Valaris has reported second quarter 2024 results.
President and Chief Executive Officer Anton Dibowitz said, 'In the second quarter, we built on our excellent start to 2024 with another quarter of strong safety and operating performance, delivering revenue efficiency of 99% without a lost time incident. In addition, we achieved a meaningful improvement in our financial results during the second quarter, driven in part by a successful contract startup for VALARIS DS-7 – our sixth drillship reactivation completed since 2022.”
Dibowitz added, 'In July, we secured a new multi-year contract with Equinor offshore Brazil for VALARIS DS-17, which added nearly $500 million of contract backlog. This new contract is a testament to the quality of our crews and operations, the leading-edge technical capabilities of the rig and the collaborative nature of our relationship with Equinor.'
Dibowitz concluded, 'Valaris is well-positioned and we continue to execute our strategy, securing attractive new contracts and building our contract backlog. We maintain our conviction in the strength and duration of this upcycle and see strong customer demand for projects that are expected to commence in 2025 and 2026. We expect to deliver significant earnings and cash flow growth over the next few years, and we intend to return all future free cash flow to shareholders unless there is a better or more value accretive use for it.'
Financial and Operational Highlights
- Net income of $151 million, Adjusted EBITDA of $139 million and Adjusted EBITDAR of $150 million;
- Revenue efficiency of 99% during the quarter;
- Strong safety performance, including no Lost Time Incidents (LTI) for the second consecutive quarter;
- Successful contract startup for drillship VALARIS DS-7, the sixth drillship Valaris has reactivated since 2022;
- Multi-year contract for drillship VALARIS DS-17, adding nearly $500 million of contract backlog; and
- Increased total contract backlog to more than $4.3 billion as of July 29, 2024, representing the seventh consecutive quarter of backlog growth and a 42% increase from twelve months ago.
Second Quarter Review
Net income increased to $151 million from $26 million in the first quarter 2024. Adjusted EBITDA increased to $139 million from $54 million in the first quarter primarily due to higher utilization and average daily revenue for both the floater and jackup fleets along with lower contract drilling expense. Adjusted EBITDAR increased to $150 million from $84 million in the first quarter.
Revenues increased to $610 million from $525 million in the first quarter 2024. Excluding reimbursable items, revenues increased to $573 million from $491 million in the first quarter primarily due to higher utilization and average daily revenue for both the floater and jackup fleets as several rigs commenced new contracts during the first and second quarters, including VALARIS DS-7 which commenced operations in late May following its reactivation.
Contract drilling expense decreased to $439 million from $445 million in the first quarter 2024. Excluding reimbursable items, contract drilling expense decreased to $407 million from $414 million in the first quarter primarily due to lower reactivation expense related to VALARIS DS-7 as well as lower repair and personnel costs for the jackup fleet. These items were partially offset by increased operating costs for the floater fleet due to higher utilization and costs incurred related to the stacking of VALARIS DS-13 and DS-14.
Depreciation expense increased to $30 million from $27 million in the first quarter 2024 primarily due to new assets placed in service for certain rigs following reactivation projects and capital upgrades. General and administrative expense increased to $33 million from $27 million in the first quarter 2024 primarily due to higher professional fees.
Other income increased to $12 million from $9 million in the first quarter 2024 primarily due to an increase in interest income, partially offset by an increase in interest expense and a decrease in foreign currency gains.
Tax benefit of $30 million compared to tax expense of $13 million in the first quarter 2024. The second quarter tax provision included $64 million of discrete tax benefit and the first quarter tax provision included $7 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 tax items, tax expense increased to $34 million from $20 million in the first quarter.
Cash and cash equivalents and restricted cash decreased to $410 million as of June 30, 2024, from $509 million as of March 31, 2024. The decrease was primarily due to capital expenditures, partially offset by positive operating cash flow. In the second quarter, operating cash flow was negatively impacted by changes in working capital primarily due to an increase in accounts receivable related to higher revenues.
Capital expenditures of $110 million decreased from $151 million in the first quarter 2024 due to lower capital expenditures associated with VALARIS DS-13 and DS-14, which mobilized from South Korea to Las Palmas during the first quarter and lower reactivation capital expenditures as VALARIS DS-7 commenced its contract during the second quarter following its reactivation. These items were partially offset by an increase in maintenance and upgrade capital expenditures.
Results Compared to Prior Guidance
The Company's second quarter 2024 results were better than prior guidance primarily due to strong operating performance resulting in higher revenue efficiency, certain contracts extending longer than previously anticipated and the timing of certain costs that are now expected to be recognized in subsequent quarters.
Second Quarter Segment Review
Floaters
Floater revenues increased to $384 million from $324 million in the first quarter 2024. Excluding reimbursable items, revenues increased to $370 million from $310 million in the first quarter. The increase was primarily due to a full quarter of operations for VALARIS DS-12 and DPS-5, which both commenced contracts during the first quarter, along with revenue from DS-7, which commenced operations in late May following its reactivation. In addition, VALARIS DS-15 and DS-16 started new higher day rate contracts in the second quarter, which contributed to an increase in average daily revenue.
Contract drilling expense increased to $257 million from $253 million in the first quarter 2024. Excluding reimbursable items, contract drilling expense increased to $245 million from $240 million in the first quarter primarily due to higher utilization for the floater fleet and costs incurred related to the stacking of VALARIS DS-13 and DS-14. This was partially offset by lower reactivation expense due to VALARIS DS-7 returning to work in the second quarter following its reactivation.
Jackups
Jackup revenues increased to $186 million from $152 million in the first quarter 2024. Excluding reimbursable items, revenues increased to $167 million from $139 million in the first quarter primarily due to higher utilization for the jackup fleet, including for VALARIS 107 which commenced a contract during the first quarter as well as VALARIS 123 and Stavanger, which both started new contracts during the second quarter, following out of service time during the first quarter while undergoing contract preparation and survey work.
Contract drilling expense decreased to $123 million from $134 million in the first quarter 2024. Excluding reimbursable items, contract drilling expense decreased to $108 million from $122 million in the first quarter primarily due to lower repair and maintenance expense as rigs returned to work following out of service time for contract preparations and survey work in the first quarter, and lower personnel expense.
ARO Drilling
Revenues decreased to $124 million from $138 million in the first quarter 2024 primarily due to out of service time for both scheduled repair and maintenance projects and unplanned downtime during the second quarter, partially offset by incremental operating days for VALARIS 108, which started its contract late in the first quarter. Contract drilling expense decreased to $94 million from $98 million in the first quarter primarily due to lower bareboat charter expense for leased rigs.
Other
Revenues decreased to $40 million from $48 million in the first quarter 2024 primarily due to lower revenues earned from bareboat charter agreements with ARO and lower reimbursable revenues. Contract drilling expense decreased to $20 million from $22 million in the first quarter primarily due to lower reimbursable expenses.
Source: Valaris
