Valaris Limited (VAL) ("Valaris") reported fourth quarter 2022 results.
President and Chief Executive Officer Anton Dibowitz said, “I would like to thank the entire Valaris team for continuing to deliver excellent operational performance, achieving revenue efficiency of 98% during the fourth quarter. This strong operational performance has translated into continued contracting success, and we were awarded new contracts and extensions with associated contract backlog of more than $400 million during the fourth quarter.”
Dibowitz added, “Last year was an important year for Valaris as we laid the foundation for continued success during the unfolding industry upcycle. We reactivated four floaters, all of which returned to work largely on time and on budget. Reactivation of a fifth floater, VALARIS DS-17, is well underway and we are in advanced discussions for a multi-year opportunity for one of our stacked drillships that is expected to deliver meaningful returns. We remain intent on executing our strategy of being focused, value driven and responsible in our decision making and we believe that our strategy will drive increased earnings and significant free cash flow over time."
Financial and Operational Highlights
- Generated net income of $31 million, Adjusted EBITDA of $54 million and Adjusted EBITDAR of $75 million in the fourth quarter;
- Delivered revenue efficiency of 98% in the fourth quarter and 97% for the full-year 2022;
- Awarded new contracts and extensions with associated contract backlog of more than $400 million during the fourth quarter, including floater contracts offshore Brazil and Egypt as well as jackup contracts in the Middle East, the North Sea and the U.S. Gulf of Mexico; and
- Additional contracts awarded or extended in 2023 to date, with associated contract backlog of approximately $230 million, including a floater contract offshore West Africa and jackup contracts in the Middle East, Australia and Trinidad.
Fourth Quarter Review
Net income was $31 million compared to $78 million in the third quarter 2022. Adjusted EBITDA decreased to $54 million from $76 million in the third quarter. Adjusted EBITDAR decreased to $75 million from $94 million in the third quarter.
Revenues decreased to $434 million from $437 million in the third quarter 2022. Excluding reimbursable items, revenues decreased to $413 million from $416 million in the third quarter primarily due to lower utilization and lower average day rates for the harsh environment jackup fleet, partially offset by an increase in utilization for the floater fleet.
Contract drilling expense increased to $353 million from $337 million in the third quarter 2022. Excluding reimbursable items, contract drilling expense increased to $333 million from $316 million in the third quarter primarily due to an increase in operating days for the floater fleet and higher reactivation costs, which increased to $21 million from $18 million.
Depreciation expense increased marginally to $24 million from $23 million in the third quarter 2022. General and administrative expense increased to $24 million from $19 million in the third quarter 2022 primarily due to higher personnel costs and professional fees.
Other expense was less than $1 million compared to other income of $30 million in the third quarter 2022. Other expense included foreign currency exchange losses of $13 million as compared to gains of $10 million in the third quarter. Third quarter other income also included non-cash interest income of $15 million related to the write-off of the discount attributable to the $40 million of shareholder notes receivable repaid by ARO. These items were partially offset by a $3 million increase in interest income during the fourth quarter.
Tax expense was $10 million compared to $14 million in the third quarter 2022. The fourth quarter tax provision included $3 million of discrete tax benefit attributable to the resolution of prior period tax matters. The third quarter tax provision included $2 million of discrete tax expense primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years, partially offset by discrete tax benefits attributable to the resolution of other prior period tax matters. Adjusted for discrete items, tax expense increased to $13 million from $12 million in the third quarter.
Total liquidity, which includes cash and cash equivalents, restricted cash and short-term investments, increased to $748 million as of December 31, 2022, from $644 million as of September 30, 2022, primarily due to cash flow generated from operations, including changes in working capital, of which $55 million was a refund payment from the IRS related to the CARES Act that was received in the fourth quarter.
Capital expenditures of $54 million were in line with the third quarter 2022.
Fourth Quarter Segment Review
Floaters
Floater revenues increased to $211 million from $202 million in the third quarter 2022. Excluding reimbursable items, revenues increased to $203 million from $192 million in the third quarter. The increase was primarily due to higher revenue efficiency across the floater fleet and a full quarter of revenues for VALARIS DS-4 and DS-9, which commenced contracts early in the third quarter.
Contract drilling expense increased to $173 million from $161 million in the third quarter 2022. Excluding reimbursable items, contract drilling expense increased to $165 million from $151 million in the third quarter. The increase was primarily due to more operating days across the floater fleet and higher reactivation costs, mostly for VALARIS DS-17, which is expected to commence a contract later this year.
Jackups
Jackup revenues decreased to $182 million from $196 million in the third quarter 2022. Excluding reimbursable items, revenues decreased to $176 million from $190 million in the third quarter primarily due to VALARIS Stavanger completing its contract offshore Norway and idle time between contracts for VALARIS 123, 144 and 115. This was partially offset by more operating days for VALARIS 118 and 92 following a contract startup and a special periodic survey, respectively.
Contract drilling expense increased to $130 million from $128 million in the third quarter 2022. Excluding reimbursable items, contract drilling expense increased marginally to $124 million from $123 million in the third quarter.
ARO Drilling
Revenues increased to $120 million from $111 million in the third quarter 2022 primarily due to higher utilization as certain rigs returned to work following out of service periods for planned maintenance. Contract drilling expense decreased to $86 million from $90 million in the third quarter primarily due to higher planned maintenance costs in the third quarter.
Other
Revenues increased marginally to $41 million from $40 million in the third quarter 2022. Contract drilling expense of $18 million was in line with the third quarter.
