Valaris Limited (NYSE: VAL) ("Valaris" or the "Company") reported fourth
quarter 2023 results.
President and Chief Executive Officer Anton Dibowitz said, “We continue to execute on our operating leverage by repricing rigs from legacy day rates to meaningfully higher market rates and successfully delivering reactivated rigs with attractive contracts. At the same time, we remain laser focused on delivering high levels of operational performance to our customers, as evidenced by another strong year of revenue efficiency.”
Dibowitz added, “During the fourth quarter, we were awarded new contracts and extensions with associated contract backlog of more than $1.4 billion. These awards include two multi-year drillship contracts at leading-edge day rates and several jackup contracts across the North Sea, Australia and Trinidad, demonstrating the depth of our customer relationships, track record of operational delivery and broad-based strength of the market.”
Dibowitz concluded, “We remain confident in the strength and duration of this upcycle and the outlook for Valaris is positive. We expect to deliver significant earnings and cash flow growth over the next few years and we intend to return all future free cash flow to shareholders unless there is a better or more value accretive use for it.”
Financial and Operational Highlights
- Net income of $829 million (including tax benefit of $790 million), Adjusted EBITDA of $58 million and Adjusted EBITDAR of $96 million;
- Delivered revenue efficiency of 93% during the quarter and 96% for the year;
- VALARIS DS-8 commenced a contract offshore Brazil late in the quarter, following its reactivation;
- VALARIS 110 received TotalEnergies' and North Oil Company's global jackup Rig of the Year award;
- Awarded new contracts and extensions with associated contract backlog of more than $1.4 billion during the fourth quarter;
- Increased total contract backlog to more than $3.9 billion as of February 15, 2024, representing a nearly 60% increase from twelve months ago;
- Took delivery of newbuild drillships VALARIS DS-13 and DS-14;
- Repurchased $50 million of shares during the fourth quarter and $200 million during the year;
- Valaris Board of Directors authorized an increase in the Company's share repurchase program to $600 million from $300 million in February 2024;
- ARO Drilling took delivery of newbuild jackup Kingdom 1, and the rig started its maiden contract, during the fourth quarter.
Fourth Quarter Review
Net income increased to $829 million from $17 million in the third quarter 2023. Net income for the fourth quarter 2023 included a tax benefit of $790 million discussed below. Adjusted EBITDA increased to $58 million from $40 million in the third quarter primarily due to more operating days across the fleet and lower reactivation expense. Adjusted EBITDAR increased to $96 million from $91 million in the third quarter.
Revenues increased to $484 million from $455 million in the third quarter 2023. Excluding reimbursable items, revenues increased to $453 million from $427 million in the third quarter. The increase was primarily due to more operating days across the fleet, including for drillship VALARIS DS-17 that commenced a contract in early September, following its reactivation, and jackup VALARIS 107, which started a contract early in the fourth quarter after being idle for most of the third quarter.
Contract drilling expense increased to $402 million from $391 million in the third quarter 2023. Excluding reimbursable items, contract drilling expense increased to $374 million from $369 million in the third quarter primarily due to the increase in operating days mentioned above. This was partially offset by lower reactivation expense and lower repair and maintenance expense for the jackup fleet.
Depreciation expense increased to $28 million from $26 million in the third quarter 2023. General and administrative expense of $24 million was in line with the third quarter 2023.
Other income decreased to $0 million from $11 million in the third quarter 2023. This was primarily due to foreign currency exchange losses during the quarter compared to gains in the third quarter and an increase in interest expense associated with a $400 million debt issuance that was completed in the third quarter.
Tax benefit was $790 million compared to tax expense of $11 million in the third quarter 2023. The fourth quarter tax provision included $800 million of tax benefit due to changes in deferred tax asset valuation allowances.
Cash and cash equivalents and restricted cash decreased to $636 million as of December 31, 2023, from $1.1 billion as of September 30, 2023. The decrease was primarily due to capital expenditures and share repurchases, partially offset by positive operating cash flow.
Capital expenditures increased to $463 million from $106 million in the third quarter 2023 primarily due to the Company exercising options to take delivery of newbuild drillships VALARIS DS-13 and DS-14 for an aggregate purchase price of $337 million during the quarter.
Fourth Quarter Segment Review
Floaters
Floater revenues increased to $263 million from $243 million in the third quarter 2023. Excluding reimbursable items, revenues increased to $247 million from $232 million in the third quarter. The increase was primarily due to more operating days for VALARIS DS-17, which commenced its contract with Equinor offshore Brazil in early September, following its reactivation. This was partially offset by fewer operating days for VALARIS DS-12 due to mobilization and a brief shipyard visit between contracts.
Contract drilling expense increased to $226 million from $215 million in the third quarter 2023. Excluding reimbursable items, contract drilling expense increased to $211 million from $206 million in the third quarter. The increase was primarily due to more operating days for VALARIS DS-17, partially offset by lower reactivation expense.
Jackups
Jackup revenues increased to $179 million from $166 million in the third quarter 2023. Excluding reimbursable items, revenues increased to $170 million from $155 million in the third quarter primarily due to more operating days for VALARIS 107, 249 and Norway, all of which incurred some idle time during the third quarter. This was partially offset by fewer operating days for 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 in 2024.
Contract drilling expense increased to $123 million from $122 million in the third quarter 2023. Excluding reimbursable items, contract drilling expense increased to $115 million from $114 million in the third quarter. Contract drilling expense was largely flat on higher revenues primarily due to lower repair and maintenance expense.
ARO Drilling
Revenues increased to $134 million from $122 million in the third quarter 2023 primarily due to newbuild jackup Kingdom 1 commencing its maiden contract in November and more operating days for ARO 4001 following some out of service days for planned maintenance during the third quarter. Contract drilling expense decreased to $88 million from $92 million in the third quarter primarily due to lower bareboat charter expense, partially offset by more operating days for the owned fleet.
