are excited by.

The prospect of increased activity in this region with several large IOC is expected to add rigs over the next few years, including some long term programs that could cover multiple operating locations that may be attractive opportunities for both our active fleet and the D. S 11, 13 and 14.

Brazil and Africa combined account for approximately two thirds of the total opportunities with the remainder spread across other parts of South America Southeast Asia, and the Gulf of Mexico.

And primarily with large I O sees on.

Matt: On the jack-up side of the business, demand continues to steadily increase, with the contracted jackup count now at its highest level in almost nine years. As a result, active utilization for jackups is approaching 95 percent, with leading-edge dairy firmly established above 150,000 in several regions. We expect to see solid demand growth over the next few years in the broader Middle East, Southeast Asia, and West Africa that could absorb in the range of 10-15 incremental rates. The strength of the global jacket market is evidenced by some of our recent contract awards, including a second contract for the Valaris 247 Offshore Australia at a market-leading rate of $180,000 per day and a 300-day contract for the Valaris 249 Offshore Trinidad at approximately $163,000, representing a 30% increase over its current day rate.

On the Jackup side of the business demand continues to steadily increase with the contracted Jackup count now at its highest level in almost nine years as a result active utilization for Jackups is approaching 95% with leading edge dayrates firmly established above 150000 in several regions.

We expect to see solid demand growth over the next few years in the broader middle East Southeast Asia, and West Africa that could absorb in the range of 10 to 15 incremental rigs.

The strength of the global Jackup market as evidenced by some of our recent contract awards, including a second contract for the Florida 247 offshore Australia at a market leading rate of 180000 per day.

And a 300 day contract for the $2 49 offshore Trinidad at approximately 163000, representing.

Representing a 30% increase over its current day rate.

Matt: We have had great contracting success in the North Sea, having secured new contracts and extensions with an associated backlog of more than $420 million since the beginning of the fourth quarter. Contract awards for the Valaris Stavanger 121 and 123 mean that our active North Sea fleet is now fully sold out for 2024, and we are in active discussions for opportunities commencing in 2025 and beyond. The three-year extension for Valaris 120 that I mentioned earlier provides a good indication of the strengthening commercial environment in the UK North Sea from 2025 onward. Our contract wins since the start of the fourth quarter have further improved our 2024 contract coverage. On the floater side, we now have just 2 of our 13 active floaters, the DS10 and the DPS5, with near-term contract availability.

We have had great contracting success in North sea, having secured new contracts and extensions with associated backlog of more than 420 million since the beginning of the fourth quarter.

Contract awards for the Polaris Stope anger, 121, and 123 mean that our active North Sea fleet is now fully sold out for 2024, and we are in active discussions for opportunities commencing in 'twenty five and beyond the three year extension for Polaris 120 that I mentioned earlier provides a good.

Indication of the strengthening commercial environment in the UK North sea from 'twenty 'twenty five onwards.

Our contract wins since the start of the fourth quarter have further improved our 2024 contract coverage.

On the floater side, we now have just two of our 13 active floaters. The DS 10, and the D. P. S. Five with near term contract availability D. S tenants due to complete its existing contract with shell offshore Nigeria towards the end of the first quarter and we believe the rig is well placed for long term opportunities in.

Matt: DS10 is due to complete its existing contract with Shell offshore Nigeria towards the end of the first quarter, and we believe the rig is well placed for long-term opportunities in the region that are expected to commence in late 2024 or early 2025. In the interim, we are actively pursuing short-term opportunities that could fill some of the potential gaps. DPS-5 is currently mobilizing for its 110-day contract with E&I Offshore Mexico.

The region that are expected to commence in late 2024 or early 2025.

In the interim.

We are actively pursuing short term opportunities that could fill some of the potential gap.

D. P. S. Five is currently mobilizing for 210 day contract with Eni offshore Mexico.

Matt: We are in active discussions regarding opportunities in the region but anticipate the rig will experience some idle time in the second half of the year. On the JACOP side, our remaining contract availability in 2024 is down to just two rigs, the Valaris 247 and the 144. Recently, we have seen encouraging developments around environmental permit approvals for projects offshore Australia.

We are in active discussions regarding opportunities in the region, but anticipate the rig will experience. Some idle time in the second half of the year.

On the Jackup side, our remaining contract availability in 'twenty 'twenty four is down to just two rigs the valores $2 47, and the $1 44.

Recently, we have seen encouraging developments around environmental permit approvals for projects offshore Australia and as a result, we now have good line of sight into future work for the Florida 247.

Matt: And as a result, we now have a good line of sight into future work for the Valaris 247. For the Valaris 144, we continue to pursue near-term opportunities in the Gulf of Mexico while looking for longer-term opportunities outside of the region. Finally, we are in advanced discussions with BP related to contract extensions for Mad Dog and Thunder Horse, the two production platforms that we manage in the U.S. Gulf of Mexico, and we expect to finalize these extensions soon. In summary, we are extremely pleased with our contracting success in 2023, adding nearly $3 billion in new contract backlog during the year at a meaningfully improved day rate. We remain laser-focused on filling our remaining uncontracted days in 2024 and securing attractive contracts for work commencing in 2025 and beyond. I will now hand over the call to Chris to take you through the front end.

For the Polaris 144, we continue to pursue near term opportunities in the Gulf of Mexico, while looking for longer term opportunities outside of the region.

Finally, we are in advanced discussions with BP related to contract extensions for Mad Dog and Thunder horse. The two production platforms that we manage in the U S Gulf of Mexico. It.

And we expect to finalize these extension soon.

In summary, we are extremely pleased with our contracting success in 2023, adding nearly 3 billion in new contract backlog during the year meaningfully improved day rates.

We remain laser focused on filling our remaining uncontacted days in 2024, and securing attractive contracts for work commencing in 2025 and beyond.

I will now hand over the call to Chris to take you through the financials.

Chris: Thanks Matt, and good morning and afternoon everyone. In my prepared remarks, I will provide an overview of the fourth quarter results, our outlook for the first quarter of 2024, and I will also provide updated guidance for the full year 2024, starting with our fourth quarter results. Revenue was $484 million, up from $455 million in the prior quarter, and adjusted EBITDA was $58 million, up from $40 million in the prior quarter. Adjusted EBITDAR, which adds back reactivation expense, was $96 million, up from $91 million in the prior quarter. Adjusted EBITDA increased primarily due to more operating days across the fleet and lower reactivation expenses. In the fourth quarter, we had more operating days for Valaris DS-17, which commenced its contract with Equinor Offshore Brazil in early September following its reactivation.

Thanks, Matt and good morning, and afternoon everyone.

In my prepared remarks, I'll provide an overview of the fourth quarter results our outlook for the first quarter 2024, and I also will provide updated guidance for the full year 2024.

Starting with our fourth quarter results.

Revenue was $484 million up from $455 million in the prior quarter and adjusted EBITDA was $58 million up from $40 million in the prior quarter.

Adjusted EBITDAR, which adds back reactivation expense was $96 million up from $91 million in the prior quarter.

Adjusted EBITDA increased primarily due to more operating days across the fleet and lower reactivation expense.

In the fourth quarter, we had more operating days for Valero, Dia 17, which commenced its contract with Ecuador offshore Brazil in early September following its reactivation.

Chris: We also had more operating days for Jackups Valaris 107, 249 and a Norway, all of which incurred some idle time during the prior quarter. These benefits were partially offset by fewer operating days in the fourth quarter for Valaris DS-12 due to mobilization and a brief shipyard visit between contracts, as well as Jacobs, Valaris 76, and 123, both of which completed contracts during the fourth quarter and are undergoing contract preparation and planned maintenance work prior to the start of their next contracts. Fourth quarter reactivation expense was $39 million compared to $51 million in the prior quarter, primarily due to lower reactivation expense for Valaris DS-8, which commenced its contract with Petrobras offshore Brazil at year end, partially offset by higher reactivation expense for Valaris DS7, which is expected to commence its contract offshore West Africa in mid-2024. One item to note is that the fourth quarter income tax was a $790 million benefit.

We also had more operating days for Jackups, Valero 107249, and in Norway, all of which incurred some idle time during the prior quarter.

These benefits were partially offset by fewer operating days in the fourth quarter for Valero <unk> 12, due to mobilization and a brief shipyard visit between contracts as well as Jackups Valero 76, and 123, both of which completed contracts during the fourth quarter and are undergoing contract preparations and planned maintenance work.

Prior to the start of their next contracts.

Fourth quarter reactivation expense was $39 million compared to $51 million in the prior quarter, primarily due to lower reactivation expense for Valero DS eight which commenced its contract with Petrobras offshore Brazil at year end, partially offset by higher reactivation expense for Polaris Dia, seven which is expected to commence its contract.

Offshore West Africa in mid 2024.

One item to note is that fourth quarter income tax was $790 million benefit.

This is due to an $800 million noncash benefit that resulted from a change in valuation allowance for certain deferred tax assets.

Given our constructive outlook. We now believe it is likely that we will be able to utilize these assets over time.

Chris: This is due to an $800 million non-cash benefit that resulted from a change in valuation allowance for certain deferred tax assets. Given our constructive outlook, we now believe it is likely that we will be able to utilize these assets over time. Cash flow from operations in the fourth quarter was $97 million, and capital expenditures were $463 million, including $348 million related to the purchase of new-build drillships Valaris DS-13 and DS-14, which is comprised of the purchase price for the rigs and the cost incurred to prepare them for mobilization from South Korea to Las Palmas. We had cash and cash equivalents of $636 million at the end of the quarter. Cash declined by $422 million during the quarter due to capital expenditures, primarily the purchase of DS-13 and DS-14, as well as share repurchases.

Cash flow from operations in the fourth quarter was $97 million and capital expenditures were $463 million, including $348 million related to the purchase of Newbuild Drillships Polaris DS 13, Mds 2014.

Which is comprised of the purchase price for the rigs and the costs incurred to prepare them for mobilization from South Korea to Las Palmas.

We had cash and cash equivalents of $636 million at the end of the quarter.

Cash declined by $422 million during the quarter due to capital expenditures, primarily the purchase of DS 13, and DS 14, as well as share repurchases.

These were partially offset by $97 million of cash generated from operations.

Our $375 million revolving credit facility remains fully available providing total liquidity of just over $1 billion at the end of the quarter.

In the fourth quarter, we repurchased $50 million of shares taking our full year repurchases to $200 million, representing 3 million shares or approximately 4% of the total outstanding share count.

Chris: These were partially offset by $97 million of cash generated from operations. Our $375 million revolving credit facility remains fully available, providing total liquidity of just over $1 billion at the end of the quarter. In the fourth quarter, we repurchased $50 million of shares, taking our full-year repurchases to $200 million, representing 3 million shares, or approximately 4% of the total outstanding share count. Now, I'll provide a brief overview of Arrow Drilling's finances. As a reminder, Arrow is not consolidated in the financial results of Valaris.

Now I'll provide a brief overview of Aro drilling's financials. As a reminder, arrow is not consolidated in the financial results of <unk>.

Aero EBITDA increased to $39 million in the fourth quarter from $24 million in the prior quarter, primarily due to Newbuild Jackup Kingdom, one commencing its maiden contract in November and more operating days for Arrow 4001, following some out of service days for planned maintenance during the third quarter moving now.

Now to our first quarter 2024 outlook, we expect total revenues will be in the range of $490 million to $500 million.

Chris: Arrow EBITDA increased to $39 million in the fourth quarter from $24 million in the prior quarter, primarily due to the new build jack-up, Kingdom One, commencing its maiden contract in November and more operating days for Arrow 4001 following some out-of-service days for planned maintenance during the third quarter. Moving now to our first quarter 2024 outlook, we expect total revenues will be in the range of $490 to $500 million, as compared to $484 million in the fourth quarter. Floater revenues are expected to increase due to contract launches for Valaris DS8 and DS12. However, jackup revenues are expected to decrease due to idle time for several rigs, including Valaris 107, 120, 123, and 247.

As compared to $484 million in the fourth quarter.

Floater revenues are expected to increase due to contract startups for Valero DS eight and DS 12.

However, jackup revenues are expected to decrease due to idle time for several rigs, including Valero 107, $121 23, and $2 47.

Three of these rigs are undergoing special periodic surveys and contract preparation prior to the start of their next contracts, including Blair is 247.

Which after leaving the shipyard will mobilize from the North Sea to Australia ahead of its next job.

Each of these rigs are scheduled to commence new contracts before the end of the second quarter.

We expect that contract drilling expense will be $430 million to $440 million as compared to $402 million in the fourth quarter.

Chris: Three of these rigs are undergoing special periodic surveys and contract preparations prior to the start of their next contracts, including Valaris 247, which, after leaving the shipyard, will mobilize from the North Sea to Australia ahead of its next job. All of these rigs are scheduled to commence new contracts before the end of the second quarter. We expect that contract drilling expenses will be between $430 and $440 million dollars as compared to $402 million dollars in the fourth quarter.

This is primarily due to the addition of operating costs for Polaris DSA and DS 12, following their recent contract startups.

As well as costs associated with the Jackup Sps and contract preparation work that I just mentioned.

In addition, we rolled out offshore wage increases in certain regions at the beginning of the year.

General and administrative expense is expected to be approximately $27 million up from $24 million in the prior quarter.

As a result, we expect adjusted EBITDA to range between $30 million to $40 million, including $25 million to $30 million of reactivation expense for Valero Sds seven ahead of its expected contract commencement in the second quarter.

Chris: This is primarily due to the addition of operating costs for Valaris DS8 and DS12 following their recent contract startup, as well as costs associated with the Jackup SPS and contract preparation work that I just mentioned. In addition, we rolled out offshore wage increases in certain regions at the beginning of the year. General and administrative expense is expected to be approximately $27 million, up from $24 million in the prior quarter.

Capex in the first quarter is expected to be $145 million to $155 million.

Maintenance and upgrade Capex is expected to be approximately $70 million, including upgrades to <unk> 76, and 108 ahead of their long term bareboat charters to arrow.

Chris: As a result, we expect adjusted EBITDA to range between $30 to $40 million, including $25 to $30 million of reactivation expense for Valaris DS-7 ahead of its expected contract commencement in the second quarter. CapEx in the first quarter is expected to be $145 to $155 million. Maintenance and upgrade capex is expected to be approximately $70 million, including upgrades to Valaris 76 and 108 ahead of their long-term bareboat charters to Aero. Reactivation and associated contract-specific CapEx is expected to be approximately $50 million, including $20 million of reactivation spend that was previously anticipated in late 2023. Finally, the new build CapEx is expected to be approximately $30 million, primarily related to mobilization costs from South Korea to Las Palmas for Valaris DS-13 and DS-14.

[noise] reactivation and associated contract specific capex is expected to be approximately $50 million, including $20 million of reactivation spin that was previously anticipated in late 2023.

Finally, newbuild Capex is expected to be approximately $30 million, primarily related to mobilization costs from South Korea to Las Palmas for Valero, <unk> 13, and <unk> 14.

I'll now provide our current financial guidance for the full year 2024 consistent.

Consistent with the preliminary guidance provided on the third quarter call. Our full year 2024 guidance does not account for any incremental reactivation for contracts that have yet to be executed.

We currently forecast revenues of two three to $2 4 billion.

Contract drilling expense of $1 65 to $1 $75 billion in G&A expense of $105 million to $110 million.

As Anton mentioned, we are maintaining our full year adjusted EBITDA guidance of $500 million to $600 million.

And this includes reactivation expense of approximately $40 million at.

At the midpoint. This is approximately four times higher than 2023, EBITA with the increase primarily driven by contract startups for reactivated drillships.

Chris: I'll now provide our current financial guidance for the full year 2024. Consistent with the preliminary guidance provided on the third quarter call, our full year 2024 guidance does not account for any incremental reactivations for contracts that have yet to be executed. We currently forecast revenues of $2.3-$2.4 billion, contract drilling expense of $1.65-$1.75 billion, and G&A expense of $105-$110 million.

Rigs rolling to higher day rate contracts during the year and increased earnings from our North Sea Jackup fleet.

Given our contract wins in the fourth quarter, we now have 92% of our 2024 revenue contracted at the midpoint of our revenue guidance range as we look across the year revenues and EBITDA are expected to increase meaningfully in the second quarter compared to the first quarter, primarily due to several jackups, starting new contracts following Sps and contract prep.

Chris: As Anton mentioned, we are maintaining our full-year adjusted EBITDA guidance of $500 to $600 million, and this includes reactivation expense of approximately $40 million. At the midpoint, this is approximately four times higher than 2023 EBITDA, with the increase primarily driven by contract start-ups for reactivated drill ships, rigs rolling to higher day rate contracts during the year, and increased earnings from our North Sea Jackup Fleet. Given our contract wins in the fourth quarter, we now have 92% of our 2024 revenue contracted at the midpoint of our Revenue Guidance Range. As we look across the year, revenues in EBITDA are expected to increase meaningfully in the second quarter compared to the first quarter, primarily due to several jack-ups starting new contracts following FPS and contract preparation work.

<unk> work.

Further improvement is expected in the second half of the year, primarily due to Valero Dia seven which is scheduled to start its contract late in the second quarter following its reactivation.

And certain rigs rolling to higher day rate contracts for.

Full year 2024 capital expenditures are expected to range from $390 million to $430 million.

Compared to our prior guidance of $325 million to $365 million inclusive of the Newbuild Capex, we announced late last year upon delivery of DS 13, and DS 14.

The increase was primarily due to contract preparation costs, which are largely reimbursable and the timing of spend.

Maintenance and upgrade Capex is expected to be approximately $290 million with about $55 million being reimbursable. This.

Chris: Further improvement is expected in the second half of the year, primarily due to Valaris DS7, which is scheduled to start its contract late in the second quarter following its reactivation, and certain rigs rolling to higher day rate contracts. Full year 2024 capital expenditures are expected to range from $390 to $430 million. Compared to our prior guidance of $325 to $365 million, inclusive of the new build capex, we announced late last year upon delivery of DS-13 and DS-14, the increase is primarily due to contract preparation costs, which are largely reimbursable, and the timing of spend.

This covers Sps and contract preparation requirements as well as capital spares like.

Like 2023, 2024 is expected to be a heavy year for Jackup Sps projects.

The $40 million increase in maintenance and upgrade capex compared to our preliminary guidance is largely related to contract preparation work for Polaris D. S fours contract with Petrobras, which we announced in December.

As well as preparation work for 108, three year bareboat charter with Arrow.

This incremental capex is largely reimbursable through upfront fees.

Reactivation and contract specific Capex is expected to be approximately $80 million, which is $20 million higher than our preliminary guidance due to spin that was expected to be incurred in the fourth quarter pushing into 2024.

Chris: Maintenance and Upgrade CapEx is expected to be approximately $290 million, with about $55 million being reimbursable. This covers SPS and contract preparation requirements, as well as capital spares. Like 2023, 2024 is expected to be a heavy year for JACF SPS projects. The $40 million increase in maintenance and upgrade capex, compared to our preliminary guidance, is largely related to contract preparation work for Valaris DS4's contract with Petrobras, which we announced in December, as well as preparation work for 108's three-year bareboat charter with Arrow. This incremental capex is largely reimbursable through upfront fees. Reactivation and contract-specific CapEx is expected to be approximately $80 million, which is $20 million higher than our preliminary guidance due to spend that was expected to be incurred in the fourth quarter pushing into 2024. Finally, we anticipate new build capex of approximately $40 million, primarily related to the mobilization of Valaris DS-13 and DS-14 from South Korea to Las Palmas.

Finally, we anticipate Newbuild capex of approximately $40 million, primarily related to the mobilization of Polaris <unk> 13, <unk> 14 from South Korea to Las Palmas.

That concludes my review of our financial results and guidance I'll now hand, the call back to Anton for some closing remarks.

Thanks, Chris.

Conclude by reiterating some of the key points from our prepared remarks.

First we remain confident in the strength and duration of this up cycle and the outlook for Valero is positive with increasing demand and constrained supply tightening in the market.

Second we continued to execute on our operating leverage in a disciplined and thoughtful manner by repricing rigs from legacy day rates to much higher market rates and successfully delivering reactivated rigs with attractive contracts.

Our recent contracting success, including the addition of approximately one 5 billion in new contract backlog since the beginning of the fourth quarter has increased our contracted revenue coverage to more than 90% in 2024 underpinning the meaningful improvement expected in this year's financial results.

And finally, we continued to demonstrate our commitment to returning capital to shareholders by repurchasing $200 million of shares in 2023, and now increasing our share repurchase authorization from $300 million to $600 million.

Anton Dubovits: That concludes my review of our financial results and guidance. I'll now hand the call back to Anton for some closing remarks. Thanks, Chris.

We expect to generate meaningful and sustained free cash flow over the next few years and we intend to return at all to shareholders unless there is a better or more value accretive use for it.

Anton Dubovits: I'll conclude by reiterating some of the key points from our prepared remarks. First, we remain confident in the strength and duration of this upcycle, and the outlook for Valaris is positive, with increasing demand and constrained supply tightening the market. Second, we continue to execute on our operating leverage in a disciplined and thoughtful manner by repricing rigs from legacy day rates to much higher market rates and successfully delivering reactivated rigs with attractive contracts. Our recent contracting success, including the addition of approximately $1.5 billion in new contract backlog since the beginning of the fourth quarter, has increased our contracted revenue coverage to more than 90% in 2024, underpinning the meaningful improvement expected in this year And finally, we continue to demonstrate our commitment to returning capital to shareholders by repurchasing $200 million of shares in 2023 and now increasing our share repurchase authorization from $300 to $600 million. We expect to generate meaningful and sustained free cash flow over the next few years, and we intend to return it all to shareholders unless there is a better or more value or creative use for it. We've now reached the end of our prepared remarks.

We've now reached the end of our prepared remarks, operator, please open the line for questions.

Thank you we will now begin the question and answer session.

I ask a question you May press Star then one on your Touchtone phone.

Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Today's first question comes from David Smith, with Heikkinen Energy Advisors. Please go ahead.

Hey, Thanks, good morning.

Congratulations on the quarter.

Okay. Thanks, Dave.

Saying that there's a healthy amount of opportunities for for term floater program starting in the next 12 to 24 months and.

I'm curious how you think about bidding.

Central reactivation versus.

Inactive drillship on these kind of how you see the trade off between putting another drillship to work versus locking in duration and minimizing potential white space for the active fleet.

I I can hi, Dave look I.

I think we've been pretty clear our first priority is to keep our active fleet highly highly utilized and there are great opportunities for us to do that when it comes to stock capacity of the 13 14 and 11 I think we've been clear that we expect to get a meaningful return on our reactivation costs.

The $100 million may be with the with inflation pushing up above those numbers right now and.

And given where leading edge day rates are now the fact that you're generating about $100 million in EBITDA.

Operator: Operator, please open the line for questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone.

You know if as long as we can get a term contract we see some opportunities to do that as well we have people talking to us and interest in all three of the 13 14 and 11, but again, our first priority is to keep the active fleets highly utilized on attractive contracts and then look for the <unk>.

Operator: If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Today's first question comes from David Smith with Heikkinen Energy Advisors. Please go ahead.

Mental opportunities that we see coming to market.

As demand continues to increase I'm waiting for the right opportunity, but we have 10 rigs once the seven goes to work in the middle of this year working that's a fair stretch away from where we were a couple of years ago with just four of our ships walking and we're willing to be patient given the positive.

David Christopher Smith: Thanks, good morning. Congratulations on the quarter. Thanks. It does seem that there's a healthy amount of opportunity. Thank you for joining us, and I'm curious how you think about and how you see the tradeoff. Lock and End Array, www. Flydreamers.com, Hi Dave.

And we see in the market to wait for the right opportunity to put those rigs to work.

Anton Dubovits: Look, I think we've been pretty clear. Our first priority is to keep our active fleet highly utilized, and there are great opportunities for us to do that. When it comes to stack capacity, the 13, 14 and 11, I think we've been clear that we expect to get a meaningful return on reactivation costs, you know, around $100 million, maybe with inflation pushing up above those numbers right now. And given where leading-edge day rates are now, the fact that you're generating about $100 million in EBITDA, you know, as long as we can get a term contract, we see some opportunities to do You know, we have people talking to us and are interested in all three of the 13, 14 and 11.

I appreciate that and follow up question if I may.

Nice to see the execution of the $200 million of share repurchases through year end and nicer to see the authorization doubled to $600 million, how should we think about the pace at which you might use that authorization going forward.

Hey, Dave This is Chris.

I appreciate the question.

We remain committed to returning capital to shareholders.

And Tom mentioned, we returned 200 billion of capital to shareholders last year through share repurchases on a $300 million authorization. Our board just double that authorization to 600 million from $300 million.

This is an open ended authorization and with the additional <unk>.

Capacity for repurchases you think.

This gives us the ability to opportunistically repurchase shares in 'twenty, four and into 'twenty five.

Anton Dubovits: But again, you know, our first priority is to keep the active fleet highly utilized on attractive contracts and then look for the incremental opportunities that we see coming to market, you know, as demand continues to increase, you know, waiting for the right opportunity. Look, we have 10 rigs; once the seven go to work in the middle of this year, you know, that's a fair stretch away from where we were a couple of years ago with just four of our ships working. And we're willing to be patient given the positive momentum we see in the market to wait for the right opportunity to deploy those rigs. I appreciate that. It's nice to see you. $200,000,000, and nice. How should we think about this? Hey, yeah Dave, this is Chris.

And you know this is all part of our commitment to returning capital to our shareholders.

We believe we trade at a discount to our intrinsic value.

We put the increased authorization into place for a purpose.

Intend to use it and we're going to be opportunistic about it.

Great to hear thank you ill circle back in the queue.

Thanks.

Thank you. The next question comes from Eddie Kim with Barclays. Please go ahead.

Hi, Good morning, just wanted to ask about how you see the trend in day rates.

Hello.

Been in that mid to high four hundreds for about six to eight months now you mentioned in your remarks that you believe day rates will continue to move higher over time, but did highlight some potential for maybe some lower.

Christopher T. Weber: Appreciate the question. You know, we remain committed to returning capital to shareholders. As Anton mentioned, we returned $200 million of capital to shareholders last year through share repurchases on a $300 million authorization. Our board just doubled that authorization to $600 million from $300 million. This is an open-ended authorization.

It's on a longer term work and even some shorter term gap fill work. So just taking all of that together would it be fair to say, leading edge levels can hold flat through year end before starting to trend higher again next year, just how are you thinking about the <unk>.

Thank you.

Hey, Andy.

I'll start this off it's Matt.

Christopher T. Weber: And, you know, with the additional capacity for repurchases, I think this gives us the ability to opportunistically repurchase shares in 2024 and into 2025. And, you know, this is all part of our commitment to returning capital to our shareholders. We believe we trade at a discount to our intrinsic value, we put the increased authorization into place for a purpose, we intend to use it, and we're going to be opportunistic about it. Great to hear it. Thank you. I'll circle back.

I mean, I think if we take a look at the market fundamentals over the last 12 to 18 months, we've seen increase in lead time for tenders.

Which means customers are coming out.

Further in advance of when they expect to commence.

The contracting durations are increasing and these are all data points that support the longevity of this market.

And and I think probably one of the most recent data points is that we're now seeing majors picking up rigs on what I would classify as speculative.

David Christopher Smith: Thanks. Thank you. The next question comes from Eddie Kim with Barclays. Please go ahead. Hi, good morning.

Supply or speculative demand depending.

Depending on which side you look at it from so what that means is if you look at the JV that was announced recently hotel.

Eddie Kim: I just wanted to ask about the trend in day rates, which have been in the mid to high 400s for about six to eight months now. You mentioned in your remarks that you believe day rates will continue to move higher over time but did highlight some potential for maybe some lower day rates on longer-term work and even some shorter-term gap fill work. So just taking all that together, would it be fair to say leading edge levels could hold flat through year end before starting to trend higher again next year? How are you thinking about the trend here? Hey Eddie, I'll start this off. It's Matt.

While we know they have a long string of development opportunities around the world.

As unlikely they have approval on all of those programs. So they are picking up rigs or picking up a rig.

To satisfy their some of their demand with the idea that they can pick it up for rates that are favorable to them.

For obvious reasons to avoid.

Devote alternatives so.

Matt: I mean, I think if we take a look at the market fundamentals over the last 12 to 18 months, we've seen an increase in lead time for tenders, which means customers are coming out further in advance of when they expect to commence. The contracting durations are increasing. These are all data points that support the longevity of this market. And, I think probably one of the most recent data points is that we're now seeing majors picking up rigs on what I would classify as speculative supply or speculative demand, depending on which side you look at it from. So, what that means is, if you look at the JV that was announced recently, in total, they, while we know they have a long string of development opportunities around the world, it's unlikely they have approval for all of those programs.

So we see that as a really strong mark in the in the business, where where we're speculated demand.

Starting to pick back up again, so the read across day rates is that that illustrates the strength in the market and so we see the trend in the range that we that we offer to continue.

He does that I mean, we're always reticent I know everybody wants us to predict when are we going to get to that next milestone.

Prognostication is as difficult art, but what I will say, if you look back over quarters.

Leading edge day rates to continue to grind higher on average.

The market continues to tighten.

Simple economics supply and demand in the market continues to tighten there are less attractive assets sitting on the sidelines and incremental demand coming to market and that will drive day rates higher over time, but that is not to say when we say we shouldn't take a single data point and extrapolate it that theyre not going to.

Matt: So they're picking up rigs or picking up a rig to satisfy some of their demand with the idea that they can pick it up for rates that are favorable to them for obviously reasons to avoid, to avoid alternatives. So, so, you know, we see that as a really strong mark in the business where, where, where speculative demand is starting to pick back up again. So the read across day rates is that that illustrates the strength in the market. And so we see the trend and the range that we, we offer, to continue. Eddie, this is Anton.

Gaps in programs given.

Increasing lead times to contracts and repositioning rigs for work in attractive markets that needing to do upgrades, but overall, we're positive on the market and rates have continued to grind higher overtime.

Got it got it great. Thank you for that.

My follow up is just on the Saudi capacity expansion curtailment.

Anton Dubovits: I mean, we're always reticent. I know everybody wants us to predict when we are going to get to that next milestone. And, you know, prognostication is a difficult art. But what I will say is that, if you look back over quarters, leading edge day rates continue to grind higher on average. The market continues to tighten, you know, the simple economics of supply and demand. The market continues to tighten. There are fewer attractive assets sitting on the sidelines and incremental demand coming to market.

They've had a big increase in their jackup rig count over the past 12 months to around I believe 85 jackups today.

It's meant probably doesn't change the kingdom long term view.

As you mentioned, but I have to think it could impact their needs and 25 in 'twenty.

So just in that context do you think we could see Saudis jackup rig count decline a bit over the next two years before trending higher afterwards, and what could this mean for Europe or are some leased rigs that come off contract.

The end of this year.

Yes, it's a good question I think you have it I think you have a characterized quite well I look at this stage.

Anton Dubovits: And that will drive day rates higher over time. But, you know, that is not to say when we say we shouldn't take a single data point and extrapolate it, that there are not going to be gaps in programs given, you know, increasing lead times to contracts and repositioning rigs for work in attractive markets and needing to do upgrades. But overall, we were positive on the market, and rates will continue to grind higher over time. I got it.

It's a little bit early to say, what if any the exact impact is going to be on an.

On Saudi as rig counts, but.

In my prepared remarks is that as far as our business. We believe it will have minimal to any impact on our business. They.

They delayed the expansion of <unk>. These are two oil focused fields, but they they fully expect to develop resources and in their own in their own predictions see increasing demand for four.

Eddie Kim: Great. Thank you for that. My follow-up is just on the Saudi capacity expansion curtailment. So they've had a big increase in their jackup recount of the past 12 months to around, I believe, 85 jackups today. The announcement probably doesn't change the kingdom's long-term view, as you mentioned, but I have to think it could impact their needs in 25 and 26. So just in that context, do you think we could see Saudi Arabia's jackup recount decline a bit over the next two years before trending higher afterwards? And what could this mean for your four or so least rigs that come off contract at the end of this year? Yes, it's a good question. I think you have it. I think you have characterized it quite well.

For oil and gas overtime, I think what's really important is that the overall global jackup market is really tight right now active utilization approaching 95%.

And that in the total rig count then its highest level in almost nine years, so we see incremental.

Incremental demand coming to market outside the middle East and in fact in the middle East as well with the 10% to 15 incremental rigs. So you know.

If and it's a big if it's still to be seen if they are rigs that back all relocated from Saudi there is incremental demand.

Two <unk>.

Take on those rigs if you look at our fleet, we have eight eight <unk>.

<unk> is an unconsolidated joint venture Polaris, we have eight rigs leased and there we have two additional rigs going in there. These are new contracts for arrow. So we will have new lease contracts going in there this year, Saudi Aramco in the Kingdom remain fully committed to the arrow joint venture the.

Anton Dubovits: Look, at this stage, it's a little bit early to say what, if any, the exact impact is going to be on Saudi's rig count. But, you know, in my prepared remarks, I said, you know, as far as our business is concerned, we believe it'll have, you know, minimal to no impact on our business. You know, they delayed the expansion of Saffronia and Manifa.

The Newbuild program that we have at IMI is a cornerstone project of the Saudi 2030 vision.

Anton Dubovits: These are two oil-focused fields, but, you know, they fully expect to develop resources and, in their own predictions, see increasing demand for oil and gas over time. I think what's really important is that the overall global jack-up market is really tight right now. You know, active utilization approaching 95%, and the total rate count at its highest level in almost nine years. So we see incremental demand coming to the market outside the Middle East and, in fact, in the Middle East as well, with 10 to 15 incremental rigs. So you know, if, and it's a big if, it's still to be seen, if there are rigs that are relocated from Saudi Arabia, there is incremental demand, you know, to take on those. If you look at our fleet, Arrow is an unconsolidated joint venture. Valaris, we have eight rigs leased there.

Two of our rigs that we have leased and are operating on gas fields, which is not the focus and if you look at the remainder of those rigs it's around 5% of our backlog. So we're very comfortable without without position.

And the Gulfport position.

In Saudi and also the global Jackup market.

Got it great. Thanks for all that color and I'll turn it back.

Thank you. The next question is from Fredrik Stene with Clarksons Plateau Securities. Please go ahead.

Hey, guys hope all this.

Oh as well.

I wanted to circle.

Back to the.

Capital return policy.

As you said and announced that you've now opened up for 300, more millions and I totally agree that share repurchases for utilize this as a good thing right now.

Anton Dubovits: We have two additional rigs going in there. These are new contracts for Arrow, so we'll have new lease contracts going in there this year. Saudi Aramco and the Kingdom remain fully committed to the Arrow joint venture.

Given where your steel values are at least in my my framework. However.

However, I wanted to.

Uh huh.

Challenge you a bit going away on the <unk>.

Anton Dubovits: The new build program that we have at IMI is a cornerstone project of the Saudi 2030 vision. Two of our rigs that we have leased in are operating on gas fields, which is not the focus. And if you look at the remainder of those rigs, it's around 5% of our backlog. So we're very comfortable with our position and the gold forward position in Saudi Arabia and also the global jackup market.

Addition, too.

You say you want to return all free cash flow to shareholders and then you add that unless there is a better way or more value accretive use for it.

And.

Then you could potentially end up.

Missing value forever and not getting <unk>.

Pelican Lake is there a <unk>.

To that.

You've done the Dx 11, 13, and 14 that kind of at the point where you.

Eddie Kim: Great. Thanks for all that. I'll turn it back.

Look for no more value and I'm, saying that now is the time to distribute each cent or could it be value accretion beyond those three rigs as well.

Frederic Steen: Thank you. The next question is from Frederic Steen with Clarkson's Plateau Securities. Please go ahead.

Anton Dubovits: Hey guys, hope all is well. I wanted to circle back to the capital return policy, and as you said and announced today, you've now opened up for 300 million more, and I totally agree that share repurchase for you guys is a good thing right now given where your steel values are, at least in my framework. However, I wanted to challenge you a bit in a way on the addition to, you know, you say you want to return all free cash flow to shareholders, and then you add that unless there's a better way or more value-creative use for it, then you could potentially end up chasing value forever and not getting sent out in a way. Is there any stop to that?

Yeah.

It's a good question and and we expect to deliver significant earnings and cash flow growth over the next couple of years.

Heading into <unk>.

Well into an up cycle and we expect it to continue and I think we've been very clear about our intention for what we're going to do with that increased earnings and cash flow growth and return at all to shareholders.

Never a great idea to make absolute statements.

Right and so I wouldn't read too much into that caveat our job is to.

Anton Dubovits: If you've done DS11, 13, and 14, is that kind of at the point where you look for no more value and say that now is the time to distribute each cent, or could it be value accretion beyond those three rigs as well? It's a good question. And, and, you know, we expect to deliver significant earnings and cash flow growth over the next couple of years. We're heading into, you know, you know, well into an upcycle, and we expect it to continue. And I think we've been very clear about our intention for what we're going to do with that increased earnings and cash flow growth and return it all to shareholders. You know, it's never a great idea to make absolute statements. Right? And so I wouldn't read too much into that caveat.

To maximize.

Shareholder growth and you know there may be things that makes sense for us to invest and in keeping with that whether it's <unk>.

Additional MPD systems, or a very attractive opportunity to buy an asset I'm just throwing examples out there. So you'll have an absolute statements is never a great idea, but let's be very clear on what our shareholder return policy is when we're generating significant amounts of cash we intend to return at all to shareholders unless there.

There is clearly a bachelor of robot value accretive use for that cash.

Thank you very much that's very helpful.

Anton Dubovits: You know, our job is to maximize shareholder growth. And, you know, there may be things that make sense for us to invest in in keeping with that, whether it's additional MPD systems or a very attractive opportunity to buy an asset. I'm just throwing examples out there. So, you know, having absolute statements is never a great idea.

One more for me.

Clearly at least in my World. The S 11, 13, and 14 are the three rigs that you should.

Prioritizes prioritized to take out if any but there are some older stacked jackups semis et cetera across your fleet.

Or have you come to a point.

For some of these assets, where you would more actively consider.

Anton Dubovits: But let's be very clear on what our shareholder return policy is. When we're generating significant amounts of cash, we intend to return it all to shareholders. http://TheBusinessProfessor.com. Thank you very much. That's very helpful. Just one more from me. You have.

Scrapping them or selling them for non drilling use or is this still something you would.

We will keep on your balance.

Just for future Optionality.

Look I think for.

For us we prioritize getting ships back to work that's a capital allocation question. The returns talked earlier, a previous question about the reactivation cost versus where leading edge day rates are and the ability to return on that reactivation cost and an attractive contracts for jackups.

Anton Dubovits: Clearly, at least in my world, DS-11, DS-13, and DS-14 are the three rigs that you should prioritize taking out, if any. But there are some other stacked jackups, semis, etc. across your fleet? Have you come to a point for some of these assets where you would more actively consider scrapping them or selling them for non-drilling use, or is this still something you would keep on your balance just for future optionality? Look, I think for us, we prioritize getting ships back to work. That's a capital allocation question. The returns we talked about earlier, the previous question about the reactivation cost versus where leading-edge day rates are, and the ability to return on that reactivation cost and on attractive contracts. For jackups, internationally, the durations of the contracts, even though the numbers are a lot smaller, have made it a more difficult capital allocation or a less attractive capital allocation, but we do have those jackups.

Internationally, the duration of the contracts, even though the numbers are a lot smaller have made it a more difficult capital allocation.

Less attractive capital allocation decision, but we do have those jackups, we do see jackup.

Durations increasing.

Increasing which means increasingly there may be some opportunities.

For some of those assets, but right now given where we see the momentum in the markets.

Three the sixth in our Jackups are options for us and positive growth in the market, we think they're attractive options for us to hold right now.

Anton Dubovits: We do see jackup durations increasing, which means there may be some opportunities for some of those assets. But right now, given where we see the momentum in the markets, the three, the six, and our jackups are options for us. And with positive growth in the market, we think they're attractive options for us to hold. Alright, thank you very much.

Alright, Thank you very much thank.

Thank you for taking my question and have a good day.

Absolutely Thanks, a lot for the questions.

Thank you. The next question comes from Greg Lewis with <unk>. Please go ahead.

Thank you and good morning, and thanks for taking my questions.

Greg Lewis: Thank you for taking my question, and have a good day. Absolutely. Thanks a lot for the question. Thank you. The next question comes from Greg Lewis with BTIG. Please go ahead.

Most of my questions have been asked.

So I was kind of curious on your views.

You know like total announced that.

Greg Lewis: Hey, thank you. And good morning. And thanks for taking my questions. You know, I guess most of my questions have already been asked.

Rig joint venture with vantage, just knowing that valores and previously ensco.

Anton Dubovits: So I was kind of curious about your views on, you know, like Total announced that, you know, that rigged joint venture with Vantage, you know, just knowing that, you know, Valaris and previously ENSCO, you know, have really had a good long-term relationship with Total for years. I'm curious if that was something you actually looked at or considered and, kind of, your view on the potential opportunity for those types of JVs going forward. Thanks.

It really had a good long term relationship for total for years I'm curious if that was something you actually looked at or considered in and kind of your view on the potential opportunity for those types of jv's going forward.

Yes.

Look I think it's a great sign for the market in general as Matt said earlier that operators are.

Greg Lewis: Look, I think it's a great sign for the market in general, as Matt said earlier, that, you know, operators are looking for the first time in a long time at contracting rigs well beyond programs that they have approved or FID. And it speaks to their view of the market, that the market's going to continue to tighten and where day rates are going to be going. So, it's an attractive opportunity, and I think it's a great sign for where the market is going. You know, we will absolutely be part of having, it's important to have scale in this business. And part of having scale in this business means you can take a portfolio approach. So, we have 10 ships that are working or looking to go to work.

Looking.

For the first time in a long time at contracting rates well beyond programs that they have approved RFID and it speaks to their view of the market that the market is going to continue to tighten and where day rates are going to be going.

So it's an attractive it's attractive opportunity I think is a great sign for where the market is going we will absolutely.

Part of having its important to have scale in this business and part of having scale. In this business means you can take a portfolio approach. So we have 10 ships that are working or looking to go to work.

Anton Dubovits: Yes, we would be willing to look at an opportunity to secure long-term backlog and base load backlog for a long period of time and then be opportunistic, more opportunistic on some of our other assets. But, you know, we look at each opportunity and bidding situation in its own right. And, you know, if it makes sense and is, you know, value-creative for shareholders and fits into the portfolio, we would absolutely look at engaging something like that. But, you know, it depends on the commercial opportunity that's available. Super helpful; thank you very much.

Yes, we would be willing to look at an opportunity to secure long term backlog baseload backlog for a long period of time, and then be opportunistic more opportunistic on some of our other assets, but we look at each opportunity and bidding situation and its in its own rights.

And if.

If it makes sense and is and is value accretive to shareholders and fits into the portfolio. We would absolutely look at engaging something like that but it depends on the commercial opportunity that's available.

Helpful. Thank you very much.

Thanks.

Thank you. The next question comes from Kurt <unk> with benchmark. Please go ahead.

Hey, good morning.

Good morning, Good morning, Hey, Thanks for the thanks for the.

Updates.

Kurt Hallad: Thank you. The next question comes from Kurt Hallad with Benchmark. Please go ahead. Hey, good morning. Morning, good morning. Hey, thanks for the thanks for the updates. So I'm, I'm kind of curious in the context, right, you have now, as you mentioned, three drill ships that can be activated, brought into the market, maybe a couple of semi-submersibles, but obviously, the focus of the market is on the ultra deepwater ships, right? Now, my question really relates to this, right?

Don.

I'm kind of curious in the context right you have now as you mentioned three drill ships that can be activated brought into the market maybe a couple of semi submersible, but obviously.

Uh huh.

The focus of the market is on the ultra deepwater ships right.

Now my question really relates to this right as you've gone through this process of activating rigs over the course of the past 12 months.

The industry the drillers have been very much.

We're focused on making sure that they get some upfront payment for the activation of these assets.

Kurt Hallad: As you've gone through this process of activating rigs over the course of the past 12 months, the industry, the drillers, have been very much focused on making sure that they get some upfront payment, you know, for the activation of these assets. So I'm just kind of curious as we roll forward with less, fewer activations but, uh, as you mentioned, contract prep opportunities, are the offshore drillers, and you, in particular, in a position to continue to demand upfront payments from your customers for the contract prep work that's going to happen? Yeah, absolutely.

So I'm just kind of curious as we roll forward with less fewer activation, but.

As you mentioned and kind of contract prep opportunities are the offshore drillers and you in particular in a position to continue to demand upfront payments from your customers or the contract prep work that's going to happen.

Yes, absolutely.

The market continues to tighten.

But we absolutely continue to have that opportunity I think we kind of led the charge on that and seeking upfront payments.

Anton Dubovits: You know, as the market continues to tighten, we absolutely continue to have that opportunity. I think we kind of led the charge on that in seeking, you know, upfront payments. It's, you know, we look at the opportunity based on the economics of the opportunity and getting a significant upfront payment. One, it's not subject to any kind of operational downtime risk, and it helps the cash flow profile, and helps the economics of the job.

We look at the opportunity based on the economics of the opportunity and getting getting a significant upfront payment one.

Subject to kind of operational downtime risk and it helps the cash flow profile helps the economics of a job we have a different cost of capital versus our customers.

And if not all operators are amenable to it.

Anton Dubovits: You know, we have a different cost of capital versus our customers, and, you know, if not all operators are amenable to it, some of them like it and would prefer to pay cash upfront and maybe get a lower headline day rate. But, you know, we look at the economics of the job. So, I think the opportunities for significant upfront payments are, you know, as much there, if not more there than they ever have been. Okay, that's a good color.

Some of them like it and we would prefer to pay cash upfront and maybe get a lower headline day rate.

But we look at the economics of the jobs. So I think there are opportunities for significant upfront payments are.

As much there if not more than that than they ever have been.

Okay. That's good color so.

You guys are very much aware right the investor community has been.

Kurt Hallad: So, um, as you guys are very much aware, the investor community has been, you know, a little bit reticent to continue to put money flow into offshore drillers broadly. Some of that was due to concerns about the pace of contracting activity slowing down and pretty much the concept around leading edge rate, you know, stalling out, or maybe, maybe temporarily, but stalling out nonetheless. You addressed both elements of that in your prepared comments. But, you know, what is the issue if demand is so tight, and the outlook for demand exceeds supply? I don't know. I mean, it does beg the question, like... It seems like you guys are in the driver's seat, and the oil company's teams still have some element of, I don't know, leverage, you know, to keep the lid on pricing. So what do you think is at play here?

Yeah, a little bit reticent to continuing to put money flow into offshore drillers broadly.

Some of that was due to concerns about pace of contracting activity slowing down in.

Pretty much the concept around leading edge rates.

Calling out there, maybe maybe temporarily but stalling out unless you addressed both elements of that in your prepared comments, but what is the demand is so tight and the outlook for demand.

Supply.

I don't know I mean it does.

The question like you.

It seems like you guys are in the driver's seat.

The oil companies seem to still have some element of leverage to.

To keep a lid on pricing so what what do you think that play here.

Look I mean, stalling out Oh, stalling out or taking a pause versus being solid with leading edge day rates.

Generating $100 million annually of EBITDA.

Anton Dubovits: Look, I mean, stalling out, stalling out or taking a pause versus being solid with leading-edge day rates, you know, generating $100 million annually of EBITDA, you know, is, really, a good market, and incremental demand continues to come to market. You know, the number of, you know, attractive sideline capacity in the form of stack rigs continues to dwindle around 10, you know, today. So I think this is a process that plays out over time. And, you know, we fully expect there to be continued pressure on day rates and day rates to move higher over time. It's you know, it's going to be, we see a long-duration cycle, and we just need to, you know, play it out and be disciplined as we play into that cycle, which is why, you know, we have the 11, the 13, and the 14.

Yeah.

And a good market and incremental demand continues to to come to market you know that.

The number of.

Attractive sideline capacity in the form of stack rigs continues to dwindle around 10.

Day.

So I think this is a process that plays out over time and we fully expect there.

The supply demand balance continues to tighten there to be continued pressure on day rates and day rates to move higher over time.

It's going to be up.

Long duration cycle, and we just need to play it out and be disciplined as we play into that cycle, which is why we have the 11 to 13 in the <unk> and we're going to be patient and disciplined about bringing that capacity back to the market.

Anton Dubovits: And we're going to, you know, be patient and disciplined about bringing that capacity back to the market. Okay, and then the last thing on shareholder distributions. You made it clear that you think your stock is undervalued, which is why you're going to buy back stock. Obviously, if the market starts to recognize the inherent value, it starts begging the question as to whether or not you may consider a dividend.

Right. Okay, and then just lastly on shareholder distributions you made it clear that the stock's undervalued, which is why are you going to buy back stock.

Obviously, if the market starts to recognize the inherent value.

He starts begging the question as to whether or not you may consider a dividend. So can you just give us a.

An update on how you're thinking about the dynamics between share repo and a dividend strategy longer term.

Yes no.

Great question.

As we said when this business really starts generating sustained and meaningful free cash flow, which we don't think we're that far away from.

Kurt Hallad: So can you just give us an update on how you're thinking about, you know, the dynamics between share repo and the dividend strategy, longer term. Yeah, no, great question. You know, as we said, when this business really starts generating sustained and meaningful free cash flow, which we don't think we're that far away from, We think, you know, having both David Lewis, Christopher Weber, David Smith, and Valaris Ltd. Okay, appreciate that. Thanks guys. Thanks.

We think having both.

Makes sense.

And so.

From a.

The dividend would obviously want to have that be at a level that is sustainable through the cycle, but we think both are good good components of our capital return policy.

Okay I appreciate that thanks, guys.

Thanks.

This concludes our question and answer session I would now like to turn the conference back over to Darren Gibbons for any closing remarks.

Darren Gibbons: This concludes our question and answer session. I would now like to turn the conference back over to Darren Gibbons for any closing remarks. Thanks, MJ, and thank you to everyone on the call for your interest in Valaris. We look forward to speaking with you again when we report our first quarter 2024 results. Have a great rest of your day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your line. Nan Dan Nan Dan Nan Nan Nan Nan Nan Gee Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nana Nan

Thanks, Sanjay and thank you to everyone on the call for your interest in Valores, We look forward to speaking with you again, when we report our first quarter 2024 results have a great rest of your day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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