Valaris Ltd

Previous wording

Demand for offshore drilling is impacted by fundamental supply and demand dynamics for crude oil. Since late 2022, Brent crude oil prices have been largely trading in a range between $70 and $90 per barrel, with OPEC+ members managing supply in an effort to keep the market in balance. The constructive oil price environment has led to an improvement in contracting and tendering activity and we believe is supportive of the current upcycle for our industry.

Current wording

Demand for offshore drilling is impacted by fundamental supply and demand dynamics for crude oil. Since late 2022, Brent crude oil prices have been largely trading in a range between $70 and $90 per barrel, with OPEC+ members managing supply in an effort to keep the market in balance. Importantly, longer-dated Brent crude oil prices have remained stable, with the five-year forward price around $70 per barrel, a level at which more than 90% of undeveloped offshore reserves are expected to be profitable. As a result, we believe the constructive oil price environment is supportive of continued investment in long-cycle offshore projects.

Previous 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.

Current wording

(1)The decrease for Floaters is primarily due to revenues realized, partially offset by a multi-year contract award for VALARIS DS-17 offshore Brazil and two six-month contract extensions for VALARIS DS-9 offshore Angola, which resulted in incremental aggregate backlog of approximately $560.0 million.

Previous 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.

Current wording

(2)The increase for Jackups is due to various contract awards and extensions executed for incremental aggregate backlog of approximately $600.0 million, including a three-year contract extension for VALARIS 118, which resulted in incremental aggregate backlog of approximately $168.0 million, and a contract award for VALARIS 144, which resulted in incremental aggregate backlog of approximately $144.0 million. These increases were partially offset by revenues realized.

Previous wording

(3)Other includes the backlog for our managed rig services and the bareboat charter backlog for the jackup rigs leased to ARO to fulfill contracts between ARO and Saudi Aramco. Substantially all the operating costs for jackups leased to ARO through the bareboat charter agreements will be borne by ARO. The increase in Other is due to three-year contract extensions for our managed rigs, which resulted in incremental aggregate backlog of approximately $245.0 million, partially offset by revenues realized.

Current wording

(3)Other includes the backlog for our managed rig services and the bareboat charter backlog for the jackup rigs leased to ARO in order for ARO to fulfill certain of its drilling contracts with Saudi Aramco. The increase in Other is due to three-year contract extensions for our managed rigs, which resulted in incremental aggregate backlog of approximately $245.0 million, partially offset by revenues realized and a reduction of backlog of approximately $35.0 million attributable to the VALARIS 143 contract, which was terminated effective May 2024, and the VALARIS 147 and VALARIS 148 contracts which were terminated effective October 2024.

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 was terminated effective in May 2024.

Current wording

(4)The decrease in ARO backlog is due to revenues realized and a reduction of backlog of approximately $125.0 million attributable to the termination of the VALARIS 143, VALARIS 147 and VALARIS 148 contracts.

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 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.

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 123 at September 30, 2024 from a low of 101 in early 2021, contributing to an increase in global utilization, from 73% to 83%, 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 86% and has been above 85% since early 2022, resulting in a meaningful improvement in day rates for this class of assets. While some customer demand for 2025 has been deferred to future periods, there is a strong pipeline of opportunities for benign environment floaters with anticipated contract commencements in 2026 and beyond.

Previous wording

From a supply perspective, as of June 30, 2024, the number of benign environment floaters including stacked rigs declined by 41% to 166 from a peak of 281 in late 2014. Across the stacked drillship fleet and newbuild drillships remaining at South Korean shipyards, we believe there are only ten uncontracted drillships remaining that are likely reactivation candidates over the next few years, including VALARIS DS-11, VALARIS DS-13 and VALARIS DS-14. We anticipate that continued floater demand growth will further reduce available drillship capacity. Also, given the expected high construction cost and lack of shipyard capacity, we do not believe that market conditions are supportive of floater newbuild construction for the foreseeable future.

Current wording

From a supply perspective, as of September 30, 2024, the number of benign environment floaters including stacked rigs declined by 41% to 166 from a peak of 281 in late 2014. Across the stacked drillship fleet and newbuild drillships remaining at South Korean shipyards, we believe there are only nine uncontracted drillships remaining that are likely reactivation candidates over the next few years, including VALARIS DS-11, VALARIS DS-13 and VALARIS DS-14. We anticipate that future floater demand growth will further reduce available drillship capacity. Also, given the expected high construction cost and lack of shipyard capacity, we do not believe that market conditions are supportive of floater newbuild construction for the foreseeable future.

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 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.

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 414 at September 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. 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.

Current wording

In early 2024, Saudi Arabia announced that they plan to maintain maximum sustainable capacity at 12 million barrels per day. Since this announcement, Saudi Aramco has sent contract suspension notices to several offshore drillers to suspend its contracts, which included notice to ARO with respect to its drilling contracts for VALARIS 143, VALARIS 147 and VALARIS 148, for a total of 27 rigs, which represents 6% of the marketed jackup fleet. To date, eight of the 27 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 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.

Current wording

From a supply perspective, as of September 30, 2024, the number of jackups declined by 7% to 502 from a peak of 542 in early 2015. While the number of jackups has decreased less than floaters, 28% of the current jackup fleet is more than 40 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. We believe there are only 13 newbuild jackups remaining at shipyards, of which nine are at Chinese shipyards, some 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 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.

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 September 30, 2024 (the "current quarter") to the immediately preceding fiscal quarter ended June 30, 2024 (the "preceding quarter"). We also continue to discuss any material changes in our results of operations for the nine months ended September 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

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.

Current wording

Discrete income tax expense for the current quarter was $0.5 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 preceding 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. Excluding the aforementioned discrete tax items, income tax expense was $23.8 million for the current quarter and $33.9 million for the preceding quarter.

Previous 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):

Current wording

The following table summarizes our Condensed Consolidated Results of Operations for the nine months ended September 30, 2024 and 2023 (in millions, except percentages):

Previous 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.

Current wording

Revenues increased primarily due to $328.7 million of incremental revenue earned for VALARIS DS-17, VALARIS DS-8 and VALARIS DS-7, which have commenced new contracts since mid-2023 following reactivations. For the remaining fleet, there were increases of $123.3 million from higher average daily revenue, primarily due to certain rigs working under higher day rate contracts during the nine months ended September 30, 2024 as compared to the prior year period, and $24.4 million from higher customer reimbursable revenue.

Previous wording

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 wording

Contract drilling expense increased primarily due to incremental costs of $94.8 million incurred for VALARIS DS-17, VALARIS DS-7 and VALARIS DS-8. For the remaining fleet, we had an increase in personnel-related costs of $33.8 million, partially driven by wage increases in certain regions and incentive compensation costs, higher reimbursable expenses of $22.5 million and a net increase in mobilization costs of $11.7 million, which is largely attributable to the amortization of mobilization costs for VALARIS 247 during the nine months ended September 30, 2024 and was partially offset by lower mobilization costs for various other rigs. Additionally, we incurred $8.7 million of incremental costs related to the stacking of VALARIS DS-13 and VALARIS DS-14.

Previous wording

General and administrative expenses increased primarily due to higher professional fees.

Current wording

General and administrative expenses increased primarily due to higher professional fees and compensation costs.

Previous wording

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 wording

Other income, net, decreased primarily due to a $27.3 million net gain on the sale of VALARIS 54 recognized in the prior year period and a $15.5 million increase in interest expense, both of which were partially offset by 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).

Previous wording

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.

Current wording

Discrete income tax benefit for the nine months ended September 30, 2024 was $70.0 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 in the second quarter of 2024 (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 prior year period was $39.5 million and was primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years and the resolution of other prior period tax matters. Excluding the aforementioned discrete tax items, income tax expense for the nine months ended September 30, 2024 and 2023 was $77.2 million and $47.1 million, respectively.

Previous 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.

Current wording

(2)During the first and second quarters of 2024, we leased VALARIS 108 and VALARIS 76, respectively, to ARO. During the second quarter of 2024, the VALARIS 143 contract with ARO was terminated.

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. 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.

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 and second quarters of 2024, we leased VALARIS 108 and VALARIS 76, respectively, to ARO. During the second quarter of 2024, the VALARIS 143 contract with ARO was terminated and the rig is now preservation stacked.

Previous wording

(1)Rig utilization for thetotal fleet and active fleet are derived by dividing the operating days by the number of days in the period for the total fleet and active fleet, respectively. Active fleet represents rigs that are not preservation stacked and includes rigs that are in the process of being reactivated. Operating days equals the total number of days that rigs have earned and recognized day rate revenue, including days associated with early contract terminations, compensated downtime and mobilizations and excluding suspension periods. When revenue is deferred and amortized over a future period, for example, when we receive fees while mobilizing to commence a new contract or while being upgraded in a shipyard, the related days are excluded from operating days.

Current wording

(1)Rig utilization for the total fleet and active fleet are derived by dividing the operating days by the number of days in the period for the total fleet and active fleet, respectively. Active fleet represents rigs that are not preservation stacked and includes rigs that are in the process of being reactivated. Operating days equals the total number of days that rigs have earned and recognized day rate revenue, including days associated with early contract terminations, compensated downtime and mobilizations and excluding suspension periods. When revenue is deferred and amortized over a future period, for example, when we receive fees while mobilizing to commence a new contract or while being upgraded in a shipyard, the related days are excluded from operating days.

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 period 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, revenues attributable to amortization of drilling contract intangibles and lump-sum revenues and amortization thereof, by the aggregate number of operating days.

Previous wording

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 wording

ARO revenue decreased $10.5 million, or 8%, for the current quarter as compared to the preceding quarter, primarily due to lower revenue of $12.6 million following the contract termination for VALARIS 143 in the preceding quarter and contract suspensions for VALARIS 147 and VALARIS 148 in the current quarter, and a decrease of $2.5 million related to certain rigs which were undergoing maintenance projects or had unplanned downtime in the current quarter. These decreases were partially offset by incremental revenue of $4.0 million from the commencement of operations for Kingdom 2 during the current quarter.

Previous 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.

Current wording

ARO contract drilling expense remained relatively flat for the current quarter as compared to the preceding quarter, primarily due to lower bareboat charter lease expense, inclusive of certain adjustments, of $3.2 million as a result of the contract termination for VALARIS 143 in the preceding quarter and the suspensions for VALARIS 147 and VALARIS 148 in the current quarter, which was largely offset by higher personnel-related costs of $1.3 million and increased repairs and maintenance costs of $1.0 million in the current quarter.

Previous wording

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 wording

Other revenue remained flat in the current quarter as compared to the preceding quarter, primarily due to a $3.3 million increase in customer reimbursable revenue, which was largely offset by a $1.3 million decrease in revenue earned from lease agreements with ARO.

Previous wording

Segment information for the six months ended June 30, 2024 and 2023 is as follows (in millions):

Current wording

Segment information for the nine months ended September 30, 2024 and 2023 is as follows (in millions):

Previous wording

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 wording

Floater revenue increased $411.8 million, or 60%, for the nine months ended September 30, 2024 compared to the prior year period, primarily due to incremental revenue of $328.7 million from VALARIS DS-17, VALARIS DS-8 and VALARIS DS-7, which have commenced new contracts since mid-2023 following reactivations. For the remaining floater fleet, there was a net increase of $82.6 million from higher average daily revenue, primarily due to certain floaters working under higher day rate contracts in the current period as compared to the prior year period.

Previous wording

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 wording

Floater contract drilling expense increased $172.5 million, or 29%, for the nine months ended September 30, 2024 compared to the prior year period, primarily due to incremental costs of $94.8 million incurred for VALARIS DS-17, VALARIS DS-8 and VALARIS DS-7 during the nine months ended September 30, 2024. For the remaining fleet, there were increases of $35.6 million in personnel-related costs, partially driven by wage increases in certain regions and incentive compensation costs, higher repair and maintenance costs of $16.8 million, primarily due to planned maintenance during the current year, and $8.7 million incurred related to the stacking of VALARIS DS-13 and VALARIS DS-14.

Previous wording

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 wording

Jackup revenues increased $71.5 million, or 15%, for the nine months ended September 30, 2024 compared to the prior year period, primarily due to net increases of $41.9 million from higher average daily revenue related to certain rigs working under contracts with higher day rates than the prior year period and increased mobilization revenue, $24.1 million from higher customer reimbursable revenue and $5.3 million from incremental operating days.

Previous wording

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 wording

Jackup contract drilling expense increased $19.7 million, or 5%, for the nine months ended September 30, 2024 compared to the prior year period primarily due to higher customer reimbursable expenses of $22.7 million and increased mobilization costs of $18.7 million, primarily driven by the amortization of mobilization costs related to the commencement of a new contract for VALARIS 247. These increases were partially offset by a $20.8 million decrease in repairs and maintenance costs, largely attributable to maintenance for certain rigs during special periodic surveys performed in the prior year period.

Previous 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.

Current wording

ARO revenue increased $13.3 million, or 4%, for the nine months ended September 30, 2024 compared to the prior year period, primarily due to $51.6 million of incremental revenue from Kingdom 1 and Kingdom 2, which commenced operations in November 2023 and August 2024, respectively, and VALARIS 108, which we began leasing to ARO during the first quarter of 2024. This increase was partially offset by a decrease of $21.5 million related to the contract termination for VALARIS 143 in May 2024 and contract suspensions for VALARIS 147 and VALARIS 148 in August 2024, as well as a decrease of $13.9 million from unplanned downtime in the nine months ended September 30, 2024.

Previous 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.

Current wording

ARO contract drilling expense increased $8.3 million or 3% for the nine months ended September 30, 2024 compared to the prior year period, primarily due to $11.1 million of incremental operating costs related to the operation of Kingdom 1, Kingdom 2 and VALARIS 108 in the nine months ended September 30, 2024 and higher personnel-related costs of $5.1 million for the remainder of the fleet. These increases were partially offset by lower bareboat charter lease expense, inclusive of certain adjustments, of $7.5 million as a result of the contract termination for VALARIS 143 and the suspensions for VALARIS 147 and VALARIS 148 in the nine months ended September 30, 2024.

Previous wording

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 wording

ARO depreciation expense increased $13.4 million, or 29%, for the nine months ended September 30, 2024 compared to the prior year period, primarily due to the additions of Kingdom 1 and Kingdom 2 to the fleet.

Previous 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.

Current wording

Other revenue decreased $5.5 million, or 4%, for the nine months ended September 30, 2024 compared to the prior year period, primarily due to lower revenue earned from lease agreements with ARO of $11.8 million, which was partially offset by higher average daily revenues earned by our managed rigs of $5.2 million as a result of contract extensions executed during the nine months ended September 30, 2024 at higher rates.

Previous wording

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 wording

Other contract drilling expense increased $6.7 million, or 12%, for the nine months ended September 30, 2024 compared to the prior year period, primarily due to increased repairs and maintenance costs of $2.9 million and higher personnel-related costs of $2.4 million.

Previous 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.

Current wording

Interest income decreased $13.5 million, or 44%, for the current quarter compared to the preceding quarter, primarily due to the recognition of non-cash interest income of $13.9 million in the preceding quarter related to an adjustment to the discount on our outstanding 10-year shareholder notes receivable due from ARO (the "Notes Receivable from ARO"), which resulted from a partial net settlement agreement executed in the preceding 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.

Previous 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.

Current wording

Net foreign currency exchange losses increased $6.0 million from a net gain of $2.5 million in the preceding quarter to a net loss of $3.5 million in the current quarter, primarily driven by unfavorable exchange rate movements in Brazilian reals, euros, British pounds and Mexican pesos.

Previous 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.

Current wording

Interest income decreased $4.7 million, or 6%, for the nine months ended September 30, 2024 compared to the prior year period, primarily due to a $13.1 million decrease in interest income on cash equivalents due to a lower average balance during the nine months ended September 30, 2024 and a $4.4 million decrease in interest income earned on our outstanding Notes Receivable from 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. These decreases were partially offset by an increase from the recognition of non-cash interest income of $13.9 million for an adjustment to the discount on our outstanding Notes Receivable from ARO, which resulted from the Net Settlement Agreement executed in the 2024 second 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.

Previous 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.

Current wording

Interest expense increased $15.5 million, or 33%, for the nine months ended September 30, 2024 compared to the prior year period, primarily due to higher interest expense of $25.7 million related to a higher principal debt balance in the nine months ended September 30, 2024. This increase was partially offset by higher capitalized interest of $10.2 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 $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.

Current wording

Net foreign currency exchange gains increased $1.0 million for the nine months ended September 30, 2024 compared to the prior year period, primarily driven by favorable exchange rate movements in the Brazilian reals, Angolan kwanza and Mexican pesos, partially offset by unfavorable exchange rate movements in the Nigerian naira, British pounds, Norwegian kroner and Egyptian pounds.