Q1 2025 Valaris Ltd Earnings Call
All characters in this movie are ficitious. Any resemblance is purely coincidental.
Speaker Change: Good day and welcome to the Valaris. First quarter, 2025 results conference call. Today, our participants will be in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the start key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star then one on your touch-tone phone. If you would like to withdraw your question, please press star then two.
Please note that today's event is being recorded.
Nick Georgas: I would now like to turn the conference over to Nick Georgas.
Vice President Treasurer, Investor Relations, please go ahead, sir.
Welcome everyone to the Valaris first quarter 2025 conference call.
Speaker Change: With me today are President and CEO Anton Dibowitz, Senior Vice President and CFO Chris Weber, Senior Vice President and CCO Matt Lyne, and other members of our Executive Management team
Speaker Change: We issued our press release which is available on our website at Valaris.com
Speaker Change: Any comments we make today about expectations are forward-looking statements and are subject to risks and uncertainties [inaudible]
Speaker Change: Many factors could cause actual results to differ materially from our expectations
Speaker Change: 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.
Speaker Change: Also, please note to the company undertakes no duty to update for looking statements.
Speaker Change: During this call, we will refer to Gap and non-GAAP financial Measures. Please see the press release on our website for additional information and required reconciliation.
Speaker Change: Earlier this week, we issued our most recently status report which provides details on our rig fleet including new contract awards.
Speaker Change: Now, I'll turn the call over to Anton Dibowitz, President and CEO.
Anton Dibowitz: Thanks, Nick, and good morning and afternoon to everyone. During today's call I'll begin with a review of our performance for the quarter and highlight some of our recent commercial successes.
Anton Dibowitz: I'll then provide an update on the offshore drilling market before discussing our approach to contracting and prudent fleet management, which are focused on driving long-term value creation for our shareholders.
Anton Dibowitz: I'll then hand the call over to Matt who will provide a more detailed perspective on our recently awarded contracts and the broader floats or in jacket markets along with additional color on our contracting outlook.
Matt: After that, Chris will walk through our financial results and guidance, and then I'll finish with some closing remarks.
To begin, I want to highlight a few key points
Matt: First, we delivered another strong quarter to start the year, continuing our track record of providing safe and efficient operations for our customers, and we generated meaningful EBITDA and pre-cash flow.
Matt: Second, we are successfully executing our commercial strategy by securing attractive long-term contracts for our high-specification fleet.
Matt: Since our last conference goal just two months ago, we've added more than a billion dollars in new contract backlog, including work for
Matt: While macroeconomic uncertainty has increased recently, we remain actively engaged with customers for additional contracting opportunities in 2026 and beyond.
Matt: Third, we continue to expect that offshore production will play a vital role in meeting the world's energy needs and will main a core component of our customers portfolios.
Matt: Given our high quality fleet and operational performance will well position to secure additional contracts that along with our prudent fleet management will further support our earnings and cash flow.
Matt: Starting with operations, we delivered fleet wide revenue efficiency of 96% during the first quarter containing our track record of providing safe and efficient operations for our customers.
Matt: This excellent operational performance translated into strong financial results with adjusted EBITDA of $181 million in the first quarter, up from $142 million in the prior quarter, and we generated $74 million of adjusted free cash flow.
Matt: On the safety front, we were honored to receive the 2024 Best Safety Performance Award for Jacob Riggs from the IADC North Sea chapter, a great recognition of the team's commitment to safe operations.
Matt: We also had several rigs achieve notable safety milestones, with Valaris 121 reaching two years without a recordable incident, while Valaris 144 and Mad Dog each marked one year recordable free
Matt: These achievements are a testament to our people and their dedication, hard work and commitment to delivering safe and efficient operations for our customers [inaudible]
Matt: Delivering safe and efficient operations is our core business. It keeps our people safe, helps to make us the preferred partner for our customers and drives value creation for our shareholders.
Matt: Customers award work to contractors with strong track records in these areas, especially those that can deliver complex drilling solutions with high specification assets. Our recent contracting success underscores this dynamic.
Matt: Since our February conference call, we've secured new contracts and extensions with associated contract backlog of approximately $1 billion in dollars.
Matt: A standout amongst these is the two-year contract for drillship Valaris DS-10.
Matt: and Reaffirms our customers preference for an established drilling contractor like Valaris that can provide a high specification rig with advanced technology and reliably deliver a complex offshore program.
Matt: This contract enhances our strategic position in West Africa, a key deep-water market where we've built a strong reputation and we continue to see several additional long-term opportunities in the region with startups in the second half of 2026 or 2027.
Matt: As we've mentioned before, we are focused on bookending the white space for our drill ships with near term availability Based on ongoing discussions, we are confident that we will be able to announce further progress on these efforts in the near future
Matt: We've also added meaningful backlog across our shallow water fleet, securing recent jack-up contracts in the Middle East, the North Sea, Australia and Trinidad.
Matt: With 80% of our active jacket fleet operating in these four locations, we've benefit from scaled positions that allow to deliver excellent service and build long-term customer relationships
Matt: Importantly, we had five jackups charted to our arrow-drilling joint venture, with lease terms scheduled to expire this year. All five were recently extended for five year terms.
Matt: Aero is an important partnership for Valaris and we are pleased to share in its contracting success.
Matt: For Valaris, this leads us with one-rig-off Shorthard Air Arabia with availability in 2027 and the remaining six contracted into 2030.
Matt: From our operational performance to our safety accomplishments and our commercial success, I want to thank the entire Valaris team for their focus on execution and a fantastic start to 2025.
Matt: Turning now to the broader offshore drilling market. Over the past few weeks proposed tariffs on international trade and the associated increased costs, as well as the accelerated unwind of production cuts by OPEC+, have introduced new uncertainties for the global economy and our industry.
Matt: We are staying close to our customers and while it is early, schedule programs and ongoing tenders largely appear to be on track.
Matt: We believe most of the projects are customers I value waiting for near to medium-term commencement are expected to be economic well below current commodity prices.
Speaker Change: According to Restart, approximately 70% of deporter programs expected to be sanctioned over the next three years have break even prices below $50 per barrel equivalent.
Speaker Change: which compares to a five-year Ford price in the mid $60 per barrel range.
Speaker Change: Offshore Production, particularly deepwater, benefits from the combination of large and accessible resource potential, compelling project economics, and comparatively low carbon emissions intensity, factors that make offshore development attractive relative to other sources of production. Thank you.
Speaker Change: While recent events have created uncertainty, they don't change our expectation that offshore production will continue to play a vital role in meeting the world's energy needs and remain an important part of our customers portfolios.
Speaker Change: As we navigate this period of heightened uncertainty, we remain focused on three areas within our control, delivering outstanding operational performance [inaudible]
Speaker Change: Chris, executing our commercial strategy and prudently managing our fleet and costs.
Speaker Change: As I mentioned earlier, the team is executed well operationally to start the year and we remain laser focused on operating safely and efficiently for our customers.
Speaker Change: We're well positioned to continue executing our commercial strategy and securing a track of contracts by virtue of our high specification fleets.
Speaker Change: We expect customers will continue to favor seventh generation drawships for longer term development programs.
Speaker Change: We believe Valaris has an advantage on these long-term opportunities since 12 of our 13 drawships rank amongst the most technically capable assets in the global fleet and can provide these efficiencies which are especially important to customers given their focus on optimizing costs.
Speaker Change: In addition, customer demand for shallow water jackups is resilient as the largest customers in this market are national oil companies, which have additional drivers that underpin their needs for ongoing hydrocarbon production, such as funding infrastructure projects and energy security.
Speaker Change: In terms of fleet management, our strategy is centered on maintaining a high-quality, efficient fleet, and we will continue to prudently manage our rigs in response to evolving market conditions [inaudible]
Speaker Change: To the end, we are actively managing costs for Riggs expected to experience idle time between contracts
Speaker Change: We recently moved Valaris DS-12 to Los Palmas after the rig completed its contract in March and were on the process of reducing the rig's costs as we work to secure its next contract [inaudible]
Speaker Change: We have several other floaters completing contracts later this year. We are willing to be patient to find the right programs for these rigs and will quickly reduce cost during extended idle periods to benefit our cash flow.
Speaker Change: Prudent Fleet Management also extends to our decisions to retire rigs when their expected economic benefit no longer justifies their associated costs
Speaker Change: We previously announced our decision to retire a recently active floater, Valaris DPS-5, as well as Valaris DPS-3 and DPS-6 from our fleet [inaudible]
Speaker Change: In April , we sold these rigs for cycling, and they will now be permanently removed from the Global Trilling Fleet.
Speaker Change: Before handing over to Matt, I'd like to briefly recap a few key points regarding the market and our strategy.
Matt: While there has been a recent increase in macro economic uncertainty, we expect offshore production will continue playing a vital role in meeting global energy demand and remain an important part of our customers portfolios.
Speaker Change: At Valaris, we remain laser focused on both operational excellence and commercial execution.
Speaker Change: Given our high-quality fleet and operational performance, we believe we are well positioned to secure additional contracts which combined with our prudent fleet management will further support our earnings and cash flow With that, I'll now hand the call over to Matt
Thanks Anton, and good morning and afternoon everyone.
Matt: I'm going to start with an overview of our recent contracting success
Matt: Then provide commentary on our major floater and jack up regions where we operate and finish with an update on our outlook for rates that have availability in 2025.
Matt: Since our last conference call, we've signed new contracts and extensions that have increased our total backlog to more than $4.2 billion.
Matt: A nearly 20% increase from our previously reported backlog of $3.6 billion dollars.
Matt: These awards included backlog additions of approximately $400 million for our floaters and $600 million for our jackups.
Anton Dibowitz: As Anton mentioned, we secured a new contract for one of our high-specification drill ships, Valaris DS-10, that contributed to these additions.
Anton Dibowitz: Further, the customer for the DS-9 recently exercised an option to extend the rig's contract
Anton Dibowitz: and this contract is now expected to run to mid-2026. Turning to jackups, offshore Australian Trinidad, we continue to secure work for our rigs at solid-day rates, reflecting customers' preference for established drilling contractors with high-spec assets in these attractive niche markets. We will continue to secure our rigs at mid-2026, and we will continue to secure our rigs at mid-2026.
Anton Dibowitz: In Trinidad, we are set to grow our presence following a recent multi-year contract award for Valaris 117 that is expected to commence in the third quarter of 2026
Anton Dibowitz: Notably, the 118 recently drilled a successful exploration well at the frangipanny field, highlighting Trinidad's renewed focus on boosting gas production as a cornerstone of the country's long-term economic growth.
Anton Dibowitz: In our North Sea Operating Region, we added two years of work commencing in late 2025 with
Speaker Change: Lastly, as Anton noted, we were successful in extending bear boat charters for five of our jack-ups off-shore Saudi Arabia We look forward to these rigs continuing their operations into 2030 with our JV partner, Arrow Drilling Turning now to commentary on the major floater and jack-up regions where we operate
Speaker Change: As Anton mentioned, while uncertainty has increased recently, we are staying close to our customers and while it's early schedule programs and ongoing tenders largely appear to be on track.
Speaker Change: Following recent awards, we are monitoring approximately 25 floater opportunities, each with a duration of at least one year, and with expected start-ups scheduled for 2026 or 2027.
Speaker Change: With long term contracts typically awarded at least nine months before their plan commencement, we anticipate additional contract awards across the industry as we progress through the year.
Speaker Change: Offshore Africa remains the most active area for future floater opportunities [inaudible]
Speaker Change: We are currently tracking approximately 10 long term programs with expected start dates in 2026 or 2027 [inaudible]
Speaker Change: including projects offshore Nigeria, Ivory Coast, and Mozambique. There is one rig currently operating offshore Nigeria, and we expect to see growth in this market with two multi-year programs with IOCs presently in the tendering phase. IOCs presently in the tendering phase. IOCs presently in the tendering phase.
Speaker Change: Activity off-shore Egypt has picked up over the past year, due in part to exploration success on projects drilled by two Valaris drill ships.
Along with regulatory reforms to streamline licensing and environmental approvals [inaudible]
Speaker Change: There is one tender currently in process and based on customer discussions we understand additional contracting opportunities are under consideration.
Speaker Change: Looking ahead to 2027 and beyond, we are seeing increased activity in Mozambique in Namibia, in Mozambique, with E&I recently receiving government approval.
Speaker Change: It's Coral North Project is now pending final investment decision approval Meanwhile, total energies is progressing its development plan for the Venus Project of Shornomibia which could generate between six to eight rig years of work
Speaker Change: Brazil remains the largest market for benign environment floaters, and we expect Petrobras' rig count . . . .
Speaker Change: Will remain stable in the near-to-medium term. As we anticipated on our last call, Petrobras has issued a new multi-year tender targeting one or more high specification rigs for work on the busios field starting in late 2026 or early 2027.
Speaker Change: We continue to expect that Petrobras will issue an additional tender later this year, which coupled with the Busio's tender should extend the workscopes of several rigs offshore Brazil to the end of this decade.
Speaker Change: Beyond Petrobras, we see upside potential from IOC activity, such as Shell's Gato-Domato project, which recently received its final investment decision approval
Speaker Change: Elsewhere in South America, we recently saw multi-year contracts awarded for total energies
Speaker Change: Given Cernam's proximity to Guyana, and the increasing exploration and development activity in the region, we believe demand in Cernam has a potential to grow in the coming years
in the U.S. Gulf
Speaker Change: We expect the market to remain balanced, with demand largely met by the existing supply of rigs in the region.
Speaker Change: Outside of the Golden Triangle, we see five separate drill ship programs planned offshore India and Southeast Asia, representing a combined expected firm term of more than eight years.
Speaker Change: Turning to the Jacob market, utilization for the global marketed fleet stood at a solid 90% at the end of the first quarter, although this marks a decline from 94% in early 2024.
Speaker Change: This reduction in global utilization has led to some downward pressure on day rates in certain benign environment regions, particularly those where rigs leaving Saudi Arabia have been competing for work. [inaudible]
Speaker Change: That said, other key benign environment markets where we operate such as Australia and Trinidad have remained largely insulated from these dynamics.
Speaker Change: and Day-Rates in these regions have held firm as demonstrated by our recent contract awards in the mid to high 100,000s.
Speaker Change: In the North Sea, we anticipate increased competition for upcoming work particularly toward the end of the year, driven by an uptick in available units following an operator's decision to prioritize activity in other basins.
Speaker Change: While this may result in increased idle time across parts of the North Sea fleet, our rigs in the region have strong contract coverage, and we see several opportunities beginning in late 2025 and the first half of 2026.
Speaker Change: Many of these opportunities are for plug-and-abandonment or new energy projects [inaudible]
which have become an increasing source of customer demand recently.
Speaker Change: and we believe our rigs are well positioned to meet this demand.
Speaker Change: I'll now provide an update on the outlook for our rakes, starting with our floater fleet
Speaker Change: Since our last call, we secured a contract for one of our drillships with near-term availability with Valaris DS-10, being awarded a multi-year contract off-shore West Africa with an expected commencement in mid-2026.
Speaker Change: This leaves us with three drill ships with 2025 availability that we need to secure contracts for, DS-12, DS-15 and DS-18.
Speaker Change: We're actively engaged in discussions with several customers regarding opportunities for these rigs with potential start dates in 2026 and 2027. And as Anton mentioned, we expect to announce further progress on these efforts soon.
Speaker Change: As we have stated previously, our focus remains on securing attractive long-term contracts for these high-spec assets.
Speaker Change: and we are prepared to be patient in order to place them on the right programs.
Speaker Change: Turning to our two semi-submersibles, operating off short Australia. MS-1 is expected to complete its current contract in the third quarter, and the following opportunity we are targeting has now shifted into the first half of 2026.
Speaker Change: DPS1 is also expected to continue working into the third quarter of this year and visible opportunities for a dynamically positioned rig like DPS1 are currently expected to begin in the second half of 2026.
Speaker Change: Moving to shallow water, we have strong contract coverage across our jacket fleet for the remainder of 2025, bolstered by recent contracting success across our key shallow water markets. [inaudible]
including the Middle East, the North Sea, Australia, and Trinidad . . .
Speaker Change: We have just three jackups operating in benign environments with some availability in the second half of the year. Valaris 247 in Australia, 106 in Indonesia, and 110 in Qatar.
Speaker Change: In the North Sea, we have limited availability for our nine active jackups in the region, with six months of uncontracted time across two rigs.
Speaker Change: While we are actively engaged in discussions to secure work for all these rags, they could incur idle time later this year if we are unsuccessful.
Speaker Change: In summary, I'm extremely pleased with our recent contracting success that has contributed to significant backlog additions.
Speaker Change: We continue to have constructive engagement with customers around their future programs and our focus remains on building backlog by securing attractive long-term contracts for our active fleet to further support our earnings and cash flow.
Speaker Change: I'll now hand the call over to Chris, who will take you through the financials.
Chris: Thanks Matt and good morning and afternoon everyone. In my prepared remarks today I'll begin with an overview of our first quarter results. Then I'll walk you through our outlook for the second quarter followed by an update on our full year guidance for 2025.
Chris: Starting with our first quarter results. Total revenues were $621 million, up from $584 million in the prior quarter. And adjusted EBITDA was $181 million, up from $142 million in the prior quarter.
Chris: Ajusted Ibadah, increased in the first quarter, primarily due to more operating days and higher average daily revenue for the floater fleet.
Chris: The increase in operating days was primarily due to Valaris DS4 commencing a new contract offshore Brazil late in the fourth quarter, partially offset by DS12 completing a contract offshore Egypt in mid March.
Chris: The increase in average daily revenue was primarily driven by DS-15 commencing a new, higher day rate contract offshore Brazil, late in the fourth quarter.
Chris: Ibadot exceeded our guidance primarily due to strong operating performance and fewer out-of-service days than anticipated.
Chris: Our first quarter results included an $8 million non-cash loss on impairment associated with our decision to retire three semi-submersibles.
Chris: Valaris DPS-3, DPS-5, and DPS-6 during the quarter. We also incurred tax expense of $194 million. Our first quarter tax provision included $167 million of discrete tax expense.
Chris: Primarily attributable to the establishment of evaluation allowance on deferred tax assets in connection with our decision to retire the three semis.
Justin for Discrete Tax Expense, Net Income was $128 million dollars.
Chris: Finally, first quarter capex totaled $100 million, coming in below guidance due to timing, as a certain spin shifted to later in the year.
Chris: During the quarter, we generated $166 million of cash flow from operations and $18 million from asset sales [inaudible]
Chris: which includes proceeds from the sale of Valaris 75 in January .
Chris: This is partially offset by capital expenditures, resulting in $74 million of adjusted free cash flow.
Chris: Cash and Cash Equivalents were $454 million at quarter-end, and our evolving credit facility remains fully available, which together provides us with total liquidity of approximately $830 million.
Chris: Moving now to our second quarter outlook, we expect total revenues in the range of 570 to 590 million dollars compared to 621 million dollars in the first quarter.
Chris: Revenues for the second quarter are expected to decrease primarily due to idle time for Valaris DS-12 after completing a contract offshore Egypt in the first quarter
Chris: Lower Amortized Revenues related to DS-17 completing the initial firm term of its contract offshore Brazil and out of service time for Jacobs, including Valaris 106 and 248, which are undergoing 20-year surveys.
Chris: These items are expected to be partially offset by a full quarter of operations for Valaris 144 after commencing a long-term contract offshoring Gola late in the first quarter, and the Valaris 249 returning to work. [inaudible]
Following out of service time for repairs during the first quarter [inaudible]
Chris: We expect contract drilling expense of $395 to $410 million in the second quarter, down from $415 million in the first quarter.
Chris: Second quarter contract drilling expense is expected to decrease primarily due to lower expense for DS-12 as we proactively reduce costs while the rig is in most promise awaiting its next job.
Chris: Lower Amortized Expense for DS-17 and Lower Expense for Jacob's undergoing major shipyard upgrade projects in the second quarter, during which costs will be capitalized. [inaudible]
Chris: These items are expected to be partially offset by higher cost for Valaris 144 which commences new contract late in the first quarter.
Chris: Our second quarter revenue and contract drilling expenses are both expected to include around 35 to 40 million dollars in reimbursable items
Chris: We anticipate second quarter GNA expense will increase to approximately $28 million from $24 million in the first quarter [inaudible]
Chris: Ajusted EBITDA is expected to be 140 to 160 million dollars compared to 181 million dollars in the first quarter.
Chris: Total Capacts in the second quarter is expected to be a hundred to a hundred and ten million dollars. This includes ongoing fleet maintenance spend, 20 years surveys for Valaris 106 and 248, and some carry over from the first quarter primarily related to the Valaris 144 upgrade project.
Chris: Parts of setting this cat-back is approximately $10 million of cash proceeds for the sale of the three retired semi-story cycling, which we received in April .
Turning to our Financial Guidance for Full Year 2025 .
We are reiterating our EBITDA guidance with a narrowed range [inaudible]
Chris: Previously, we had forecasted adjusted EBITDA of $480 to $580 million for 2025
We are reaffirming the midpoint at $530 million million dollars.
Chris: However, based on our recent contracting success, strong first quarter performance, and current outlook for the remainder of the year, we now expect a narrowed range of $500 to $560 million.
Chris: In terms of guidance for specific line items, as a reminder, total revenues are expected to be $2.15 to $2.25 billion.
Chris: After securing the extensions for five arrow least rigs, this revenue guidance is nearly 99% contracted at the midpoint [inaudible]
Chris: Contract drilling expense is expected to be 1.5 to 1.6 billion dollars and GNA expense is anticipated to be 110 to 115 million dollars
Turning to CapEx
Chris: We now expect full year 2025 capital expenditures of $375 to $415 million dollars.
Chris: This is an increase from our prior guidance as recent contracting success. Now means we'll have some shipyard days for arrow least rigs pulled forward into the fourth quarter of 2025 from 2026.
Chris: As I mentioned on our last call, we expect to receive $75 million in upfront customer payments this year to offset contract-specific upgrades.
Chris: Lastly, with respect to tariffs, we are actively engaging with suppliers and taking proactive steps to mitigate their impact.
Chris: Given our international footprint and global supply chain network, our volume of direct imports into the US is relatively small. As a result, our tariff exposure is driven more by indirect impacts from suppliers that manufacture or assemble goods in the US.
Chris: While this is a very fluid situation, based on what we know today and our mitigation efforts, we believe our full-year guidance accounts for the potential impact of tariffs.
Anton Dibowitz: This concludes my review of our financial results and guidance. I'll now hand the call back to Anton for some closing remarks.
Thanks Chris.
Anton Dibowitz: Before we open the line for questions, I'd like to recap a few key points from today's prepared remarks
Anton Dibowitz: First, we delivered another strong quarter to start the year, continuing our track record of providing safe and efficient operations for our customers, and we generated meaningful EBITDA and free cash flow.
Anton Dibowitz: Second, we are successfully executing our commercial strategy by securing attractive, long-term contracts for our high-specification fleet.
Anton Dibowitz: Over the past two months, we've added more than a billion dollars in backlog, including new work for drill ships of short-west Africa and across all our major shallow water markets.
Anton Dibowitz: While macroeconomic uncertainty has increased recently, we remain actively engaged with customers for additional contracting opportunities in 2026 and beyond.
Anton Dibowitz: Third, we continue to expect that offshore production will play a vital role in meeting the world's energy needs and will remain a core component of our customers' portfolios.
Anton Dibowitz: Given our high quality of fleet and operational performance, we are well positioned to secure additional contracts that, along with our prudent fleet management, will further support our earnings and cash flow.
Anton Dibowitz: We thank our employees for their focus and dedication and our customers and investors for their continued support That concludes our prepared remarks, operator, please open the line for questions [inaudible]
Speaker Change: Thank you. We will now begin the question and answer session. As a reminder to ask a question you may press star then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. If your question has been addressed and you would like to withdraw as a reminder, please press star then two. At this time we will pause momentarily to assemble our roster. Thank you.
Speaker Change: And today's first question comes from David Smith with Pickering Energy Partners, please proceed.
Hey, good morning. Thank you for taking my question.
Morning, David. Morning, Dave.
Speaker Change: Just regarding the 25 floater opportunities that you're tracking with the 26th and 27th start dates.
Speaker Change: Could you wait your guess on the percentage that requires seven general ships? And how do you think?
Speaker Change: Cooperators evaluate the relative pricing for the performance difference of an average, seven citizenship relative to the average six gender.
Speaker Change: And is there a natural price in premium that we expected processed regardless of the overall market rate structure?
Speaker Change: Absolutely. I can start with maybe Matt can add if he has anything to add. Look.
I think what ...
Speaker Change: There's one part of it is where our seventh gen preferred or needed on the program, but as much as that you can see a clear differentiation between the utilization of seventh and sixth gen rigs [inaudible]
So they do provide efficiency
Speaker Change: What amount of efficiency depends on what program are they drilling? Especially important for long-term development programs where you're drilling multiple wells You're going to really get the benefit out of it, but clearly the benefit that we see is that [inaudible]
Speaker Change: 7th Jens are going to have an advantage 7th Jens operated by drillers that can deliver complex drilling solutions increasingly MPD or similar operations are going to be advantage as we as we go through those opportunities Matt, I don't know if you have any [inaudible]
Speaker Change: Yeah, I mean, an example and you could probably spend quite a bit of time working through it and not all six gents are the same but hook load is a big difference which allows customers to design their wells with
Speaker Change: Peter Fuhrer, Longer Casing Strings, which certainly cuts down on their cost. And those are some of the benefits that you get from the seventh-gen fleet. Things like dual BOPs, more common on far more common on seventh-gen, than you would find on sixth-gen, but not entirely exclusive.
Speaker Change: So I think the overwhelming theme that that cuts through it all is [inaudible]
Speaker Change: and everything but a completely undersupplied market where there's a lack of available capacity.
Speaker Change: Customers are given the choice are going to choose the highest back asset because it gives them more optionality and efficiency.
And then when you talk about 2DM
Sorry.
Speaker Change: I just wanted to answer your last question. You asked the very beginning of your question what the proportionality of the 25 opportunities were tracking.
Speaker Change: And I would say the overwhelming majority are drill ship related. There are some we described it as floater opportunities So there are some that aren't necessarily drill ship related but the overwhelming majority are drill ship and you would find that of those opportunities customers would be . . .
likely to prefer seventh-gen assets.
Speaker Change: Perfect to appreciate the caller, thank you. And follow-up if I may. We've seen some-
Speaker Change: Large contract awards recently with very significant performance bonus elements. I wanted to ask if you're seeing interest from customers and similar intensive structures, and if so, how are you thinking about balancing the risk and reward of efficiency links pricing?
Speaker Change: Absolutely great question. The first thing I'll say is, yeah, absolutely. This is part of drilling contracts. We have bonus schemes in our current contract portfolio. We've done them in the past.
Speaker Change: Although, you know, not at the scale that they're the last two awards that you've seen We're open to these type of arrangements We're open to these arrangements.
The Performance Incentives, you know.
Speaker Change: They generally print different ways to do the performance scheme, but they're generally targeted to drilling the well ahead of the customers AFB or reducing the number of days. [inaudible]
Speaker Change: and sometimes these are difficult to negotiate because it can cut both ways I mean we have a certain amount of control over how we execute our operational efficiency and of course we're very proud of that delivering you know 96% plus up time and
Speaker Change: Great operational efficiency for our customers, but there's a lot that goes into drilling a well in line about the services [inaudible]
Speaker Change: So I can get complicated, you know, this becomes an all in one. So what you actually realize from a bonus may not be directly relational to the work that you're doing on the well. That being said, they work best in long term development programs where you're drilling a number of wells. So you start to understand the geology and the wells get progressively more efficient as you go along. And so that's the end of the video.
Speaker Change: You know, not every customer likes them. Some customers, you know, or would like to entertain this kind of structure? I don't see this becoming, you know, the norm. I think some customers will and you've seen some who have done it and they continue to do it. Well, well, you know, look for these. We're very open to that and some customers just aren't interested in based on how they run their business, but, you know, if there's an opportunity to do it, we're absolutely open to it, and it can make sense in certain circumstances.
Speaker Change: Great, really appreciate it, and great quote, great back all of the additions, I'll turn it over, thank you [inaudible]
Thanks.
and many more. Thank you. Thank you.
Speaker Change: In our next question comes from Greg Lewis with BTIG, please go ahead.
Greg Lewis: Yeah, thank you and good morning and thanks for taking my question on.
Greg Lewis: and appreciate there may be things you cannot say about the...
Greg Lewis: You know, the contracts that are out there, they're going to come in 26 and 27, but you know, just as broadly as we looked across those opportunities [inaudible]
Greg Lewis: Any sense for kind of how many of those and you mentioned in the David's question around, you know, the, you know, hook load, making a difference. Any kind of, any kind of sense for how many of these potential 25 opportunities may require rig upgrades?
Greg Lewis: I think it's, you know, as you said, I think you called it, right? Difficult to...
Greg Lewis: to provide specifics on individual opportunities. What we are seeing is, and this kind of fits well with our fleet, given the number of rigs that we have with MPD and dual BOPs, is that you're looking for customers who want maximum flexibility to design their well and change as they go, so a lot of opportunities are having MPD as the base.
Greg Lewis: So, for contractors like us, where we have those assets and existing assets, it can become a real benefit and so, as those systems continue evolve, we continue to evolve our technology to match that. That'd be one example that you're seeing as potential upgrades.
Greg Lewis: I think the question is, generally before you start, a lot of times, a good percentage of the time before you start a new contract, the customer will want.
Greg Lewis: Some kind of, you know, some kind of upgrade, some kind of stuff and that's great for us because they, you know, they often pay the capex associated with it and we get a we get a better rig out of it and that's certainly the kind of deal that we we try to see the number of contracts if you're making a reference to the recent awards a number of contracts that require. Thank you very much.
I don't think that's the norm either. They're plenty of contracts and we're customers and
Greg Lewis: Part of the reason why we're fortunate to have a high-spec seventh-gen fleet.
Greg Lewis: is that these rigs can grill a lot of the programs that are out there without needing significant upgrades. So it does depend on what market you're in, it does depend on the customer, but from a commercial perspective, we certainly seek to get reimbursement from that in the contracts that we can do.
Speaker Change: Okay, great. And then my other question is around the subsidy tieback market. I mean, clearly, you know, Gulf of Mexico is not a huge market for Valaris, but just as we think about.
Speaker Change: You know, the move lower in day rates, you know, with a tie back well where the drilling the cost of drilling the well can be, you know, upwards of 50% on higher of the cost of getting the oil out of the well, you know, given the pullback and in day rates, and you know, some of this white space has that kind of generated any any maybe increased interest on the surface as we kind of look at this.
Speaker Change: You know, the next few quarters are going to be kind of spotty in the U.S. Gulf. Could we see some some some some some seat tieback opportunities kind of pop up here over the next few quarters or is it the move lower the rates has early.
you know, generated any increased drilling demand.
Speaker Change: I'm not sure I'd link the two. I mean, coming into, you know, the over the last couple of quarters, I think...
Speaker Change: You know, the view has consistently been that there's going to be some wide space in 2025 across the industry that needs to be worked through in the predominance of the programs. The program's going to take place in the next few months.
Gulf of Mexico and internationally are in 26 and beyond.
Speaker Change: and we don't think that's changed and we don't think that recent changes, you know, will those have been increased in macro uncertainty? We certainly haven't seen any change in behavior from our customers. Generally, the programs that were tracking on that timeline still continue to be there. There will always be an opportunistic, you know, operator and I mean that in a positive sense where a well-made pop-up potentially during 2020-25, I don't think that's...
Speaker Change: You know, the term contracts that are being fixed are generally starting with a four there is going to be some variety in those programs but but but no I don't don't see that
Okay, super helpful. Thank you very much.
Eddie Kim: The next question is from Eddie Kim with Barclays, please proceed
our
Eddie Kim: Hi, good morning. I just wanted to ask about the five-year extensions on five of your jackups in Saudi UK.
Speaker Change: Did you comment at all on the pricing levels on these extensions, were they sort of in line with the prior contracts or were they at a discount to prior levels just just given the more challenged environment today in light of the Saudi rick suspensions over the past year and a half and
Speaker Change: And separately, do you think these contracts are an indication from Saudi that the period of rich suspensions is now behind us, or do you expect there could still be more to come?
Speaker Change: To your first question, I think based on the way you ask that you realize that unfortunately we're not able to disclose day rates on these contracts as we don't have customer approval. What I will say is the rates are above the historic rates.
Speaker Change: and I would describe them, you know some people have done the back calculation based on the backlog and I think you know those folks are pretty smart and kind of narrowing in on where it is but I would describe these as solid contracts and then we're very proud of the job that you know arrows done and we've done with them.
Speaker Change: to secure 25 years of backlog on those rigs, so very, very, very comfortable with them. As far as the future in [inaudible]
Thank you.
Speaker Change: What I can say is, Arrow is an integral part of the infrastructure in a key partner for Aramco. We're continuing with our building program at IMI to bring new capacity to market.
Speaker Change: We're very pleased to have a J.V. with Saudi Aramco, and now with these fixtures from a Valaris perspective we have one least rigged rolling in 2027 and the rest of the fleet rolling into 2030 and we're very pleased about that.
Got it.
Speaker Change: Thanks for the color. My second question is just kind of a bigger picture question on offshore FIDs. I mean, to date I don't think we've seen
Speaker Change: and based on your comments, you haven't seen or heard of offshore FIDs or programs getting pushed back, but...
Speaker Change: of Brent today, as we sit here, is at $61. Is there a Brent price level at which you think some offshore FIDs could start to get pushed back? Is that $55.50? Just any cost there?
Speaker Change: The first you're coming to be clear, we have not and we are in ongoing discussions with our customers we're in in tender processes.
Speaker Change: Yes, you are absolutely correct. We have not seen today any programs getting pushed based on the programs we're looking at especially long-term opportunities are 26 [inaudible]
Speaker Change: On going towards the end of the decade and we have not seen a pushback, you know obviously there is increased in macro uncertainty but that's how we see it today. What I will say about pricing is you know the programs that we drill offshore are large resources. [inaudible]
and the economics are compelling. They're compelling well below current.
Speaker Change: Where the five-year strip is on Brent's and where it's trading today and you know offshore is advantage versus other other you know sources of production particularly for that reason and I think that's why you haven't seen you haven't seen the significant change in our customer behavior. Thank you.
Speaker Change: Got it, understood, it's very helpful. Thank you, I'll turn it back
Speaker Change: Thank you. This does conclude today's question and answer session. I would now like to turn the conference back over to Nick Georgas for any closing remarks.
Nick Georgas: Thanks, Chris. And thank you to everyone on today's call for your interest in Valaris. We look forward to speaking with you again when we report our second quarter 2025 results. Have a great rest of your day. Thank you very much.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.
Thank you for your attention.