Valaris Ltd

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. Our fleet of offshore drilling rigs is among the largest in the world and includes one of the highest specification ultra-deepwater fleets, as well as a leading premium jackup fleet. As of May 5, 2026, we own 45 rigs, including 13 drillships, one semisubmersible rig, 31 jackup rigs and a 50% equity interest in ARO, our 50/50 unconsolidated joint venture with Saudi Aramco, which owns an additional nine 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. Our fleet of offshore drilling rigs is among the largest in the world and includes one of the highest specification ultra-deepwater fleets, as well as a leading premium jackup fleet. As of August 6, 2026, we own 43 rigs, including 13 drillships, one semisubmersible rig, 29 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

The offshore drilling industry is cyclical and primarily influenced by global energy demand, oil and gas supply dynamics, geopolitical factors and customer capital allocation decisions. Periods of oil oversupply generally place downward pressure on commodity prices, while periods of undersupply can result in higher and more volatile oil prices, influencing investment decisions across the upstream sector. While the oil market began the year in a period of oversupply, the current conflicts in the Middle East have constrained supply and increased uncertainty and volatility in global energy markets. It has also reinforced the strategic importance of energy security and market participants generally expect the global oil and gas market to tighten over the next few years, driven by past underinvestment in upstream development and slowing production growth from non-OPEC sources. Industry studies, including those published by the International Energy Agency and the U.S. Energy Information Administration, indicate that substantial upstream investment is required to offset natural field declines and maintain existing production levels.

Current wording

The offshore drilling industry is cyclical and primarily influenced by global energy demand, oil and gas supply dynamics, geopolitical factors and customer capital allocation decisions. Periods of oil oversupply generally place downward pressure on commodity prices, while periods of undersupply can result in higher and more volatile oil prices, influencing investment decisions across the upstream sector. While the oil market began the year in a period of oversupply, the on-going conflicts in the Middle East have reduced supply and increased uncertainty and volatility in global energy markets. The conflicts have also reinforced the strategic importance of energy security and market participants generally expect the global oil and gas market to tighten over the next few years, driven by past underinvestment in upstream development and slowing production growth from non-OPEC sources. Industry studies, including those published by the International Energy Agency and the U.S. Energy Information Administration, indicate that substantial upstream investment is required to offset natural field declines and maintain existing production levels.

Previous wording

Our operations and assets located in the Middle East have recently been subject to elevated geopolitical risk due to ongoing conflicts and military activity in the region. As a result of the conflicts, during the first quarter of 2026 we experienced impacts, including operational downtime at reduced rates, delays in shipyard projects and higher operating costs. ARO also experienced similar impacts in the region. For our operations, the financial impact in the first quarter was $7.5 million, primarily associated with incremental costs to maintain insurance coverage for war-related risks for jackups that we operate in the region.

Current wording

Our operations and assets located in the Middle East have recently been subject to elevated geopolitical risk due to ongoing conflicts and military activity in the region. As a result, our operating income was negatively impacted by approximately $30.0 million and $38.0 million for the three and six months ended June 30, 2026, respectively, primarily associated with incremental costs to maintain insurance coverage for war-related risks for jackups that we operate in the region (approximately $11.0 million and $19.0 million for the three and six months ended June 30, 2026, respectively) and incremental costs and lower revenues associated with project delays for VALARIS 250 and VALARIS 116 (approximately $14.0 million for both the three and six months ended June 30, 2026), which were undergoing planned maintenance and contract preparation projects in shipyards located in the region during the first half of 2026. Based on information currently available, we expect these adverse impacts to moderate in the second half of 2026 as VALARIS 250 recommenced its bareboat charter contract in July and VALARIS 116 is expected to recommence its bareboat charter in the third quarter. In addition, insurance costs to maintain war-related coverage are expected to be lower than those incurred in the first half of the year primarily due to the sale of VALARIS 104 and lower premiums from securing longer term coverage.

Previous wording

The geopolitical environment in the Middle East remains volatile, and if the conflicts persist or escalate, including an expansion of hostilities, the negative impact on our operating income could be significantly higher than amounts incurred to date and could also adversely affect the operating performance of ARO. An escalation of conflict could result in additional military actions, economic sanctions or other governmental measures, including disruptions to regional ports or restrictions on maritime traffic through key waterways such as the Strait of Hormuz. Continued disruptions or closures affecting the Strait of Hormuz, through which a substantial portion of the region’s maritime traffic and energy‑related logistics transit, could materially affect our ability, and that of ARO, to mobilize assets, transport personnel and supplies, or perform drilling and related services in a timely and cost‑effective manner.

Current wording

The geopolitical environment in the Middle East remains volatile, and if the ongoing conflicts persist or escalate, including an expansion of hostilities, the negative impact on our operating income could be significantly higher than amounts incurred to date and could also adversely affect the operating performance of ARO. An escalation of conflict could result in additional military actions, economic sanctions or other governmental measures, including disruptions to regional ports or further restrictions on maritime traffic through key waterways such as the Strait of Hormuz. Continued disruptions or closures affecting the Strait of Hormuz, through which a substantial portion of the region’s maritime traffic and energy‑related logistics transit, could materially affect our ability, and that of ARO, to mobilize assets, transport personnel and supplies, or perform drilling and related services in a timely and cost‑effective manner.

Previous wording

(1)The increase for Floaters is primarily due to a contract extension for VALARIS DS-4, which resulted in incremental aggregate backlog of approximately $426.0 million, partially offset by revenues realized.

Current wording

(1)The decrease for Floaters is primarily due to revenues realized, partially offset by a contract extension for VALARIS DS-4, which resulted in incremental aggregate backlog of approximately $426.0 million.

Previous wording

(2)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.

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.

Previous wording

Within the floater segment, utilization for the global marketed drillship fleet was approximately 92% as of March 31, 2026 and included 12 drillships across the industry which were not working at quarter-end due to gaps between contracts. Market conditions are expected to improve as these rigs commence new contracts during 2026, including four Valaris drillships that are scheduled to return to work this year following idle periods between contracts. Some customers continue to favor more technically capable and efficient assets particularly to support complex deepwater developments. Seventh-generation drillships may be preferred and have achieved higher utilization and stronger day rates relative to older assets, a trend that is expected to continue. We believe we are well positioned with 12 of 13 of our drillships being seventh-generation units, although we continue to face competition from other types of floaters, including those of older generations.

Current wording

Within the floater segment, utilization for the global marketed drillship fleet was approximately 88% as of June 30, 2026 and included 11 drillships across the industry which were not working at quarter-end due to gaps between contracts. Market conditions are expected to improve as these rigs commence new contracts during 2026 or in early 2027, including two Valaris drillships that are scheduled to return to work this year following idle periods between contracts. Some customers continue to favor more technically capable and efficient assets, particularly to support complex deepwater developments. Seventh-generation drillships may be preferred and have achieved higher utilization and stronger day rates relative to older assets, a trend that is expected to continue. We believe we are well positioned with 12 of 13 of our drillships being seventh-generation units, although we continue to face competition from other types of floaters, including those of older generations.

Previous wording

From a supply perspective, rig attrition over the past decade has resulted in a reduced global floater fleet to meet customer demand. The supply of benign environment floaters, such as those in our fleet, has decreased by more than 45% from a peak of approximately 280 rigs in 2014 to 150 rigs as of March 31, 2026. This decrease is primarily attributable to rig retirements, including 14 benign environment floaters retired in 2025. Further, given the expected high construction cost and lack of shipyard capacity, we do not believe that current market conditions are supportive of floater newbuild construction.

Current wording

From a supply perspective, rig attrition over the past decade has resulted in a reduced global floater fleet to meet customer demand. The supply of benign environment floaters, such as those in our fleet, has decreased by more than 45% from a peak of approximately 280 rigs in 2014 to 150 rigs as of June 30, 2026. This decrease is primarily attributable to rig retirements, including 15 benign environment floaters retired since the beginning of 2025. Further, given the expected high construction cost and lack of shipyard capacity, we do not believe that current market conditions are supportive of floater newbuild construction.

Previous wording

Global jackup utilization remains solid, with utilization as of March 31, 2026 of approximately 88%, driven primarily by national oil companies focused on energy security and infrastructure development. For example, Saudi Aramco has recalled seven previously-suspended jackups to recommence operations in 2026 and there are other ongoing multi-rig tenders in the Middle East, which should further support the supply and demand balance of the global jackup fleet. At the same time, the ongoing conflicts in the Middle East have disrupted offshore operations in parts of the region, and it remains uncertain when such operations will return to normal, which may also impact the timing of work programs associated with these tenders.

Current wording

Global jackup utilization remained solid at approximately 88% as of June 30, 2026, driven primarily by demand from national oil companies focused on energy security and infrastructure development. For example, seven previously suspended jackups have resumed operations with Saudi Aramco so far this year, with two additional rigs expected to recommence operations during the remainder of 2026. In addition, there are other ongoing multi-rig tenders in the Middle East, which should further support the supply and demand balance of the global jackup fleet. Meanwhile, ongoing conflicts in the Middle East have disrupted offshore operations in certain parts of the region, and although activity has largely resumed, uncertainty remains regarding when operating conditions will fully normalize, which may impact the timing of work programs associated with these tenders.

Previous wording

From a supply perspective, as of March 31, 2026, there were 491 jackups in the global fleet, with 28% of the current jackup fleet being 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 the 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.

Current wording

From a supply perspective, as of June 30, 2026, there were 490 jackups in the global fleet, with 28% of the current jackup fleet being 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 the 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.

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, 2026 (the "current quarter") to the immediately preceding fiscal quarter ended December 31, 2025 (the "preceding quarter"). We also discuss any material changes in our results of operations for the three months ended March 31, 2026 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 June 30, 2026 (the "current quarter") to the immediately preceding fiscal quarter ended March 31, 2026 (the "preceding quarter"). We also discuss any material changes in our results of operations for the six months ended June 30, 2026 (the "current year period") compared to the corresponding period of the preceding fiscal year (the "prior year period"), as required under the applicable SEC rules.

Previous wording

Merger and integration expenses were $13.6 million for the current quarter and primarily related to professional fees incurred in connection with the pending Business Combination.

Current wording

Merger and integration expenses were $11.4 million for the current quarter and primarily related to professional fees incurred in connection with the pending Business Combination.

Previous wording

The consolidated effective tax rate, excluding the impact of discrete tax items, for the current quarter and prior year period was 25.4% and 15.1%, respectively. Discrete tax items during the current quarter were primarily related to the resolution of prior period matters, partially offset by changes in liabilities for unrecognized tax benefits with tax positions taken in prior years. Discrete tax items during the prior year period were primarily attributable to the establishment of a $168.8 million valuation allowance in connection with the retirement of the Retired Semis.

Current wording

The consolidated effective tax rate, excluding the impact of discrete tax items, for the current quarter and preceding quarter was 19.8% and 25.4%, respectively. Discrete tax items during the current quarter were primarily related to the resolution of prior period matters. Discrete tax items during the preceding quarter were primarily related to the resolution of prior period matters, partially offset by changes in liabilities for unrecognized tax benefits with tax positions taken in prior years.

Previous wording

The following table summarizes our Condensed Consolidated Results of Operations for the three months ended March 31, 2026 and 2025 (in millions, except percentages):

Current wording

The following table summarizes our Condensed Consolidated Results of Operations for the six months ended June 30, 2026 and 2025 (in millions, except percentages):

Previous wording

Revenues decreased compared to the prior year period, partially driven by lower operating revenues of $24.7 million for VALARIS 247, which completed its contract and was sold during the third quarter of 2025. For the remaining fleet, we had a net decrease of $145.7 million from fewer operating days, largely attributable to certain floaters which have completed their contracts since the end of the prior year period and were either warm stacked or retired. These decreases were partially offset by a net increase of $15.5 million from higher average daily revenues as a result of various rigs working under higher day rate contracts compared to the prior year period.

Current wording

Revenues decreased compared to the prior year period, partially driven by lower operating revenues of $81.0 million for VALARIS 247 and VALARIS DPS-1, which completed their contracts and were sold since the end of the prior year period. For the remaining fleet, we had a net decrease of $181.4 million from fewer operating days, largely attributable to certain floaters which were either preparing for contracts or warm stacked between contracts during the current year period. These decreases were partially offset by a net increase of $37.3 million from higher average daily revenues as a result of various rigs working under higher day rate contracts compared to the prior year period.

Previous wording

Contract drilling expense decreased primarily due to lower operating costs of $41.8 million for certain of our floater rigs which have been warm stacked or retired since the prior year period and $9.4 million for VALARIS 247, which was sold during the third quarter of 2025. These decreases were partially offset by a $7.5 million increase in insurance expenses to maintain coverage for war-related risks for certain rigs within our Jackups and Other fleets which are located in the Middle East, and a net increase of $7.3 million from higher repair and maintenance costs, largely attributable to VALARIS DS-10 and VALARIS DS-17, which were undergoing scheduled maintenance and upgrade projects in the current quarter.

Current wording

Contract drilling expense decreased primarily due to lower operating costs of $54.3 million for rigs which have been sold and $19.9 million of lower personnel-related costs for the remaining fleet, largely driven by rigs which were warm stacked or preparing for contracts during the current year period. These decreases were partially offset by higher repair and maintenance costs of $36.4 million, primarily attributable to various rigs which were undergoing scheduled maintenance and upgrade projects and/or repairs, and a $18.0 million increase in insurance expenses to maintain coverage for war-related risks for certain rigs within our Jackups and Other fleets which are located in the Middle East. There was also a net $5.4 million increase attributable to non-recurring items comprised of a $17.1 million accrual reversal in the prior year period related to a favorable arbitration outcome for a previously disclosed patent license litigation, partially offset by an $11.7 million reversal of previously recognized bad debt expense during the current year period in connection with a favorable legal settlement resulting in the collection of outstanding customer invoices from 2020.

Previous wording

Merger and integration expenses were $13.6 million for the current quarter and primarily related to professional fees incurred in connection with the pending Business Combination.

Current wording

Merger and integration expenses were $25.0 million for the six months ended June 30, 2026 and primarily related to professional fees incurred in connection with the pending Business Combination.

Previous wording

Other operating (income) loss includes non-cash losses on impairments and related gains on remeasurements of our assets which continue to be classified as held for sale. In connection with retirement and sale of VALARIS DPS-3, VALARIS DPS-5 and VALARIS DPS-6 (collectively, the "Retired Semis") in 2025, we recognized a non-cash loss on impairment of $7.8 million during the prior year period. During the current quarter, we reassessed the fair value less costs to sell for VALARIS DPS-1 by utilizing a preliminary sales agreement and recognized a gain on remeasurement of $2.8 million. See "Note 5 -Property and Equipment" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for information regarding the Retired Semis and VALARIS DPS-1.

Current wording

Other operating (income) loss includes non-cash losses on impairments and related gains on remeasurements of our assets which are classified as held for sale. In connection with retirement and sale of VALARIS DPS-3, VALARIS DPS-5 and VALARIS DPS-6 (collectively, the "Retired Semis") in 2025, we recognized a non-cash loss on impairment of $7.8 million during the prior year period. During the first quarter of 2026, we reassessed the fair value less costs to sell for VALARIS DPS-1 by utilizing a preliminary sales agreement and recognized a gain on remeasurement of $2.8 million. VALARIS DPS-1 was sold in April 2026 and no additional gain or loss was recognized upon completion of the sale. See "Note 5 -Property and Equipment" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for information regarding the Retired Semis and VALARIS DPS-1.

Previous wording

Other income (expense), net, decreased primarily due to $27.0 million of non-recurring pre-tax gains related to the sales of VALARIS 75 and an office in Angola during the prior year period. This decrease was partially offset by favorable foreign currency exchange rate fluctuations relative to the prior year period of $3.5 million.

Current wording

Other income (expense), net, increased primarily due to favorable foreign currency exchange rate fluctuations relative to the prior year period of $10.9 million and a net $8.2 million increase from the recognition of pre-tax gains on sales of assets, driven by the sale of VALARIS 104 during the six months ended June 30, 2026, partially offset by gains from the sales of VALARIS 75 and an office in Angola in the prior year period.

Previous wording

(2)During the second half of 2025, we sold VALARIS 247, VALARIS 102 and VALARIS 145.

Current wording

(2)During the second quarter of 2026, we sold VALARIS 104. During the second half of 2025, we sold VALARIS 247, VALARIS 102 and VALARIS 145.

Previous wording

(6)During the fourth quarter of 2025, we classified VALARIS DPS-1 as held for sale, removing it from the active fleet.

Current wording

(6)During the fourth quarter of 2025, we classified VALARIS DPS-1 as held for sale, removing it from the active fleet. The rig was sold in the second quarter of 2026.

Previous wording

Segment information for the current quarter, preceding quarter and prior year period is as follows (in millions):

Current wording

Segment information for the current quarter and preceding quarter is as follows (in millions):

Previous wording

Jackup contract drilling expense increased $8.1 million, or 7%, for the current quarter compared to the preceding quarter primarily due to a $5.4 million increase in insurance expenses to maintain coverage for war-related risks for certain rigs which are located in the Middle East.

Current wording

Jackup contract drilling expense increased $15.1 million, or 12%, for the current quarter compared to the preceding quarter, primarily due to a $12.3 million increase associated with repair and maintenance costs, largely attributable to scheduled maintenance for VALARIS 117 and unplanned leg repairs for VALARIS 106 in the current quarter, and a $3.0 million increase in insurance expenses primarily due to a full quarter of higher costs to maintain coverage for war-related risks for certain rigs which are located in the Middle East.

Previous wording

ARO revenue decreased $12.2 million, or 9%, for the current quarter compared to the preceding quarter, primarily due to a decrease of $16.2 million from fewer operating days in the current quarter for certain rigs, including VALARIS 250 and VALARIS 116, which were undergoing scheduled maintenance projects in the current quarter. This decrease was partially offset by a $6.0 million increase in revenue from VALARIS 76, which commenced a new contract in December 2025.

Current wording

ARO revenue remained relatively flat for the current quarter compared to the preceding quarter, primarily due to a decrease of $4.6 million from fewer operating days in the current quarter for certain rigs which were undergoing scheduled repairs or maintenance projects in the current quarter, including VALARIS 146 and VALARIS 140, which was offset by a $4.2 million increase from VALARIS 108 and VALARIS 76, which had less downtime in the current quarter.

Previous wording

Other operating (income) loss includes a non-cash loss on impairment of $7.8 million in the prior year period in connection with the retirement of the Retired Semis and a gain on remeasurement of $2.8 million in the current quarter related to VALARIS DPS-1, which is classified as held for sale at March 31, 2026. See "Note 5 - Property and Equipment" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for information regarding the Retired Semis and VALARIS DPS-1.

Current wording

Other operating (income) loss includes a non-cash loss on impairment of $7.8 million in the prior year period in connection with the retirement of the Retired Semis and a gain on remeasurement of $2.8 million in the six months ended June 30, 2026 related to VALARIS DPS-1, which was previously classified as held for sale and was subsequently sold in April 2026 for recycling. See "Note 5 - Property and Equipment" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for information regarding the Retired Semis and VALARIS DPS-1.

Previous wording

Jackup revenues increased $9.9 million, or 5%, during the current quarter compared to the prior year period, primarily due to a net increase of $31.8 million from more operating days, largely attributable to VALARIS 144, which was mobilizing to Angola in the prior year period prior to commencing a new contract in April 2025. This increase was partially offset by a net decrease of $24.7 million from VALARIS 247, which completed its contract and was sold during the third quarter of 2025.

Current wording

Jackup revenues decreased $18.7 million, or 5%, during the six months ended June 30, 2026 compared to the prior year period, largely driven by lower operating revenues of $44.7 million for VALARIS 247, which completed its contract and was sold during the third quarter of 2025. This decrease was partially offset by a net increase of $23.1 million from more operating days for the remaining jackup fleet, largely attributable to VALARIS 144, which was mobilizing to Angola in the prior year period ahead of commencing its current contract in April 2025.

Previous wording

Jackup contract drilling expense increased $12.1 million, or 10%, during the current quarter compared to the prior year period, primarily due to a $9.3 million increase from higher personnel-related costs as a result of more operating days, a $6.2 million increase from higher amortization of mobilization costs, largely driven by rigs which mobilized for new contracts since the prior year period, and a $5.4 million increase in insurance expenses to maintain coverage for war-related risks for certain rigs which are located in the Middle East. These increases were partially offset by lower operating costs of $9.4 million for VALARIS 247.

Current wording

Jackup contract drilling expense increased $31.7 million, or 13%, during the six months ended June 30, 2026 compared to the prior year period, primarily due to $13.8 million of incremental insurance expenses to maintain coverage for war-related risks for certain rigs which are located in the Middle East, a $12.9 million increase in personnel-related costs, partially driven by incremental operating days for VALARIS 144 and wage increases in certain regions, and a $11.1 million increase in mobilization costs, largely driven by rigs which mobilized for new contracts during the current year period. Further contributing to the increase were higher repair and maintenance costs of $9.3 million, largely attributable to scheduled maintenance for VALARIS 117 and unplanned leg repairs for VALARIS 106 during the current year period. These increases were partially offset by lower operating costs of $17.8 million for VALARIS 247.

Previous wording

Jackup depreciation expense increased $3.8 million, or 30%, during the current quarter compared to the prior year period, primarily due to new assets placed in service for certain rigs that underwent capital upgrades.

Current wording

Jackup depreciation expense increased $5.4 million, or 20%, during the six months ended June 30, 2026 compared to the prior year period, primarily due to new assets placed in service for certain rigs that underwent capital upgrades.

Previous wording

ARO revenue decreased $7.3 million, or 5%, during the current quarter compared to the prior year period, primarily driven by a net decrease of $31.0 million due to fewer operating days, largely driven by certain rigs, including VALARIS 250 and VALARIS 116, which were undergoing scheduled maintenance projects during the current quarter. This decrease was partially offset by a net increase of $11.2 million from higher average daily revenues as a result of the commencement of five long-term contract extensions at higher day rates than those earned in the prior year period and incremental revenues of $9.1 million from VALARIS 76, which commenced a new contract in December 2025.

Current wording

ARO revenue decreased $20.3 million, or 7%, during the six months ended June 30, 2026 compared to the prior year period, primarily due to a net decrease of $56.2 million from fewer operating days, largely driven by certain rigs, including VALARIS 250 and VALARIS 116, which were undergoing planned maintenance and contract preparation projects during the current year period. This decrease was partially offset by incremental revenues of $19.3 million for VALARIS 76, which commenced a new contract in December 2025, and a net increase of $14.0 million from higher average daily revenues as a result of the commencement of five long-term contract extensions at higher day rates than those earned in the prior year period.

Previous wording

ARO contract drilling expense decreased $10.5 million, or 12%, during the current quarter compared to the prior year period, primarily due to lower operating costs of $17.9 million for rigs which were undergoing scheduled maintenance projects in the current quarter, partially offset by incremental operating costs of $4.3 million for VALARIS 76.

Current wording

ARO contract drilling expense decreased $35.3 million, or 19%, during the six months ended June 30, 2026 compared to the prior year period, primarily due to lower operating costs of $29.4 million for rigs which were undergoing scheduled maintenance projects in the current year period. Further contributing to the decrease was an aggregate $15.4 million of adjustments recorded by ARO in connection with the current quarter finalization of its 2025 financial statements. These decreases were partially offset by incremental operating costs of $9.0 million for VALARIS 76 compared to the prior year period.

Previous wording

ARO depreciation expense decreased $4.6 million, or 16%, comparing the two periods, primarily due to assets that were fully depreciated since the prior year period.

Current wording

ARO depreciation expense decreased $11.3 million, or 19%, comparing the two periods, primarily due to assets that were fully depreciated since the prior year period.

Previous wording

Other revenue increased $5.8 million, or 16%, during the current quarter compared to the prior year period, primarily due to a net increase of $8.3 million in lease revenue attributable to five long-term bareboat charter extensions at higher rates for our leased rigs to ARO since the end of the prior year period and $3.0 million of incremental lease revenue from the commencement of operations for VALARIS 76 in December 2025. These increases were partially offset by a net decrease in lease revenue of $8.1 million for VALARIS 250 and VALARIS 116, which were undergoing scheduled maintenance and contract upgrades during the current quarter.

Current wording

Other revenue increased $5.1 million, or 7%, during the six months ended June 30, 2026 compared to the prior year period, primarily due to $10.5 million of incremental lease revenue from the commencement of operations for VALARIS 76 in December 2025 and a net increase of $6.6 million in lease revenue attributable to five long-term bareboat charter extensions at higher rates for our leased rigs to ARO since the end of the prior year period. Further contributing to the increase was $6.1 million of compensation from ARO recognized in the current year period for certain contractual obligations relating to a previously terminated bareboat charter. These increases were partially offset by a net decrease in lease revenue of $19.8 million for VALARIS 250 and VALARIS 116, which were undergoing planned maintenance and contract preparation projects during the current year period.

Previous wording

Other contract drilling expense increased $6.7 million, or 42%, during the current quarter compared to the prior year period, primarily due to a $3.2 million increase in repair and maintenance costs, largely driven by scheduled maintenance and upgrade projects for VALARIS 250 and VALARIS 116, and a $2.1 million increase in insurance expenses to maintain coverage for war-related risks for VALARIS 250 and VALARIS 116, which are located in the Middle East.

Current wording

Other contract drilling expense increased $16.7 million, or 50%, during the six months ended June 30, 2026 compared to the prior year period, primarily due to a $9.3 million increase in repair and maintenance costs, largely driven by planned maintenance and contract preparation projects for VALARIS 250 and VALARIS 116, and a $4.2 million increase in insurance expenses to maintain coverage for war-related risks for VALARIS 250 and VALARIS 116, which are located in the Middle East.

Previous wording

Other depreciation expense increased $3.4 million, or 121%, during the current quarter compared to the prior year period, primarily due to capital upgrades placed in service for VALARIS 76 since the end of the prior year period.

Current wording

Other depreciation expense increased $6.7 million, or 120%, relative to the prior year period, primarily due to capital upgrades placed in service for VALARIS 76 since the end of the prior year period.

Previous wording

Net gains on sale of property decreased $28.7 million during the current quarter compared to the prior year period, primarily due to the sale of VALARIS 75 and an office in Angola during the prior year period, which resulted in non-recurring pre-tax gains of $23.0 million and $4.0 million, respectively. See "Note 5 -Property and Equipment" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for information regarding these asset sales.

Current wording

Net gains on sale of property for the six months ended June 30, 2026 were largely attributable to the sale of VALARIS 104, which resulted in the recognition of a non-recurring pre-tax gain of $36.6 million. Net gains on sale of property for the prior year period primarily related to the sales of VALARIS 75 and an office in Angola, which resulted in non-recurring pre-tax gains of $23.0 million and $4.0 million, respectively. See "Note 5 -Property and Equipment" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for information regarding these asset sales.

Previous wording

Net foreign currency exchange losses were $1.7 million during the current quarter compared to $5.2 million in the prior year period, primarily driven by favorable exchange rate movements in euros and British pounds, partially offset by unfavorable exchange rate movement in Brazilian real relative to the prior year period.

Current wording

Net foreign currency exchange losses were $3.4 million during the six months ended June 30, 2026 compared to $14.3 million in the prior year period, primarily driven by favorable exchange rate movements in euros and British pounds, partially offset by unfavorable exchange rate movement in Malaysian ringgit relative to the prior year period.

Previous wording

Our cash and cash equivalents as of March 31, 2026 and December 31, 2025 were $578.3 million and $599.4 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 2028 Credit Agreement as of April 30, 2026. See below and "Note 8 -Debt" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information on the 2028 Credit Agreement and the 8.375% Second Lien Notes due 2030.

Current wording

Our cash and cash equivalents as of June 30, 2026 and December 31, 2025 were $541.2 million and $599.4 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 2028 Credit Agreement as of July 30, 2026. See below and "Note 8 -Debt" to our condensed consolidated financial statements included in "Item 1. Financial Statements" for additional information on the 2028 Credit Agreement and the 8.375% Second Lien Notes due 2030.

Previous wording

During the three months ended March 31, 2026, we generated $75.0 million of cash flow from operating activities primarily due to operating income for the period of $20.0 million and other changes in working capital. In addition, we received approximately $8.0 million of U.S. income tax refunds in the current quarter and collected $5.0 million of cash proceeds related to the prior year sale of VALARIS 75. Our primary use of cash was $100.9 million for maintenance and upgrades of our drilling rigs.

Current wording

During the six months ended June 30, 2026, we generated $88.1 million of cash flow from operating activities primarily due to operating income for the period of $71.1 million and the receipt of approximately $43.0 million of U.S. income tax refunds, which were partially offset by other changes in working capital. In addition, we collected $60.3 million of cash proceeds for the sale of assets during the current period, primarily related to the sales of VALARIS 104 and VALARIS DPS-1. Our primary use of cash was $206.4 million for maintenance and upgrades of our drilling rigs.

Previous wording

During the three months ended March 31, 2025, we generated $155.9 million of cash flow from operating activities primarily due to operating income for the period of $143.0 million and approximately$26.0 millionof tax refunds received from the Australian tax authority during the first quarter of 2025, partially offset by other changes in working capital. An additional source of cash was $14.0 million of cash proceeds related to the sale of VALARIS 75. Our primary uses of cash were $100.2 million for maintenance and upgrades of our drilling rigs.

Current wording

During the six months ended June 30, 2025, we generated $275.9 million of cash flow from operating activities primarily due to operating income for the period of $307.1 million and approximately $26.0 million of tax refunds received from the Australian tax authority during the first quarter of 2025, partially offset by other changes in working capital. An additional source of cash was $24.0 million of cash proceeds related to the sale of VALARIS 75 and the sale of the Retired Semis. Our primary uses of cash were $167.4 million for maintenance and upgrades of our drilling rigs.

Previous wording

We review from time to time possible acquisition opportunities relating to our business, which may include the acquisition of rigs or other businesses. The timing, size or success of any acquisition efforts and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such efforts with cash on hand and proceeds from debt and/or equity issuances and may issue equity directly to the sellers. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend on our future operating performance, restrictions to incur additional debt in the Indenture and the 2028 Credit Agreement, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders.

Current wording

We review from time to time possible acquisition opportunities relating to our business, which may include the acquisition of rigs or other businesses. The timing, size or success of any acquisition efforts and the associated potential capital commitments are unpredictable and uncertain and are subject to certain restrictions specified within the Business Combination Agreement. We may seek to fund all or part of any such efforts with cash on hand and proceeds from debt and/or equity issuances and may issue equity directly to the sellers. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend on our future operating performance, restrictions to incur additional debt in the Indenture and the 2028 Credit Agreement, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders.