Valaris Ltd
For the period ended Jun 30, 2024. Filed Aug 1, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 1, 2024
VAL$79.77+3.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-02.
0000314808-24-000062
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-01.
0000314808-24-000123
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 141 previous paragraphs and 150 current paragraphs.
78 unchanged; 44 reworded; 26 added; 17 removed; 2 previous and 2 current paragraphs rearranged.
Tables are not compared: 11 previous and 12 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (26)
Current report
(5)In late July 2024, ARO received suspension notices for the drilling contracts for VALARIS 147 and VALARIS 148, which are two of our jackups leased to ARO. The backlog presented above includes $35.3 million in Other backlog and $112.6 million in ARO backlog attributable to these two contracts. See "Business Environment" for additional information.
Current report
In July, ARO received suspension notices for the drilling contracts for VALARIS 147 and VALARIS 148, which are two of our jackups leased to ARO. Discussions are ongoing with Saudi Aramco regarding whether other Valaris-leased rigs or ARO-owned rigs could be subject to the suspensions instead of VALARIS 147 and VALARIS 148 as well as when the suspensions will be effective. As of July 29, 2024, these two rigs accounted for $35.3 million and $112.6 million of our contract backlog and ARO's contract backlog, respectively. We believe that three additional suspension notices may be issued to other offshore drilling contractors, for a total of five additional suspended rigs from the 22 suspensions that occurred earlier this year. While the five anticipated contract suspensions may add further supply to the jackup market, the suspensions would comprise 1% of the marketed jackup fleet.
Current report
Revenue increased in the current quarter compared to the preceding quarter, primarily attributable to a net increase of $61.4 million from more operating days in the current quarter, largely driven by various rigs that were mobilizing or undergoing contract preparations during the preceding quarter prior to commencing new contracts, including VALARIS DS-7, which completed its reactivation and commenced its contract in May. Further contributing to the increase were higher average daily revenues of $25.7 million, primarily due to certain rigs commencing contracts at higher day rates than those earned under their previous contracts.
Current report
Contract drilling expense decreased in the current quarter compared to the preceding quarter primarily driven by lower reactivation costs of $17.1 million for VALARIS DS-7, partially offset by increases of $6.8 million from higher personnel-related costs as a result of more rigs working under contract in the current quarter and $5.6 million of incremental costs incurred related to the stacking of VALARIS DS-13 and VALARIS DS-14.
Current report
General and administrative expenses increased primarily due to higher professional fees.
Current report
Contract drilling expense increased primarily due to incremental costs of $83.0 million incurred for VALARIS DS-7, VALARIS DS-17 and VALARIS DS-8 and stacking costs of $6.5 million incurred for VALARIS DS-13 and VALARIS DS-14. For the remaining fleet, we had an increase in personnel-related costs of $16.4 million, partially driven by wage increases in certain regions and incentive compensation costs, higher reimbursable expenses of $7.4 million and increased costs of $3.8 million related to certain claims. These increases were partially offset by lower repair and maintenance costs of $8.6 million in the six months ended June 30, 2024.
Current report
General and administrative expenses increased primarily due to higher professional fees.
Current report
Other income, net, increased primarily due to a $29.2 million loss from the extinguishment of the Senior Secured First Lien Notes due 2028 (the "First Lien Notes") recognized in the prior year period (see "Note 8 - Debt" to our consolidated financial statements included in "Item 1. Financial Statements" for information regarding this debt extinguishment), an $8.1 million increase in foreign currency gains and a $4.4 million increase in interest income. These increases were partially offset by a $27.3 million net gain on the sale of VALARIS 54 recognized in the prior year period and a $12.5 million increase in interest expense.
Current report
Floater revenue increased $59.5 million, or 18%, for the current quarter as compared to the preceding quarter, primarily due to a net increase of $41.2 million from more operating days, largely driven by various floaters that were mobilizing or undergoing contract preparations during the preceding quarter prior to commencing new contracts, including $11.4 million of incremental revenue for VALARIS DS-7, which commenced a new contract in the current quarter following reactivation. Further contributing to the increase were higher average daily revenues of $19.2 million, primarily due to the commencement of new contracts at higher day rates during the current quarter.
Current report
Floater contract drilling expense increased $4.0 million, or 2%, for the current quarter as compared to the preceding quarter, primarily driven by higher personnel-related costs of $12.3 million due to more rigs working under contract in the current quarter, $5.6 million of incremental costs incurred related to the stacking of VALARIS DS-13 and VALARIS DS-14 and $3.8 million of higher repairs and maintenance costs. These increases were largely offset by a $17.1 million decrease in incremental reactivation costs related to VALARIS DS-7.
Current report
Jackup revenues increased $33.5 million, or 22%, for the current quarter as compared to the preceding quarter, primarily due to $20.2 million from incremental operating days, $7.1 million attributable to higher average daily revenue and higher customer reimbursable revenue of $3.4 million. The increase in operating days was primarily attributable to certain jackups that were mobilizing or undergoing contract preparations during the preceding quarter prior to commencing new contracts, partially offset by fewer days for VALARIS 144, which completed its contract in the preceding quarter and is in the shipyard for upgrades in preparation for its next contract.
Current report
Jackup contract drilling expense decreased $10.7 million, or 8%, for the current quarter as compared to the preceding quarter, primarily due to lower repairs and maintenance costs of $7.1 million, a decrease in personnel-related costs of $5.1 million, partially driven by higher overtime pay and more contractor workers required in the preceding quarter, and a decrease of $2.6 million related to certain claims. These decreases were partially offset by higher customer reimbursable expenses of $3.4 million.
Current report
ARO revenue decreased $14.1 million, or 10%, for the current quarter as compared to the preceding quarter, primarily due to $10.8 million of lower revenue for certain rigs which were undergoing maintenance projects during the current quarter, $3.6 million of lower revenue for VALARIS 143 as a result of its contract terminating in the current quarter and a $5.2 million decrease related to unplanned downtime in the current quarter. These decreases were partially offset by $6.5 million of incremental revenue related to VALARIS 108, which we began leasing to ARO during the preceding quarter and commenced its new contract in March.
Current report
Other revenue decreased $7.9 million, or 16%, for the current quarter as compared to the preceding quarter, primarily due to $6.4 million of lower revenue earned from lease agreements with ARO and a decrease of $1.6 million from lower customer reimbursable revenue.
Current report
Other contract drilling expense decreased $2.6 million, or 12%, for the current quarter as compared to the preceding quarter, primarily due to lower customer reimbursable expenses and repair and maintenance cost of $1.6 million and $0.9 million, respectively.
Current report
Segment information for the six months ended June 30, 2024 and 2023 is as follows (in millions):
Current report
Six Months Ended June 30, 2024
Current report
Six Months Ended June 30, 2023
Current report
Floater revenue increased $266.1 million, or 60%, for the six months ended June 30, 2024 compared to the prior year period, primarily due to incremental revenue of $203.4 million from VALARIS DS-17, VALARIS DS-8 and VALARIS DS-7, which commenced new contracts since the prior year period following reactivations. For the remaining floater fleet, there were increases of $56.1 million from higher average daily revenue earned, primarily due to certain floaters working under higher day rate contracts in the current period as compared to the prior year period, and $7.8 million from more operating days.
Current report
Floater contract drilling expense increased $140.0 million, or 38%, for the six months ended June 30, 2024 compared to the prior year period, primarily due to incremental costs of $83.0 million incurred for VALARIS DS-17, VALARIS DS-8 and VALARIS DS-7 and $6.5 million incurred related to the stacking of VALARIS DS-13 and VALARIS DS-14 during the six months ended June 30, 2024. For the remaining fleet, there were increases of $24.0 million related to personnel-related costs, partially driven by wage increases in certain regions and incentive compensation costs, higher repair and maintenance costs of $9.4 million and increased costs related to certain claims of $3.0 million.
Current report
Jackup revenues increased $23.7 million, or 8%, for the six months ended June 30, 2024 compared to the prior year period, primarily due to net increases of $19.3 million from higher average daily revenue related to certain rigs working under contracts with higher day rates than the period year period and $9.9 million from higher customer reimbursable revenue, which were partially offset by a decrease of $9.7 million from less operating days due to certain rigs that were mobilizing or undergoing contract preparations during the six months ended June 30, 2024.
Current report
Jackup contract drilling expense decreased $15.3 million, or 6%, for the six months ended June 30, 2024 compared to the prior year period primarily due to lower repair and maintenance costs of $19.6 million, largely attributable to maintenance for certain rigs during special period surveys performed in the prior year period, and decreased personnel-related costs of $9.6 million, partially driven by the deferral of costs incurred for certain jackups related to mobilizations and preparation for contracts in the six months ended June 30, 2024. These decreases were partially offset by higher customer reimbursable expenses of $9.7 million in the six months ended June 30, 2024.
Current report
ARO depreciation expense increased $8.1 million, or 26%, for the six months ended June 30, 2024 compared to the prior year period, primarily due to the additions of Kingdom 1 and Kingdom 2 to the fleet.
Current report
Other contract drilling expense increased $3.4 million, or 9%, for the six months ended June 30, 2024 compared to the prior year period, primarily due to higher personnel-related costs of $2.0 million and increased repairs and maintenance costs of $1.6 million.
Current report
We recognized a $29.2 million loss from the extinguishment of the First Lien Notes in the prior year period. See "Note 8 - Debt" to our consolidated financial statements included in "Item 1. Financial Statements" for information regarding this debt extinguishment.
Current report
Net gains on the sale of property decreased $28.0 million for the six months ended June 30, 2024 compared to the prior year period primarily due to sale of VALARIS 54 in the prior year period.
Removed paragraphs (17)
Previous report
Revenue increased in the current quarter, compared to the preceding quarter, primarily due to $30.2 million of incremental revenue earned for VALARIS DS-8, which completed its reactivation and commenced a new contract late in the preceding quarter and a $4.6 million increase from revenues earned from lease agreements with ARO. For the remaining fleet, there were net increases of $8.2 million and $3.0 million from higher average daily revenue and customer reimbursable revenue, respectively, partially offset by a net decrease of $4.8 million from fewer operating days.
Previous report
Contract drilling expense increased in the current quarter, compared to the preceding quarter, primarily due to a $16.9 million increase in repair costs associated with contract preparation, special periodic surveys for certain rigs and other scheduled repairs and maintenance. In addition, there were $8.0 million of higher costs related to certain claims, $7.3 million of incremental costs for VALARIS DS-8, a $4.0 million increase in VALARIS DS-7 reactivation costs and a $2.8 million increase in reimbursable costs.
Previous report
Other income, net, increased primarily due to a $12.3 million increase in foreign currency gains and a $4.0 million decrease in interest expense, partially offset by a $6.2 million decrease in interest income.
Previous report
Contract drilling expense increased in the current quarter, compared to the prior year quarter, primarily due to $47.5 million of incremental costs incurred for VALARIS DS-17 and VALARIS DS-8. For the remaining fleet, personnel-related costs for rigs that operated in both comparative periods increased $16.4 million, partially driven by wage increases in certain regions and incentive compensation costs, and there were also increases of $8.2 million attributable to reimbursable expense, $3.3 million of costs associated with integrated services, $3.1 million related to costs for certain claims and $2.2 million in reactivation costs. These increases were partially offset by a $20.8 million decrease in costs for certain jackups that were idle or between contracts in the current quarter.
Previous report
Additionally, ARO has ordered a newbuild jackup, which is under construction in the Middle East and expected to be delivered in the second quarter of 2024. This rig is not included in the table above.
Previous report
Three Months Ended March 31, 2023
Previous report
Floater revenue increased $61.2 million, or 23%, for the current quarter as compared to the preceding quarter, primarily due to $30.2 million of revenue earned by VALARIS DS-8, which commenced a new contract in late December 2023 after its reactivation and a net increase in operating days and higher average daily revenue of $28.2 million and $4.6 million, respectively, for the remaining floater fleet.
Previous report
Floater contract drilling expense increased $27.4 million, or 12%, for the current quarter as compared to the preceding quarter, primarily due to incremental costs of $7.3 million for VALARIS DS-8. For the remaining floater fleet, there was a $6.6 million increase in costs for scheduled repairs and maintenance, a $6.6 million increase for certain rigs operating that had been mobilizing or idle between contracts in the preceding quarter, a $4.0 million increase in VALARIS DS-7 reactivation costs and a $3.4 million increase in costs for certain claims.
Previous report
Jackup revenues decreased $27.0 million, or 15%, for the current quarter as compared to the preceding quarter, primarily due to a $32.7 million decrease resulting from lower operating days due to certain rigs that were mobilizing or idle between contracts in the current quarter. This decrease was partially offset by higher customer reimbursable revenue of $3.4 million.
Previous report
Jackup contract drilling expense increased $10.6 million, or 9%, for the current quarter as compared to the preceding quarter, primarily due to a $8.2 million increase in repair costs associated with contract preparation and special periodic surveys for certain rigs, a $4.7 million increase in costs for certain claims and a $3.3 million increase in reimbursable cost. These increases were partially offset by a $5.8 million net decrease in costs due to certain rigs that were mobilizing or idle between contracts in the current quarter.
Previous report
Other contract drilling expense increased $4.2 million, or 23%, for the current quarter as compared to the preceding quarter, primarily due to $2.1 million increase in repair and maintenance costs related to special periodic surveys for certain rigs and $1.2 million in reimbursable costs.
Previous report
Floater revenue increased $109.6 million, or 51%, for the current quarter compared to the prior year quarter, primarily due to $86.7 million from VALARIS DS-17 and VALARIS DS-8, which commenced new contracts in the second half of 2023. For the remaining floater fleet, there was a net increase of $22.5 million and $4.0 million from higher average daily revenues and customer reimbursable revenue, respectively, partially offset by a net decrease of $3.6 million from fewer operating days.
Previous report
Floater contract drilling expense increased $78.8 million, or 45%, for the current quarter compared to the prior year quarter, primarily due to $47.5 million of incremental cost incurred for VALARIS DS-17 and VALARIS DS-8. For the remaining floater fleet, personnel-related costs increased by $9.7 million, partially driven by wage increases in certain regions and incentive compensation costs. In addition, reimbursable expense, repair and maintenance costs, costs related to integrated services and reactivation expense increased by $4.1 million, $3.5 million, $3.3 million and $2.2 million, respectively.
Previous report
Jackup revenues decreased $17.5 million, or 10%, for the current quarter compared to the prior year quarter, primarily due to a decrease of $18.5 million resulting from lower operating days primarily due to certain rigs that were mobilizing or preparing for contracts in the current quarter and the sale of VALARIS 54, which operated in the prior year quarter, and $3.9 million lower average daily revenue for certain rigs. These decreases were partially offset by a $3.9 million increase in reimbursable revenues.
Previous report
Jackup contract drilling expense decreased $15.0 million, or 10%, for the current quarter compared to the prior year quarter, primarily due to $20.8 million of lower costs for rigs that were idle or between contracts in the current quarter and a $5.1 million decrease in repair costs for certain rigs. These decreases were partially offset by a $5.4 million increase in personnel-related costs related to rigs that were operating in both comparative periods, partially driven by wage increases in certain regions and incentive compensation costs, and a $4.0 million increase in reimbursable costs.
Previous report
ARO depreciation expense increased $4.0 million, or 27%, for the current quarter compared to the prior year quarter, primarily due to the addition of Kingdom 1 to the active fleet.
Previous report
Other revenue increased $2.8 million, or 6%, for the current quarter compared to the prior year quarter, primarily due to $2.2 million from higher average daily revenues earned by our managed rigs in relation to contract extensions executed during the current quarter at higher rates.
Reworded paragraphs (44)
Previous wording
We are a leading provider of offshore contract drilling services to the international oil and gas industry with operations in almost every major offshore market across six continents. We own the world's largest offshore drilling rig fleet, including one of the newest ultra-deepwater fleets in the industry and a leading premium jackup fleet. We currently own 53 rigs, including 13 drillships, four dynamically positioned semisubmersible rigs, one moored semisubmersible rig, 35 jackup rigs and a 50% equity interest in ARO, our 50/50 unconsolidated joint venture with Saudi Aramco, which owns an additional eight rigs.
Current wording
We are a leading provider of offshore contract drilling services to the international oil and gas industry with operations in almost every major offshore market across six continents. We own the world's largest offshore drilling rig fleet, including one of the newest ultra-deepwater fleets in the industry and a leading premium jackup fleet. We currently own 53 rigs, including 13 drillships, four dynamically positioned semisubmersible rigs, one moored semisubmersible rig, 35 jackup rigs and a 50% equity interest in ARO, our 50/50 unconsolidated joint venture with Saudi Aramco, which owns an additional nine rigs.
Previous wording
Rig attrition in the industry over the last decade, particularly for floaters, has resulted in a smaller global fleet of rigs that is available to meet customer demands. In addition, demand for offshore drilling services continues to improve as evidenced by increasing global utilization and day rates for offshore drilling rigs. Consequently, our outlook for the offshore drilling business is positive.
Current wording
Rig attrition in the industry over the last decade, particularly for floaters, has resulted in a smaller global fleet of rigs that is available to meet customer demands. In addition, demand for offshore drilling services has improved as evidenced by increased global utilization and day rates for offshore drilling rigs. Consequently, our outlook for the offshore drilling business is positive.
Previous wording
(1)The decrease for Floaters is primarily due to revenues realized. This was partially offset by a six-month contract extension for VALARIS DS-9 offshore Angola and a 60-day contract extension for VALARIS DS-17 offshore Brazil, which resulted in incremental aggregate backlog of approximately $70.0 million.
Current wording
(1)The increase for Floaters is primarily due to a multi-year contract award for VALARIS DS-17 offshore Brazil and a six-month contract extension for VALARIS DS-9 offshore Angola, which resulted in incremental aggregate backlog of approximately $520.0 million. This increase was partially offset by revenues realized.
Previous wording
(2)The increase for Jackups is due to a 770-day contract award for VALARIS 144, which resulted in incremental aggregate backlog of approximately $144.0 million. This increase was partially offset by revenues realized.
Current wording
(2)The increase for Jackups is due to various contract awards and extensions executed, which resulted in incremental aggregate backlog of approximately $380.0 million, partially offset by revenues realized.
Previous wording
(4)The decrease in ARO backlog is due to revenues realized and a reduction of backlog of approximately $18.0 million attributable to the VALARIS 143 contract, which is expected to be terminated effective in May 2024 based on a suspension notice received in April.
Current wording
(4)The decrease in ARO backlog is due to revenues realized and a reduction of backlog of approximately $18.0 million attributable to the VALARIS 143 contract, which was terminated effective in May 2024.
Previous wording
In recent years, the more constructive oil price environment has led to an improvement in contracting and tendering activity for floaters. The number of contracted benign environment floaters has increased to 127 at March 31, 2024 from a low of 101 in early 2021, contributing to a 13% increase in global utilization, from 73% to 86%, for the industry's marketed fleet over the same period. This increase in activity is particularly evident for 6th and 7th generation drillships, such as those included in our floater fleet. Utilization for the global marketed 6th and 7th generation drillship fleet is currently at 90% and has met or exceeded 90% since early 2023, resulting in a meaningful improvement in day rates for this class of assets.
Current wording
In recent years, the more constructive oil price environment has led to an improvement in contracting and tendering activity for floaters. The number of contracted benign environment floaters has increased to 127 at June 30, 2024 from a low of 101 in early 2021, contributing to an increase in global utilization, from 73% to 86%, for the industry's marketed fleet over the same period. This increase in activity is particularly evident for 6th and 7th generation drillships, such as those included in our floater fleet. Utilization for the global marketed 6th and 7th generation drillship fleet is currently at 88% and has been around 90% since early 2022, resulting in a meaningful improvement in day rates for this class of assets.
Previous wording
Since the beginning of 2022, we have completed the reactivation of five previously stacked drillships and one stacked semisubmersible for attractive contracts, and we are currently reactivating another stacked drillship, VALARIS DS-7, for a long-term contract offshore West Africa expected to commence in mid-2024.
Current wording
Since the beginning of 2022, we have completed the reactivation of seven previously stacked floaters for attractive contracts, including six drillships and one semisubmersible.
Previous wording
Contracting and tendering activity for jackups has improved in recent years as a result of the more constructive oil price environment, and we have seen a corresponding increase in utilization. The number of contracted jackups has increased to 412 at March 31, 2024 from a low of 341 in early 2021, contributing to a 16% increase in global utilization, from 78% to 94%, for the industry's marketed fleet over the same period, which has led to a meaningful increase in day rates for jackups.
Current wording
Contracting and tendering activity for jackups has improved in recent years as a result of the more constructive oil price environment, and we have seen a corresponding increase in utilization. The number of contracted jackups has increased to 410 at June 30, 2024 from a low of 341 in early 2021, contributing to an increase in global utilization, from 78% to 93%, for the industry's marketed fleet over the same period, which has led to a meaningful increase in day rates for jackups.
Previous wording
In early 2024, Saudi Arabia announced that they plan to maintain maximum sustainable capacity at 12 million barrels per day rather than pursuing their previously stated aim of increasing capacity to 13 million barrels per day. Following this announcement, Aramco sent contract suspension notices to several offshore drillers to suspend its contracts, which included notice to ARO with respect only to its contract for VALARIS 143, one of our nine jackups leased to ARO. Since the announcement, certain offshore drillers, including ARO, have announced contract suspensions for a total of 22 rigs, which represents 5% of the marketed jackup fleet. We believe that approximately half of these rigs are likely to be competitive in other higher-specification, benign environment regions and expect there to be sufficient incremental demand in these regions to absorb them in an orderly manner.
Current wording
In early 2024, Saudi Arabia announced that they plan to maintain maximum sustainable capacity at 12 million barrels per day. Following this announcement, Aramco sent contract suspension notices to several offshore drillers in the first half of 2024, to suspend its contracts, which included notice to ARO with respect only to its drilling contract for VALARIS 143, for a total of 22 rigs, which represents 5% of the marketed jackup fleet. To date, six of the 22 suspended rigs have been contracted in other regions. We believe that approximately half of these remaining suspended rigs are likely to be competitive in other higher-specification, benign environment regions and expect there to be sufficient incremental demand in these regions to absorb them in an orderly manner.
Previous wording
From a supply perspective, as of March 31, 2024, the number of jackups declined by 8% to 497 from a peak of 542 in early 2015. While the number of jackups has decreased less than floaters, 32% of the current jackup fleet is more than 30 years of age with limited useful lives remaining. Further, we believe that some of the jackups that are currently idle are not competitive, either due to their age or length of time stacked. Expenditures required to reactivate some of these rigs may prove cost prohibitive and drilling contractors may instead elect to scrap certain rigs. Excluding ARO's newbuild program, there are only 16 newbuild jackups remaining at shipyards, of which 11 are at Chinese shipyards, many of which are expected to be used locally in China.
Current wording
From a supply perspective, as of June 30, 2024, the number of jackups declined by 8% to 500 from a peak of 542 in early 2015. While the number of jackups has decreased less than floaters, 32% of the current jackup fleet is more than 30 years of age with limited useful lives remaining. Further, we believe that some of the jackups that are currently idle are not competitive, either due to their age or length of time stacked. Expenditures required to reactivate some of these rigs may prove cost prohibitive and drilling contractors may instead elect to scrap certain rigs. There are only 15 newbuild jackups remaining at shipyards, of which ten are at Chinese shipyards, many of which are expected to be used locally in China.
Previous wording
Management believes the comparison of the most recently completed quarter to the immediately preceding quarter provides more relevant information needed to understand and analyze the business. As such, as permitted under applicable SEC rules, we have elected to discuss any material changes in our results of operations by including a comparison of our most recently completed fiscal quarter ended March 31, 2024 (the "current quarter") to the immediately preceding fiscal quarter ended December 31, 2023 (the "preceding quarter"). We also continue to discuss any material changes in our results of operations for the three months ended March 31, 2024 compared to the corresponding period of the preceding fiscal year (the "prior year quarter"), as required under the applicable SEC rules.
Current wording
Management believes the comparison of the most recently completed quarter to the immediately preceding quarter provides more relevant information needed to understand and analyze the business. As such, as permitted under applicable SEC rules, we have elected to discuss any material changes in our results of operations by including a comparison of our most recently completed fiscal quarter ended June 30, 2024 (the "current quarter") to the immediately preceding fiscal quarter ended March 31, 2024 (the "preceding quarter"). We also continue to discuss any material changes in our results of operations for the six months ended June 30, 2024 compared to the corresponding period of the preceding fiscal year (the "prior year period"), as required under the applicable SEC rules.
Previous wording
Other income, net, decreased primarily due to a $6.6 million increase in interest expense and a $2.0 million decrease in interest income, partially offset by a $4.9 million increase in foreign currency gains.
Current wording
Other income, net, increased primarily due to a $10.0 million increase in interest income, partially offset by a $4.9 million increase in interest expense and a $2.9 million decrease in foreign currency gains.
Previous wording
Discrete income tax benefit for the current quarter was $6.6 million and was primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years, partially offset by the resolution of prior period tax matters. Discrete income tax benefit for the prior year quarter was $43.8 million and was primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years. Excluding the aforementioned discrete tax items, income tax expense for the current quarter and prior year quarter was $19.5 million and $16.2 million, respectively.
Current wording
Discrete income tax benefit for the current quarter was $63.9 million and was primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years, including the reversal of a liability associated with tax assessments received from the Luxembourg tax authorities (see "Note 10 - Income Taxes" to our consolidated financial statements included in "Item 1. Financial Statements" for information on this matter), and the resolution of other prior period tax matters. Discrete income tax benefit for the preceding quarter was $6.6 million and was primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years, partially offset by the resolution of prior period tax matters. Excluding the aforementioned discrete tax items, income tax expense was $33.9 million for the current quarter and $19.5 million for the preceding quarter.
Previous wording
The following table summarizes our Condensed Consolidated Results of Operations for the three months ended March 31, 2024 and 2023 (in millions, except percentages):
Current wording
The following table summarizes our Condensed Consolidated Results of Operations for the six months ended June 30, 2024 and 2023 (in millions, except percentages):
Previous wording
Revenues increased in the current quarter, compared to the prior year quarter, primarily due to $86.7 million of incremental revenue earned for VALARIS DS-17 and VALARIS DS-8, which both commenced contracts following reactivation in the second half of 2023. For the remaining fleet, there were increases of $20.8 million and $8.0 million from higher average daily revenue and customer reimbursable revenue, respectively, partially offset by a net decrease of $21.9 million from fewer operating days.
Current wording
Revenues increased primarily due to $203.4 million of incremental revenue earned for VALARIS DS-17, VALARIS DS-8 and VALARIS DS-7, which have commenced contracts since the prior year period following reactivations. For the remaining fleet, there were increases of $79.1 million and $7.7 million from higher average daily revenue and higher customer reimbursable revenue, respectively.
Previous wording
(2)During the second quarter of 2023, we sold VALARIS 54. During the first quarter of 2024, we leased VALARIS 108 to ARO.
Current wording
(2)During the first quarter of 2024, we leased VALARIS 108 to ARO. During the second quarter of 2024, the VALARIS 143 contract with ARO was terminated and VALARIS 76 was leased to ARO.
Previous wording
(3)This represents the jackup rigs leased to ARO through bareboat charter agreements whereby substantially all operating costs are incurred by ARO. Rigs leased to ARO operate under long-term contracts with Saudi Aramco. During the first quarter of 2024, we leased VALARIS 108 to ARO.
Current wording
(3)This represents the jackup rigs leased to ARO through bareboat charter agreements whereby substantially all operating costs are incurred by ARO. Rigs leased to ARO operate under long-term contracts with Saudi Aramco. During the first quarter of 2024, we leased VALARIS 108 to ARO. During the second quarter of 2024, the VALARIS 143 contract with ARO was terminated and the rig is now being preservation stacked. Separately, VALARIS 76 was leased to ARO during the second quarter of 2024.
Previous wording
(4)This represents the jackup rigs owned by ARO, which are operating under long-term contracts with Saudi Aramco, including Kingdom 1, a jackup rig, which was delivered in the fourth quarter of 2023.
Current wording
(4)This represents the jackup rigs owned by ARO, which are operating under long-term contracts with Saudi Aramco, including Kingdom 1 and Kingdom 2, which were delivered in the fourth quarter of 2023 and second quarter of 2024, respectively.
Previous wording
(6)During the third quarter of 2023, we began reactivating VALARIS DS-7 for a 12-well contract offshore West Africa.
Current wording
(6)During the third quarter of 2023, we began reactivating VALARIS DS-7 for a 12-well contract offshore West Africa. The reactivation was completed and the contract commenced during the second quarter of 2024.
Previous wording
(3)Average daily revenue is derived by dividing contract drilling revenues, adjusted to exclude certain types of non-recurring reimbursable revenues, revenues earned during suspension periods and revenues attributable to amortization of drilling contract intangibles, by the aggregate number of operating days. Beginning with the third quarter of 2023, we began presenting average daily revenue instead of the previously reported average day rate metric, which further excluded lump-sum revenues and amortization thereof. Average daily revenue is a more comprehensive measurement of our revenue-earning performance and more closely aligns with the calculation methodology used by our closest offshore drilling peers. The prior year quarter has been adjusted to conform with the current period presentation.
Current wording
(3)Average daily revenue is derived by dividing contract drilling revenues, adjusted to exclude certain types of non-recurring reimbursable revenues, revenues earned during suspension periods and revenues attributable to amortization of drilling contract intangibles, by the aggregate number of operating days. Beginning with the third quarter of 2023, we began presenting average daily revenue instead of the previously reported average day rate metric, which further excluded lump-sum revenues and amortization thereof. Average daily revenue is a more comprehensive measurement of our revenue-earning performance and more closely aligns with the calculation methodology used by our closest offshore drilling peers. The prior year period has been adjusted to conform with the current period presentation.
Previous wording
Segment information for the current quarter, preceding quarter and prior year quarter is as follows (in millions):
Current wording
Segment information for the current quarter and preceding quarter is as follows (in millions):
Previous wording
ARO contract drilling expense increased $10.3 million, or 12%, for the current quarter as compared to the preceding quarter, primarily due to a $7.4 million increase in bareboat charter lease expense, inclusive of certain adjustments, and a $2.4 million increase in repair costs for certain rigs.
Current wording
ARO contract drilling expense decreased $4.2 million, or 4%, for the current quarter as compared to the preceding quarter, primarily due to a $3.9 million decrease in bareboat charter lease expense, inclusive of certain adjustments.
Previous wording
ARO revenue increased $4.6 million, or 3%, for the current quarter as compared to the preceding quarter, primarily due to $6.7 million of higher revenue from Kingdom 1, which commenced operations in November 2023, and VALARIS 108, which ARO started leasing from us in March 2024. These increases were partially offset by $2.1 million of lower revenue for certain rigs, which were undergoing maintenance projects during the current quarter.
Current wording
ARO revenue increased $21.1 million, or 9%, for the six months ended June 30, 2024 compared to the prior year period, primarily due to a $32.9 million increase from Kingdom 1, which commenced operations in November 2023, and VALARIS 108, which we began leasing to ARO during the preceding quarter. This increase was partially offset by $5.2 million of lower revenue for certain rigs which were undergoing maintenance projects during the six months ended June 30, 2024 and a decrease of $4.8 million due to the termination of VALARIS 143 in the second quarter of 2024.
Previous wording
ARO contract drilling expense increased $7.4 million or 8% for the current quarter compared to the prior year quarter, primarily due to a $4.5 million increase in operating costs for Kingdom 1 and VALARIS 108, and a $1.8 million increase in repair and maintenance costs for certain rigs.
Current wording
ARO contract drilling expense increased $6.5 million or 3% for the six months ended June 30, 2024 compared to the prior year period, primarily due to $4.4 million of incremental operating costs related to the operation of Kingdom 1 and VALARIS 108 and a net $1.2 million increase in personnel-related costs.
Previous wording
Other revenue increased $7.0 million, or 17%, for the current quarter as compared to the preceding quarter, primarily due to $4.6 million of higher revenues earned from lease agreements with ARO, an increase of $1.4 million from higher average daily revenues earned by our managed rigs in relation to contract extensions executed during the current quarter at higher rates and a $1.2 million increase in customer reimbursable revenue.
Current wording
Other revenue remained flat for the six months ended June 30, 2024 compared to the prior year period, primarily due to lower revenue earned from lease agreements with ARO of $4.0 million, which was largely offset by higher average daily revenues earned by our managed rigs of $3.7 million as a result of contract extensions executed during the six months ended June 30, 2024 at higher rates.
Previous wording
Interest income decreased $2.0 million, or 9%, for the current quarter compared to the prior year quarter, primarily due to a decrease of $1.6 million in interest income on cash equivalents due to a lower average balance in the current quarter.
Current wording
Interest income increased $10.0 million, or 48%, for the current quarter compared to the preceding quarter, primarily due to the recognition of non-cash interest income of $13.9 million related to an adjustment to the discount on our outstanding Notes Receivable with ARO, which resulted from a partial net settlement agreement executed in the current quarter (the "Net Settlement Agreement"). See "Note 3 - Equity Method Investment in ARO" to our consolidated financial statements included in "Item 1. Financial Statements" for more information on this matter. This increase was partially offset by a decrease in interest income on cash equivalents of $1.8 million due to a lower average balance in the current quarter.
Previous wording
Interest expense decreased $4.0 million, or 18%, for the current quarter compared to the preceding quarter, primarily due to a $3.7 million increase in capitalized interest due to VALARIS DS-13 and VALARIS DS-14, which were delivered in the preceding quarter.
Current wording
Interest expense increased $4.9 million, or 28%, for the current quarter compared to the preceding quarter, due to lower capitalized interest related to VALARIS DS-13 and VALARIS DS-14, which were delivered in December 2023 and mobilized to the shipyard in the preceding quarter.
Previous wording
Net foreign currency exchange gains increased $12.3 million for the current quarter compared to the preceding quarter's losses, primarily driven by favorable exchange rate movements in euros, Norwegian kroner, Brazilian reals and British pounds.
Current wording
Net foreign currency exchange gains decreased $2.9 million for the current quarter compared to the preceding quarter, primarily driven by unfavorable exchange rate movements in euros and Norwegian kroner, partially offset by favorable exchange rate movements in Brazilian reals.
Previous wording
Interest income decreased $6.2 million, or 23%, for the current quarter compared to the preceding quarter, primarily due to a decrease of $5.3 million in interest income on cash equivalents due to a lower average balance during the current quarter.
Current wording
Interest income increased $4.4 million, or 9%, for the six months ended June 30, 2024 compared to the prior year period, primarily due to the recognition of non-cash interest income of $13.9 million related to an adjustment to the discount on our outstanding Notes Receivable with ARO, which resulted from the Net Settlement Agreement executed in the current quarter. See "Note 3 - Equity Method Investment in ARO" to our consolidated financial statements included in "Item 1. Financial Statements" for information on this matter. This was partially offset by a $6.3 million decrease in interest income on cash equivalents due to a lower average balance during the six months ended June 30, 2024 and a $2.9 million decrease in interest income earned on our outstanding Notes Receivable with ARO, which was driven by lower outstanding principal balances related to the Net Settlement Agreement and lower interest rates relative to the prior year period.
Previous wording
Interest expense increased $6.6 million, or 59%, for the current quarter compared to the prior year quarter, primarily due to a $13.4 million increase in interest expense due to a higher principal debt balance. This increase was partially offset by a $6.8 million increase in capitalized interest primarily due to VALARIS DS-13 and VALARIS DS-14, which were delivered in the preceding quarter, and certain rigs that underwent reactivation projects and capital upgrades.
Current wording
Interest expense increased $12.5 million, or 45%, for the six months ended June 30, 2024 compared to the prior year period, primarily due to higher interest expense of $21.2 million related to a higher principal debt balance. This increase was partially offset by higher capitalized interest of $8.6 million, primarily due to VALARIS DS-13 and VALARIS DS-14, which were delivered at the end of 2023.
Previous wording
Net foreign currency exchange gains increased $4.9 million for the current quarter compared to the prior year quarter, primarily driven by favorable exchange rate movements in the euros and Nigerian naira.
Current wording
Net foreign currency exchange gains increased $8.1 million for the six months ended June 30, 2024 compared to the prior year period, primarily driven by favorable exchange rate movements in the euros, Brazilian reals, Angolan kwanza, Mexican pesos and British pounds, partially offset by unfavorable exchange rate movements in the Nigerian naira, Norwegian kroner and Egyptian pounds.
Previous wording
We expect to fund our short-term liquidity needs, including contractual obligations and anticipated capital expenditures, as well as working capital requirements, from cash and cash equivalents and cash flows from operations. Additionally, we have liquidity available under our senior secured revolving credit agreement (the "Credit Agreement"). We expect to fund our long-term liquidity needs, including contractual obligations and anticipated capital expenditures from cash and cash equivalents, cash flows from operations, as well as cash to be received from maturity of our Notes Receivable from ARO and from the distribution of earnings from ARO. We may rely on the issuance of debt and/or equity securities in the future to supplement our liquidity needs. However, the Indenture, dated as of April 19, 2023 (the "Indenture"), and the Credit Agreement contain covenants that limit our ability to incur additional indebtedness.
Current wording
We expect to fund our short-term liquidity needs, including contractual obligations and anticipated capital expenditures, as well as working capital requirements, from cash and cash equivalents and cash flows from operations. Additionally, we have liquidity available under our senior secured revolving credit agreement, which matures in 2028 (the "Credit Agreement"). We expect to fund our long-term liquidity needs, including contractual obligations and anticipated capital expenditures, from cash and cash equivalents, cash flows from operations, as well as cash to be received from maturity of our Notes Receivable from ARO and from the distribution of earnings from ARO. We may rely on the issuance of debt and/or equity securities in the future to supplement our liquidity needs. However, the Indenture, dated as of April 19, 2023 (the "Indenture"), and the Credit Agreement contain covenants that limit our ability to incur additional indebtedness.
Previous wording
Our cash and cash equivalents as of March 31, 2024 and December 31, 2023 were $494.1 million and $620.5 million, respectively. We have no debt principal payments due until 2030 and had $375.0 million available for borrowing, including up to $150.0 million for the issuance of letters of credit, under the Credit Agreement as of April 26, 2024. See below and "Note 8 - Debt" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information on the Credit Agreement and the 8.375% Second Lien Notes due 2030 (the "Second Lien Notes").
Current wording
Our cash and cash equivalents as of June 30, 2024 and December 31, 2023 were $398.3 million and $620.5 million, respectively. We have no debt principal payments due until 2030 and had $375.0 million available for borrowing, including up to $150.0 million for the issuance of letters of credit, under the Credit Agreement as of July 26, 2024. See below and "Note 8 - Debt" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information on the Credit Agreement and the 8.375% Second Lien Notes due 2030 (the "Second Lien Notes").
Previous wording
During the three months ended March 31, 2024, we generated $26.3 million of cash flow from operating activities primarily due to operating income for the quarter of $29.3 million and other changes in working capital. Our primary uses of cash were $151.3 million for maintenance and upgrades of our drilling rigs, including reactivation costs and costs to mobilize the recently delivered VALARIS DS-13 and DS-14 to their stacking location.
Current wording
During the six months ended June 30, 2024, we generated $37.8 million of cash flow from operating activities primarily due to operating income for the period of $138.2 million, partially offset by changes in working capital. Our primary uses of cash were $261.5 million for maintenance and upgrades of our drilling rigs, reactivation costs and costs to mobilize the recently delivered VALARIS DS-13 and VALARIS DS-14 to their stacking location.
Previous wording
During the three months ended March 31, 2023, we generated $151.7 million of cash flow from operating activities primarily due to the collection of $45.9 million for certain tax receivables and other changes in working capital. Our primary uses of cash were $56.3 million for maintenance and upgrades of our drilling rigs, including reactivations.
Current wording
During the six months ended June 30, 2023, we generated $122.6 million of cash flow from operating activities primarily due to the collection of $45.9 million for certain tax receivables and other changes in working capital. Our primary uses of cash were $127.3 million for the maintenance and upgrades of our drilling rigs, including reactivations.
Previous wording
Based on our current projections, we expect capital expenditures during 2024 to approximate $420.0 million to $460.0 million, primarily relating to maintenance and upgrade projects, including rig reactivation and associated contract-specific capital expenditures. During 2024, we expect to receive upfront payments from our customers of approximately $55.0 million related to these projects. Depending on market conditions, contracting activity and future opportunities, we may reactivate additional rigs or make additional capital expenditures to upgrade rigs for customer requirements and acquire additional rigs.
Current wording
Based on our current projections, we expect capital expenditures during 2024 to approximate $450.0 million to $480.0 million, primarily relating to maintenance and upgrade projects, including rig reactivation and associated contract-specific capital expenditures. During 2024, we expect to receive upfront payments from our customers of approximately $55.0 million related to these projects. Depending on market conditions, contracting activity and future opportunities, we may reactivate additional rigs or make additional capital expenditures to upgrade rigs for customer requirements and acquire additional rigs.
Previous wording
The Notes Receivable from ARO, which are governed by the laws of Saudi Arabia, mature during 2027 and 2028. In the event that ARO is unable to repay the Notes Receivable from ARO when they become due, we would require the prior consent of our joint venture partner to enforce ARO’s payment obligations.
Current wording
The Notes Receivable from ARO, which are governed by the laws of Saudi Arabia, mature during 2027 and 2028. In the event that ARO is unable to repay the Notes Receivable from ARO when they become due, we would require the prior consent of our joint venture partner to enforce ARO’s payment obligations. In June 2024, the Company and ARO executed a Net Settlement Agreement whereby approximately $50.7 million of our accounts payable due to ARO relating to our bareboat charter arrangements were net settled against a portion of the principal of our Notes Receivable from ARO.
Previous wording
We have other commitments that we are contractually obligated to fulfill with cash under certain circumstances. As of March 31, 2024, we were contingently liable for an aggregate amount of $97.2 million under outstanding letters of credit, which guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Obligations under these letters of credit are not normally called, as we typically comply with the underlying performance requirements. As of March 31, 2024, we had collateral deposits in the amount of $13.2 million with respect to these agreements.
Current wording
We have other commitments that we are contractually obligated to fulfill with cash under certain circumstances. As of June 30, 2024, we were contingently liable for an aggregate amount of $142.9 million under outstanding letters of credit, which guarantee our performance as it relates to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Obligations under these letters of credit are not normally called, as we typically comply with the underlying performance requirements. As of June 30, 2024, we had collateral deposits in the amount of $10.4 million with respect to these agreements.
Previous wording
In connection with our 50/50 unconsolidated joint venture, we have a potential obligation to fund ARO for newbuild jackup rigs. The Shareholder Agreement specifies that ARO shall purchase 20 newbuild jackup rigs over an approximate 10-year period. The first newbuild rig, Kingdom 1, was delivered in the fourth quarter 2023, and the second is expected to be delivered in the second quarter of 2024. In October 2023, ARO entered into a $359.0 million term loan to finance the remaining payments due upon delivery of the two rigs and for general corporate purposes. The term loan matures in eight years following the related drawdown under the term loan and requires equal quarterly amortization payments during the term, with a 50% balloon payment due at maturity. Our Notes Receivable from ARO are subordinated and junior in right of payment to ARO’s term loan.
Current wording
In connection with our 50/50 unconsolidated joint venture, we have a potential obligation to fund ARO for newbuild jackup rigs. The Shareholder Agreement specifies that ARO shall purchase 20 newbuild jackup rigs over an approximate 10-year period. The first newbuild rig, Kingdom 1, was delivered in the fourth quarter 2023, and the second rig, Kingdom 2, was delivered in the second quarter of 2024. In October 2023, ARO entered into a $359.0 million term loan to finance the remaining payments due upon delivery of the two rigs and for general corporate purposes. The term loan matures in eight years following the related drawdown under the term loan and requires equal quarterly amortization payments during the term, with a 50% balloon payment due at maturity. Our Notes Receivable from ARO are subordinated and junior in right of payment to ARO’s term loan. Additionally, in the second quarter of 2024, ARO entered into a credit facility which provides for borrowings of up to $100.0 million.
Previous wording
ARO is expected to commit to orders for two additional newbuild jackups in the near term and intends for these newly ordered jackup rigs to be financed out of cash on hand or from operations or funds available from third-party financing. In the event ARO has insufficient cash or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program. Beginning with the delivery of the second newbuild, each partner's commitment shall be reduced by the lesser of the actual cost of each newbuild rig or $250.0 million on a proportionate basis. See "Note 3 - Equity Method Investment in ARO" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information on ARO.
Current wording
ARO is expected to commit to orders for two additional newbuild jackups in the near term and intends for these newly ordered jackup rigs to be financed out of cash on hand or from operations or funds available from third-party financing. In the event ARO has insufficient cash or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program. Beginning with the delivery of the second newbuild, each partner's commitment is reduced by the lesser of the actual cost of each newbuild rig or $250.0 million on a proportionate basis. Following the delivery of Kingdom 2, our commitment to fund the newbuild program has been reduced to $1.1 billion. See "Note 3 - Equity Method Investment in ARO" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information on ARO.
Showing the first 40 of 44 pairs. Open the source sections for the rest.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Depreciation expense increased primarily due to new assets placed in service for certain rigs that underwent reactivation projects and capital upgrades.
Current report — wording carried from elsewhere
Discrete income tax benefit for the six months ended June 30, 2024 was $70.5 million and was primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years, including the reversal of a liability associated with tax assessments received from the Luxembourg tax authorities (see "Note 10 - Income Taxes" to our consolidated financial statements included in "Item 1. Financial Statements" for information on this matter), and the resolution of other prior period tax matters. Discrete income tax benefit for the six months ended June 30, 2023 was $37.5 million and was primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years. Excluding the aforementioned discrete tax items, income tax expense for the six months ended June 30, 2024 and 2023 was $53.4 million and $34.4 million, respectively.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
Discrete income tax benefits for the current quarter and preceding quarter were $6.6 million and $2.5 million, respectively and were primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years, partially offset by the resolution of prior period tax matters. Excluding the aforementioned discrete tax items, income tax expense increased to $19.5 million for the current quarter from $787.7 million tax benefit for the preceding quarter, primarily due to a $799.5 million deferred tax benefit recognized in the preceding quarter to reduce our valuation allowance on deferred tax assets.
Previous report — wording carried elsewhere
ARO revenue increased $14.7 million, or 12%, for the current quarter compared to the prior year quarter, primarily due to a $13.9 million increase from Kingdom 1, which commenced operations in November 2023, and VALARIS 108, which ARO started leasing from us in March 2024.