Valaris Limited (NYSE: VAL) ("Valaris" or the "Company") today reported second quarter 2023 results.
President and Chief Executive Officer Anton Dibowitz said, “In the second quarter, we continued to deliver strong operational performance, achieving revenue efficiency of 97%. We also mobilized the VALARIS DS-17 to Brazil, which has completed its reactivation and is expected to commence its contract this month.”
Dibowitz added, “Our outlook for the industry and our business remains very positive, with increasing demand and constrained supply tightening the market. We continue to see increases in contract duration, lead times and day rates, all of which point towards a strong and sustained upcycle. Our earnings and cash flow should grow meaningfully over the next few years as rigs roll from legacy day rate contracts to higher market rates and reactivated rigs return to work on attractive contracts.”
Dibowitz concluded, “Moving forward, we will continue to be disciplined in exercising our operational leverage and laser-focused on maximizing long-term shareholder value. This includes our commitment to returning capital to shareholders, as demonstrated by our recently announced increase in our 2023 share repurchase target from $150 million to $200 million.”
Financial and Operational Highlights
- Net loss of $27 million, Adjusted EBITDA of $15 million and Adjusted EBITDAR of $59 million;
Delivered revenue efficiency of 97%;
- Awarded new contracts and extensions with associated contract backlog of approximately $180 million during the second quarter;
- Long-term contract awarded to VALARIS DS-7 following quarter end, increasing total contract backlog to $3.0 billion;
- Increased 2023 share repurchase target from $150 million to $200 million in conjunction with the VALARIS DS-7 contract award;
- Repurchased $65 million of shares through June 30, 2023 and $94 million to date.
Second Quarter Review
Net loss was $27 million compared to net income of $49 million in the first quarter 2023. Adjusted EBITDA decreased to $15 million from $29 million in the first quarter primarily due to higher reactivation expense. Adjusted EBITDAR increased to $59 million from $55 million in the first quarter.
Revenues decreased to $415 million from $430 million in the first quarter 2023. Excluding reimbursable items, revenues decreased to $390 million from $408 million in the first quarter. The decrease was primarily due to fewer operating days for the jackup fleet and lower mobilization and demobilization revenues. These were partially offset by an increase in the average day rate for both floaters and jackups.
Contract drilling expense decreased to $374 million from $377 million in the first quarter 2023. Excluding reimbursable items, contract drilling expense decreased to $348 million from $356 million in the first quarter primarily due to lower costs for rigs that were idle or between contracts in the second quarter, and lower repair and maintenance costs associated with special periodic surveys and contract preparation work. These were partially offset by higher reactivation costs, which increased to $44 million from $26 million.
Depreciation expense increased to $25 million from $23 million in the first quarter 2023. General and administrative expense increased to $26 million from $24 million in the first quarter 2023 primarily due to higher personnel costs.
Other income decreased to $7 million from $13 million in the first quarter 2023. This was primarily due to a $29 million loss recognized on the extinguishment of the Senior Secured First Lien Notes due 2028 and a $6 million increase in interest expense associated with the refinancing transaction. These were partially offset by a $27 million pre-tax gain recognized in the second quarter on the sale of VALARIS 54.
Tax expense was $25 million compared to a tax benefit of $28 million in the first quarter 2023. The second quarter tax provision included $6 million of discrete tax expense and the first quarter tax provision included $44 million of discrete tax benefit, which were primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years. Adjusted for discrete items, tax expense increased to $18 million from $16 million in the first quarter.
Cash and cash equivalents and restricted cash decreased to $805 million as of June 30, 2023, from $844 million as of March 31, 2023. The decrease was primarily due to payments for share repurchases, net capital expenditures and an increase in working capital, partially offset by net proceeds from the refinancing transaction completed during the quarter.
Capital expenditures increased to $71 million from $56 million in the first quarter 2023 primarily due to an increase in fleetwide maintenance capital expenditures and reactivation capital expenditures associated with VALARIS DS-8.
Second Quarter Segment Review
Floaters
Floater revenues increased to $227 million from $215 million in the first quarter 2023. Excluding reimbursable items, revenues increased to $216 million from $207 million in the first quarter. The increase was primarily due to more operating days and a higher average day rate for VALARIS DS-12, which commenced a new contract in the second quarter after spending part of the first quarter mobilizing from Mauritania to Angola.
Contract drilling expense increased to $196 million from $175 million in the first quarter 2023. Excluding reimbursable items, contract drilling expense increased to $185 million from $166 million in the first quarter. The increase was primarily due to higher reactivation costs, which increased to $44 million from $26 million in the first quarter due to the commencement of a reactivation project for VALARIS DS-8 ahead of a three-year contract offshore Brazil. This was partially offset by lower reactivation expense for VALARIS DS-17, which is expected to commence operations offshore Brazil this month.
Jackups
Jackup revenues decreased to $145 million from $170 million in the first quarter 2023. Excluding reimbursable items, revenues decreased to $136 million from $162 million in the first quarter primarily due to fewer operating days and lower mobilization and demobilization revenues for VALARIS 249, which completed its contract offshore New Zealand late in the first quarter and was mobilizing to its next contract offshore Trinidad during the second quarter. In addition, VALARIS 54 was sold following the completion of its contract late in the first quarter and VALARIS 108 was idle for most of the second quarter undergoing contract preparation work ahead of a three-year bareboat charter with ARO Drilling. These were partially offset by more operating days for VALARIS 115 and 247 as both rigs commenced new contracts after idle periods.
Contract drilling expense decreased to $124 million from $149 million in the first quarter 2023. Excluding reimbursable items, contract drilling expense decreased to $114 million from $142 million in the first quarter. This was primarily due to lower costs for VALARIS 249 as the rig's operating costs were deferred during its mobilization from New Zealand to Trinidad, lower costs for VALARIS Viking due to the rig being preservation stacked in the first quarter and lower costs associated with special periodic surveys and contract preparations for certain rigs.
ARO Drilling
Revenues decreased to $118 million from $124 million in the first quarter 2023 primarily due to an increase in out of service time related to planned maintenance on certain rigs. Contract drilling expense increased to $95 million from $91 million in the first quarter primarily due to higher repair costs associated with the previously mentioned planned maintenance.
Other
Revenues decreased to $43 million from $46 million in the first quarter 2023 and contract drilling expense decreased to $18 million from $20 million in the first quarter.
