Valaris Ltd Q2 FY2025 Earnings Call

Good day, and welcome to the Valaris Second Quarter 2025 Results Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Nick Georgas, Vice President, Treasurer and Investor Relations. Please go ahead.

Welcome, everyone, to the Valaris Second Quarter 2025 Conference Call. With me today are President and CEO, Anton Dibowitz; Senior Vice President and CFO, Chris Weber; Senior Vice President and CCO, Matt Lyne; and other members of our executive management team. We issued our press release, which is available on our website at valaris.com. Any comments we make today about expectations are forward-looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially from our expectations. Please refer to our press release and SEC filings on our website that define forward-looking statements and list risk factors and other events that could impact future results. Also, please note that the company undertakes no duty to update forward-looking statements. During this call, we refer to GAAP and non-GAAP financial measures. Please see the press release on our website for additional information and required reconciliations. Last week, we issued our most recent fleet status report, which provides details on our rig fleet, including new contract awards. Now I'll turn the call over to Anton Dibowitz, President and CEO.

Thanks, Nick, and good morning and afternoon, everyone. During today's call, I'll begin with a review of our performance for the quarter and highlight some of our recent contract awards. I'll then provide an update on the offshore drilling market and conclude by outlining how our strategic focus on delivering outstanding operational performance, executing our commercial strategy, and maintaining disciplined cost and fleet management is driving long-term value for shareholders. To begin, I want to highlight a few key points. First, I am very proud of the entire Valaris team for delivering another quarter of strong operational and financial performance, with revenue efficiency of 96%, contributing to meaningful EBITDA and free cash flow for the quarter. Second, we are successfully executing our commercial strategy by securing attractive long-term contracts for our high-specification fleet. Since reporting first quarter results, we've added more than $1 billion in new contract backlog, increasing our total backlog to approximately $4.7 billion. Third, as expected, the pipeline of floater opportunities that we have discussed in recent quarters is converting into contracts. We anticipate additional awards across the industry in the coming months, and Valaris is well-positioned to capitalize on these opportunities and deliver long-term value for our shareholders. Safe and efficient operations are at the heart of everything we do. They keep our people safe and build trust with our customers. We delivered fleet-wide revenue efficiency of 96% in the second quarter, continuing our track record of providing safe and efficient operations to our customers. This solid operational performance contributed to strong financial results, including adjusted EBITDA of $201 million and adjusted free cash flow of $63 million. As always, delivering safe operations is our top priority. And I'm pleased to report that we completed the first half of the year without a single Lost Time Incident, a testament to our safety culture and commitment to eliminating workplace injuries. We also had several rigs achieve notable safety milestones with VALARIS DS-10 reaching two years without a recordable incident, while VALARIS 107, 118, and 248 each marked one year recordable free. On prior conference calls, we've discussed our focus on bookending the white space across our drillship fleet by securing attractive long-term contracts for our high-spec seventh-generation assets. We've made great progress on this objective this year, having contracted 3 of our 4 drillships with near-term availability as well as extending the DS-16, which was previously scheduled to roll off contract mid-next year to the end of 2028. Since reporting first-quarter results, we've added $860 million in drillship backlog with average day rates above $400,000. These awards have helped us to increase our contract backlog to $4.7 billion, the highest it has been this decade and reflect the strength of our customer relationships, our operational track record, and the value customers place on our high-specification fleet. Turning now to the broader offshore drilling market. The long-term fundamentals for offshore activity remain strong, and we continue to believe that offshore production will play a vital role in helping to meet global energy needs. Offshore production, particularly deepwater, offers large accessible resource potential, compelling project economics, and comparatively lower carbon emissions. Consequently, we are seeing our customers prioritize long-cycle offshore developments over shorter cycle activity such as U.S. land, and we anticipate meaningful growth in deepwater project sanctioning of both greenfield developments and exploration projects in 2026 and 2027. The majority of these projects are expected to be economically viable well below current commodity prices. According to Rystad, over 75% of deepwater spending expected to be sanctioned in the next three years is tied to programs with breakeven prices below $50 per barrel compared to a 5-year forward price above $65 per barrel. This supports our view that the floater opportunities we've been tracking will continue converting to contracts. And as expected, the pace of this contracting has picked up in recent months. Based on our ongoing conversations with customers, we anticipate additional awards across the industry in the coming months, and there remains a healthy pipeline of more than 30 floater opportunities with planned start dates in 2026 or 2027 and durations of at least one year. We continue to see a clear customer preference for the most technically capable assets, which aligns well with our high-specification drillship fleet as 12 of our 13 ships are seventh-generation units, the highest concentration in the industry. On average, seventh-generation drillships have achieved day rates that are approximately 25% higher and marketed utilization that is nearly 10 percentage points better than sixth-generation units over the past 12 months. We expect this differentiation to continue, particularly for longer-term development programs as the combination of technical specifications such as dual derricks with high hook load capacity, high-capacity thrusters, and two blowout preventers offer efficiencies that are amplified over multi-well programs. As a result, while we still anticipate overall drillship utilization to trough in the first half of 2026, we expect seventh-generation drillships will lead the recovery and exit 2026 with utilization levels above 90%. Moving to jackups. Shallow water demand remains resilient with global utilization of 90%, driven primarily by national oil companies prioritizing energy security and infrastructure funding. We have robust contract coverage on our jackup fleet with more than 70% of available days for our active rigs already contracted in 2026, and 60% contracted in 2027. Our versatile jackup fleet continues to be a strong contributor to our financial performance, and we expect year-over-year growth in EBITDA from this segment in 2025, driven by more operating days and higher average day rates. Against this positive backdrop, at Valaris, we remain focused on delivering outstanding operational performance, executing our commercial strategy, and prudently managing our fleet and costs. As I mentioned earlier, the team has performed excellently over the first half of the year, and we remain laser-focused on operating safely and efficiently for our customers. We're well-positioned to continue executing our commercial strategy by winning attractive floater contracts supported by our global scale and high-spec fleet. With three of our four seventh-generation drillships with near-term availability now contracted, our focus is on securing work for the DS-12, and we are actively engaged in discussions with multiple customers for opportunities starting in 2026. We're also starting to see some customers consider short-term programs in the first half of 2026, which aligns well with our strategy of first securing attractive long-term contracts and then targeting potential gap fill opportunities. In terms of our broader fleet strategy, spanning both floaters and jackups, we remain focused on maintaining a high-quality and efficient fleet. We will continue to actively manage our rigs in response to evolving market conditions, including tightly controlling costs between contracts and quickly reducing expenses during extended idle periods. Prudent fleet management also extends to our decisions to retire rigs when their expected economic benefit no longer justifies their associated costs. Earlier this year, we completed the sale for recycling of three benign environment semisubmersibles, reflecting the challenged global market for this asset class, and we continue to closely monitor market conditions and opportunities for our two remaining semis. We also regularly evaluate divestitures and will sell rigs when we can secure attractive prices as demonstrated by the announced sale of jackup VALARIS 247 for $108 million in cash. Before handing over to Matt, I'd like to briefly recap a few key points about the market and our strategy. As we anticipated, the floater pipeline is converting into contracts, and we expect more awards across the industry in the months ahead. Customers continue to prioritize long-cycle offshore projects, and we believe offshore production will remain essential to meet global energy demand and an increasingly important part of their portfolios. We are laser-focused on operational excellence and commercial execution. Given our high-quality fleet and operational performance, we are well-positioned to secure additional contracts, which, combined with our prudent approach to fleet management, will further support our earnings and cash flow. With that, I'll now hand the call over to Matt.

Thanks, Anton, and good morning and afternoon, everyone. I'll begin with a summary of our recent contracting success before providing updates on the major floater and jackup markets where we operate. Since our first quarter call, we've secured new contracts and extensions that have increased our total backlog to $4.7 billion. These awards added more than $1 billion in new backlog, including approximately $860 million for floaters and $145 million for jackups. Starting with floaters, we recently secured multiyear programs for drillships VALARIS DS-16 and DS-18 with Oxy in the U.S. Gulf, adding a combined 5 years of term and approximately $760 million of backlog. The DS-16 award extends the rig's contract with Oxy into late 2028, while the DS-18 was awarded a new contract that is expected to keep the rig busy from late 2026 to early 2029. We also secured a 250-day contract for VALARIS DS-15 offshore West Africa, which could extend to nearly one year if customer options are exercised. As part of this contract, the rig will be upgraded with an enhanced managed pressure drilling system, reflecting growing customer preference for contractors that can deliver technically complex drilling programs using high-spec, seventh-generation drillships. This upgrade is being funded upfront by the customer, providing for an effective day rate of $540,000 over the firm term of the contract. Including these awards and the DS-10 contract announced last quarter at a day rate in the high 400s, we've now secured work for 3 of our 4 drillships with near-term availability at average rates above $400,000 per day. Turning to jackups; we recently secured a 4-year extension for VALARIS 110 offshore Qatar, along with more work in the North Sea for VALARIS Norway and 122, increasing our contract coverage in the region through the remainder of 2025 and into 2026. Year-to-date, we've added more than $2 billion in contracted revenue backlog, significantly enhancing our contract coverage in 2026 and beyond. Turning now to the major floater and jackup regions where we operate. As Anton mentioned, the pipeline of floater opportunities is converting into contracts. Following these recent contract awards, we've seen a replenishment of the pipeline of longer-term floater opportunities and are currently tracking more than 30 opportunities with planned start dates in 2026 or 2027 and durations of one year or more. With long-term contracts typically awarded at least nine months before their planned commencement, we anticipate additional contract awards across the industry over the remainder of the year. Offshore Africa, including West Africa, Mozambique and the Mediterranean remains the most active region for future floater demand, representing roughly half of the long-term opportunities in our pipeline. In West Africa, we expect to see growth offshore Nigeria with two multiyear programs with IOCs presently in the tendering phase and offshore Ivory Coast, where a two-rig requirement starting in 2027 is expected to come to market later this year. Similarly, we expect incremental demand from Namibia with TotalEnergies progressing a long-term development for its Venus project that could lead to several years of work for multiple rigs. In Ghana, a new discovery at the Eban-Akoma field, the country's first major offshore find in several years, may generate future demand that would be incremental to the pipeline of opportunities we are tracking. In Mozambique, Eni is currently tendering for a drillship with work starting in the second half of 2026 and further tenders from TotalEnergies and Exxon are expected to follow later this year for programs starting in 2027. Valaris DS-9 is returning to Angola with Exxon following a successful exploration campaign offshore Cyprus, which may lead to future development activity as the country seeks to increase offshore production. Also in the Mediterranean, BP has a tender out for development work starting in mid-2026, following exploration success offshore Egypt with the DS-12. Valaris has a long and successful track record offshore Africa, and we anticipate that development activity around the continent will be the main driver of incremental floater demand over the next few years. To this end, we are in active discussions with customers for several opportunities that DS-12 is well suited for. And both the DS-9 and the DS-7 have had strong operational performance with their customers that positions them well for follow-on work when their current contracts expire in the second half of 2026. Moving to Brazil, which is the largest market for benign environment floaters, we expect Petrobras's rig count will remain stable in the near- to medium-term as they seek to recontract existing rig capacity through active and upcoming tenders. These include the recent tender for the Buzios field, a tender covering the Mero and Tupi fields that came to market last week and a third tender anticipated later this year. These tenders provide opportunities for potential follow-on work for VALARIS DS-8, which is scheduled to complete its current contract with Petrobras at the end of next year. Beyond Petrobras, we have also seen increased demand from IOCs for multiyear terms, with Equinor looking to add a third rig offshore Brazil and Shell issuing a tender for its Gato do Mato project. In the U.S. Gulf, customer demand remains healthy as evidenced by our recent long-term contracts with Oxy. And we expect the market to remain balanced with demand largely met by existing supply of rigs in the region. Outside of the Golden Triangle, we're tracking requirements for seven drillships offshore India, Southeast Asia and Australia, representing more than ten years of expected firm term. This demand could draw supply away from the Golden Triangle since there are just five drillships that are working or warm stacked in these regions today. As Anton mentioned, we're also starting to see some customers consider short-term programs in the first half of 2026. This is a positive development since our last conference call with increased interest across the Golden Triangle that could help us mitigate some idle time between contracts. While many deepwater regions show encouraging signs of growth, the semisubmersible market offshore Australia remains challenged, and we expect idle time from both MS-1 and DPS-1 once their current contracts end later this year. We are actively engaging with customers on potential opportunities for 2026 and 2027, and we'll manage our fleet in line with demand. Turning to jackups; global marketed utilization ended the second quarter at 90%, marking three straight years with utilization at or above this level. Our jackup fleet is concentrated in basins where we have strong positions, such as our rigs leased to ARO in Saudi Arabia, our market-leading position in North Sea, and niche markets that require high-specification assets like Trinidad and Australia. In benign environments, we have strong contract coverage. And accounting for one customer option we expect to be exercised, we have open availability in 2026 for just two rigs, VALARIS 106 in Indonesia and VALARIS 107 in Australia. We remain confident in the outlook for both rigs. The 106 is well-placed for domestic work as an Indonesian flagged vessel, and the 107 is expected to be the only jackup offshore Australia with 2026 availability that could meet multiple opportunities we are tracking. In the North Sea, we anticipate increased competition for upcoming work, particularly toward the end of the year, driven by an uptick in available units as two operators have chosen to prioritize activity in other basins. We have solid contract coverage for most of our active fleet into mid-next year. We are currently tracking approximately 20 programs expected to commence by year-end 2026 across the UK, Danish and Dutch sectors. These include gas drilling, plug and abandonment work and new energy projects, and we believe our rigs are well-positioned to meet this demand. The Dutch sector stands out as a particular bright spot with three programs of at least one year in duration expected to start by early next year. In summary, we are successfully executing our commercial strategy and have secured over $2 billion in backlog from new contracts this year. We continue to have constructive engagement with our customers around their future programs, and our focus remains on building backlog by winning attractive long-term contracts to further support our earnings and cash flow. I'll now hand the call over to Chris, who will take you through the financials.

Thanks, Matt, and good morning and afternoon, everyone. In my prepared remarks today, I'll begin with an overview of our second quarter results. Then I'll walk you through our outlook for the third quarter, followed by an update on our full year guidance for 2025. Starting with our second quarter results. Total revenues were $615 million compared to $621 million in the prior quarter, primarily due to VALARIS DS-12 completing a contract late in the first quarter without follow-on work, which was partially offset by a full quarter of operations for VALARIS 144 and several jackups starting new contracts at higher day rates than those earned in the prior quarter. Adjusted EBITDA was $201 million compared to $181 million in the prior quarter. Adjusted EBITDA was up on lower revenue, primarily due to a favorable arbitration outcome related to a previously disclosed patent license litigation that provided a total benefit of $24 million in the second quarter. $17 million of this benefit was recognized in contract drilling expense and the remaining $7 million in G&A expense. Second quarter adjusted EBITDA exceeded our guidance range of $140 million to $160 million. Approximately half of the beat was due to strong operating results driven by higher revenues from ARO leased rigs, certain contracts running longer than expected, and lower support costs, and the other half was due to the favorable arbitration outcome. Second quarter CapEx totaled $67 million, coming in below guidance due to timing as certain project spend shifted to later in the year. During the quarter, we generated $120 million of cash flow from operations and received $10 million in proceeds from the sale for recycling of semisubmersibles DPS-3, DPS-5 and DPS-6. This was partially offset by capital expenditures, resulting in $63 million of adjusted free cash flow. Cash and cash equivalents were $516 million at quarter end, and our revolving credit facility remains fully available, which together provide us with total liquidity of nearly $900 million. Moving now to our third quarter outlook. We expect total revenues in the range of $555 million to $575 million, down from $615 million in the second quarter. The anticipated decrease is primarily due to idle time for VALARIS DS-15 and DS-18, both of which are expected to complete their contracts during the quarter and fewer operating days for VALARIS 247, which is scheduled to finish its contract offshore Australia during the quarter ahead of its planned sale later this year. These items are expected to be partially offset by more operating days for VALARIS 106, which returned to work late in the second quarter following out of service time for its 20-year survey. We expect contract drilling expense of $400 million to $415 million compared to $396 million in the second quarter. This increase is primarily due to the $17 million benefit from the favorable arbitration outcome in the second quarter that I mentioned earlier. Both revenue and contract drilling expense for the third quarter are expected to include $30 million to $35 million of reimbursable items. We anticipate that G&A expense will be approximately $28 million, and adjusted EBITDA is expected to be $120 million to $140 million. Total CapEx is expected to be $100 million to $110 million, including ongoing fleet maintenance spend, 20-year survey costs for VALARIS 106 and 248 and contract-specific upgrades for several rigs. Turning to our financial guidance for full year 2025. We now expect adjusted EBITDA in the range of $565 million to $605 million, up from our prior guidance range of $500 million to $560 million. This increases the midpoint of our adjusted EBITDA guidance by $55 million, taking it up to $585 million, primarily due to our outperformance in the second quarter. In terms of our guidance for specific line items, we now forecast total revenues of $2.25 billion to $2.3 billion, which is fully contracted at the midpoint, contract drilling expense of $1.57 billion to $1.6 billion and G&A expense of $100 million to $105 million. Our full year 2025 CapEx guidance remains unchanged at $375 million to $415 million and we expect approximately $70 million in upfront customer payments this year, which will help offset contract-specific upgrades. This concludes my review of our financial results and guidance. I'll now hand the call back to Anton for some closing remarks.

Thanks, Chris. Before we open the line for questions, I'd like to recap a few key points from today's prepared remarks. First, I'm very proud of the entire Valaris team for delivering another quarter of strong operational and financial performance, with revenue efficiency of 96%, contributing to meaningful EBITDA and free cash flow for the quarter. Second, we are successfully executing commercially, securing attractive long-term contracts for our high-specification fleet. Since reporting first-quarter results, we've added more than $1 billion in new contract backlog, increasing our total backlog to approximately $4.7 billion. Third, as expected, the pipeline of floater opportunities that we have discussed in recent quarters is converting into contracts, and we anticipate additional awards across the industry in the coming months. Given our high-specification fleet, proven operating track record, and continued focus on execution and cost discipline, Valaris is well-positioned to capitalize on these opportunities and deliver long-term value for our shareholders. We thank our employees for their focus and dedication and our customers and investors for their continued support. That concludes our prepared remarks. Operator, please open the line for questions.

And your first question today will come from Fredrik Stene with Clarksons Securities.

Congratulations on an impressive quarter. It’s encouraging to see a good number of drillship contracts being secured as well. I want to focus on that topic. Many of these contracts are starting in the latter part of 2026, as you noted, but you mentioned that there has been an increase in activity for shorter-term work in the early part of 2026. Could you provide more details on what this could mean for the DS-10, DS-15, and DS-18? What is the expected duration for these short-term contracts? Are any of these three rigs capable of taking on this work? Any additional insights you can share about the first half of next year would be appreciated.

Sure. Thanks, Fredrik. This is Matt. To provide some more details, the average duration varies depending on whether it's for one well or several wells. Geographically, it's spread throughout the Golden Triangle. We're well-positioned to utilize our rigs in various locations for this opportunity. Our fleet is equipped to offer services like managed pressure drilling on our rigs, which helps us stand out since customers may struggle to find alternative options in the short term. This gives us a competitive advantage, but there is still work to do in a challenging market.

Fredrik, I believe there are two key points to highlight when discussing the shorter-term opportunities that are starting to emerge. First, we have a clear strategy. Our approach in managing our fleet involves booking in the available capacity and securing our assets on long-term programs, while also exploring potential short-term work that aligns with those programs. This is important for keeping our costs down during extended idle periods. The fact that we are engaging in discussions across the market and that these opportunities are increasingly arising from a very low base over the past few quarters is a positive indicator for us regarding the market's trajectory. However, it remains to be seen where these opportunities lie, whether we can effectively capitalize on them, and if they align with our goals. Nevertheless, the emergence of these opportunities is a very encouraging sign for the market.

Yeah. And I guess kind of that was the essence of what I was wondering about here since there's a trade-off between having some sort of stacking cost on a rig versus having a higher cost and then trying to get that paid for by a shorter-term contract is not necessarily always the best idea, so.

I want to be clear that our strategy remains unchanged. We plan to secure our current business and explore long-term opportunities. If we decide to add any gap fill, it will occur at the end of our current contract or just before the start of the next one. We will not be maintaining high operating costs on our rigs during idle periods or ramping up activity just to do a well before reducing operations again. That approach is not economically viable, nor does it benefit our business or lead to effective operations. It simply does not make sense from either an economic or operational standpoint. If we can identify a well that can begin a few months prior to our long-term programs and can be executed successfully, we will prioritize that.

That was exactly what I wanted to hear. Just a quick follow-up on these rigs and the new contracts. Is there any unusual capital expenditure we should consider to prepare these rigs for work, or is everything standard?

No. I mean I think it's fair to say most contracts have some kind of CapEx requirement. Everybody wants something a little different. But amongst these contracts that we've signed, I would not characterize anything here as out of the ordinary or exceptional.

Your next question today will come from Greg Lewis with BTIG.

I was hoping for a little bit more color or describe it how you want around those 30 planned potential floater opportunities. And kind of what I've been wondering is, and I think some investors are clearly concerned is of those 30 planned potential opportunities, any sense for how many of those have kind of just continued to push right? I mean there's a couple in West Africa that I think at one point were expected to be done in 2025 with the rigs working and then it shifted to '26. We're hearing at least one of those is now in '27. I guess maybe I'll ask it this way. Of those 30 planned start dates, maybe how many of them kind of came into the opportunity set maybe in this calendar year?

Let me start with this one, and then maybe Matt can add if he has a comment. Looking back a year ago, we were tracking around 30 opportunities, but we faced a challenge where everything got pushed forward by a year. We anticipated that contracts would start being awarded and accelerate this year, and we have observed that happening. While awards are being made, the pipeline still has about 30 opportunities as it is being replenished with new projects entering the market. The opportunities we are discussing now are not the same 30 from a year ago. We are seeing awards exiting the pipeline and new opportunities entering. The confidence we have comes from the discussions with our customers and their awarding of contracts, which reinforces our belief that these contracts will keep being awarded. Although some timelines may shift within the scheduled rig startups, and these timelines can vary, we are experiencing more consistency with our customers following through on their planned programs.

See, the last comment to leave you with is, while we have seen some delays, and I think they're moving less than they had previously, which is more likely timing related to delivery of equipment. So they're narrowing that. We're not seeing them canceled. They're just shifting a little bit, which I think is extremely positive. So we've moved past that if to more of a when. And so I think that's something really positive takeaway from the whole point.

That's very helpful. Following up on that, what is your perspective on the opportunities available? I'm also interested in any short-term opportunities that might arise for specific projects. Do you have an idea of the balance between development work and exploration work in the broader contracting opportunities you foresee in the market over the next couple of years?

I think the general approach for long-term development is to establish work streams, and within those, there are often options for future exploration on new blocks as customers try to maintain some capacity, anticipating a market tightening in 2027 and 2028 and beyond. While I don’t have the exact statistics regarding the difference between exploration and development at hand, we are observing an increase in exploration activity. These exploration programs typically have shorter durations as they span multiple countries.

I think what you're hearing is these shorter-term programs have a tendency to be slotted into an exploration well before we go to a development or let's see if we can do some exploration versus the kind of more telegraphed longer-term programs, which generally tend to be the more development focused. So this opportunistic short-term work trends towards exploration more than the average.

And your next question today will come from Eddie Kim with Barclays.

So we've seen some pretty nice multiyear contracts here over the past 3 months from you and one of your peers, but leading-edge day rates do seem to have come down now into the low 400s versus sort of mid- to high 400s previously. You noted your expectation for drillship utilization to trough sometime in the first half of '26, but at the same time, provided a very constructive sort of medium-term outlook, particularly in West Africa. So against that backdrop, just curious your thoughts on the trend of leading-edge day rates on some of these upcoming contract announcements. You noted will be coming over the next several months. Do you think day rates on those remain kind of in the low 400s even on multiyear programs or could we see some further softening perhaps into the high 300s? Any thoughts there would be appreciated.

I think the positive aspects show that we could see seventh-generation utilizations potentially reaching the 90s by the end of 2026, which is very encouraging. As that utilization increases, I believe day rates will follow a similar trend. The speed of this will depend on the availability of assets, the number of tenders, and the duration of those availabilities. Regarding the next round of fixtures we expect to be announced, I wouldn't speculate on specific day rates, but they will likely be in line with what we have seen recently. We have recently secured contracts all in the 4s, which reflects our confidence in the strength of the market.

I think maybe just reiterate a couple of things, Matt. I mean this is at some measure, simple supply-demand economics 101. When utilization tightens, there's more pressure on day rates and day rates have a tendency to go up. When there is availability in the market, there tends to be some pressure on day rates. And we do expect, as we go through '25 with rigs being released and utilization troughing kind of in the first half of '26, there to be some pressure on floater day rates. What I can tell you is how we view the market and our high-spec fleet, we've fixed 3 of our 4 rigs with near-term availability north of 400. We expect seventh-gen rigs, which have a clear differentiation, both in terms of rates historically and kind of 25% and utilization over sixth-gen to lead that recovery. And as Matt said, exit '26 at 90%. And as the market tightens, we expect there to be that commensurate pressure on day rates.

Great. That's very helpful. My follow-up is just on your three cold stacked drillships. Obviously, you have two warm-stacked rigs currently in the DS-10 and 12, but the DS-10 is future contracted for a long-term program. And if you can secure a contract for the DS-12, I mean, essentially, we're looking at a scenario where all your drillships are effectively sold out. So I just wanted to ask for your updated thoughts on when you think one of your cold-stacked drillships could be reactivated and actually start working. Could that be sometime in 2027 or is that more likely in 2028 or potentially even later?

Not going to get into speculation or prognostication. What I can tell you is I think we've been very clear about what our near-term focus is, and that's the book and the white space on our attractive fleet that we have active right now. We've done 3 out of 4. We're very focused on the DS-12 with the remaining. We have good opportunities for it in 2026. We expect the market to tighten. And in a market that's tightening going forward in the next couple of years, having the 3 most attractive seventh-gen 2 BOP rigs sitting on the sidelines is going to be a great option for us to bring to market, but we will be patient. We're focused on the near-term, and we will bring those rigs to market when the market is ready for them.

And your next question today will come from Doug Becker with Capital One.

Anton and Matt, I wanted to get some sense for the expected timing of announcements related to Buzios and Mero. And just any color on how many rigs expected duration that might come from a third Petrobras tender this year?

Matt?

So positive that we see Petrobras back in the market. I think the view amongst us and our peers and the analysts remains that Petrobras will keep their fleet largely flat out through the end of the decade. So I think that kind of gives us an idea of their tendering schedule to pick up existing rigs and keep their fleet working. So each one of their tenders, the way they sort of put them out there is that they will take at least one. Then it comes down to sort of our intel. Our view is likely to be more than one for the current tender, which is Buzios is under evaluation, but nothing is public. Could be three; it could be four, but positive on the outlook of number of rigs they intend to contract. The follow-on one could be very similar, but of course, it starts with one, but it depends on where rigs come in and against their budget. But for the third tender, still a bit of information to be captured on that one. But as I said earlier, it's positive that we hear that there's already talk about a third opportunity entering the market.

It's important to recognize that Petrobras plays a crucial role in the market. The demand from Petrobras for high-spec ships is significant for overall floater demand. Whether they select rigs from the Mero tender or the Tupi tender, there will be a chance for the rigs operating in Brazil for Petrobras to be maintained. They are expected to keep their rig count stable. In Brazil, we also see development from international oil companies. Equinor is already progressing with their program, and Shell is now considering Gato do Mato. There is considerable exploration activity from other international oil companies as well. In addition to a robust rig count from Petrobras, which is vital for the market, we also expect to see increased activity and some fines from other international oil companies, indicating a very promising market in Brazil over the next few years.

And then switching gears, just are there any other steps on the dual activity arbitration that benefited the second quarter or is it finally put to rest?

There is a right to appeal arbitration for either party, but the threshold for doing so is quite high. Appeals can only be made on procedural grounds, not simply based on the facts or legal conclusions of the arbitration panel. We are pleased with the favorable outcome for us and will see how things develop moving forward.

And your next question today will come from Josh Jayne with Daniel Energy Partners.

I don't want to ask too short-term of a question, but it was a pretty busy second quarter from a macro standpoint, just with Liberation Day and then a number of macro events that yielded a lot of volatility in oil prices. So maybe you could just speak to customer mindset today and if your customer base is generally more comfortable with the environment today than they were, let's say, in late March. Maybe some color would be helpful.

Absolutely. I don't think they lost confidence. It's important to note that the overall demand for offshore resources is significant and economically viable. The statistics we mentioned indicate that a large portion of what is expected to be greenlit in the next couple of years is below $50 a barrel. Six months ago, with OPEC+ adding 400,000 barrels a month back to the market and some geopolitical and tariff uncertainties, many would have questioned whether oil prices would still be around the mid-60s. However, our customers feel very positive about contracting the rigs and proceeding with their developments, recognizing the necessity of these resources. We definitely observe a more optimistic outlook from our customers regarding their programs compared to six months ago.

That's helpful. And then just on the jackup side, you guys have obviously a lot better insight into Saudi than most. Could you just update us on your thoughts on how you believe their rig count progresses over the next couple of years, I think, would be helpful.

Right now, Saudi Arabia has a rig count in the mid-50s, which is slightly higher than before their ramp-up in 2022 and 2023. It has ramped up and then returned to roughly the same level. Changes in customer needs for their rig fleet will always occur globally. From our perspective and ARO's, we completed the extensions last quarter. Our fleet is contracted on the Valaris side primarily through the end of the decade, with one rig rolling in 2027. Overall, we feel very positive about our position in Saudi Arabia.

And then maybe just to sneak one more in, if I may, since we're towards the end. Could you just highlight your thoughts on the buyback moving forward, just given that the free cash flow continues to be strong for the company and Chris highlighted the $900 million of liquidity that you have available. So I'm just curious your thoughts on it moving forward. Is this something where you look at the environment and think wait until maybe things turn around after one-half '26 or just how you're thinking about it moving forward over the next 12 to 24 months given your liquidity position?

Yeah. No, look, I mean, we remain committed to returning capital to shareholders. What we've said before is, look, it may not be a linear line, and we're going to need to see how this year progresses and what flexibility that provides from a return of capital perspective. But obviously, we've had strong operational financial performance this year. Matt and team are making great progress on the commercial front, and the V-247 rig sale is expected to close later this year. That will provide sale proceeds for over $100 million. And particularly with that rig sale and those proceeds coming in, that will increase our flexibility for returning capital to shareholders.

Yeah. I'd just reiterate what Chris said. I mean, we've been pretty clear about our capital return philosophy. Second, that it may not necessarily be linear, but the business is executing extremely well, and it gives us good opportunities going forward to return capital.

That concludes our question-and-answer session. I would like to turn the conference back over to Nick Georgas for any closing remarks.

Yes. Thanks, Nick, and thank you to everyone on today's call for your interest in Valaris. We look forward to speaking with you again when we report our third quarter 2025 results. Have a great rest of your day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.