Executive Summary / Key Takeaways

• High-Specification Fleet Driving Future Growth: Valaris is strategically positioned with a leading fleet of 12 seventh-generation drillships and premium jackups, which are highly favored by customers for their advanced technology and operational efficiencies, particularly for long-term deepwater projects.
• Robust Backlog and Commercial Momentum: The company has significantly enhanced its contract backlog, reaching $4.5 billion, and has successfully contracted all four of its drillships with near-term availability for work commencing in 2026, demonstrating strong commercial execution.
• Disciplined Capital Allocation and Fleet Management: Valaris maintains a commitment to returning capital to shareholders through opportunistic share repurchases, while prudently managing its fleet by divesting non-core assets and actively reducing costs on idle rigs to preserve cash flow.
• Improving Financial Outlook Amid Market Recovery: Despite near-term floater market white space, Valaris has consistently raised its 2025 adjusted EBITDA guidance, now projecting approximately $625 million, reflecting strong operational performance and an anticipated tightening of the deepwater market in late 2026.
• Strategic ARO Joint Venture: The 50/50 ARO joint venture with Saudi Aramco provides a stable, long-term revenue stream from jackup operations in Saudi Arabia, with recent five-year lease extensions and a self-funded newbuild program further solidifying this strategic partnership.

Offshore Resurgence: Valaris's Strategic Foundation

Valaris Limited, founded in 1975, has established itself as a global leader in offshore contract drilling services. The company operates one of the largest and most technologically advanced fleets in the world, comprising 48 rigs, including 13 drillships, two semisubmersible rigs, and 33 jackup rigs, alongside a 50% equity interest in ARO, its joint venture with Saudi Aramco. Valaris's strategic journey, particularly its emergence from bankruptcy in 2021, has been pivotal, allowing it to forge a cleaner balance sheet and sharpen its focus on high-specification assets. This strategic pivot has been instrumental in shaping its current competitive stance and future growth trajectory.

The broader offshore drilling industry is experiencing a significant transformation. While global hydrocarbon consumption continues to rise, a near-term crude oil supply surplus is projected for 2025 and 2026. However, this is widely expected to give way to a structurally tighter market later in the decade due to historic underinvestment and slowing non-OPEC production growth. Longer-dated Brent crude oil prices, remaining stable above $65 per barrel, underscore the compelling economics of offshore projects, with over 80% of undeveloped offshore reserves deemed profitable at this level. This macro environment reinforces the critical role of offshore production, especially deepwater, in providing secure, reliable, and affordable energy to meet global demand.

Technological Edge: The Power of 7th Generation Drillships

Valaris's core competitive advantage lies in its technologically differentiated fleet, particularly its 12 seventh-generation drillships, which represent the highest concentration of such advanced units in the industry. These rigs are not merely newer; they embody significant technological advancements that translate into tangible operational and financial benefits.

These high-specification drillships feature dual derricks with high hook load capacity, high-capacity thrusters, and two blowout preventers (BOPs). These capabilities are critical for complex, multi-well deepwater programs, where they amplify efficiencies, leading to faster drilling times and reduced overall project costs for customers. Historically, seventh-generation drillships have commanded day rates approximately 25% higher and achieved marketed utilization nearly 10 percentage points better than their sixth-generation counterparts over the past 12 months. This differentiation is expected to persist, especially as customers increasingly prioritize technical specifications for longer-term development programs.

Valaris actively integrates advanced systems like Managed Pressure Drilling (MPD) into its fleet. For instance, the VALARIS DS-15 recently received an enhanced MPD system upgrade, fully funded upfront by the customer, which contributed to an effective day rate of $540,000 over the firm contract term. This highlights a growing customer preference for contractors capable of delivering technically complex drilling programs using high-spec assets. The company's focus on these advanced capabilities strengthens its competitive moat, allowing it to secure premium contracts and drive superior financial performance and market positioning.

Competitive Landscape and Strategic Positioning

Valaris operates in a highly competitive sector, directly contending with major players such as Transocean Ltd. , Seadrill Limited (SDRL), Noble Corporation plc (NE), and Diamond Offshore Drilling, Inc. (DO). Valaris's market positioning is characterized by its balanced fleet approach and global operational footprint, which allows for greater versatility across diverse project types and geographies.

Compared to Transocean, which often emphasizes specialized deepwater innovation, Valaris's diverse fleet and operational efficiency in standard drilling tasks provide a flexible competitive edge. While Transocean may lead in cutting-edge deepwater technologies, Valaris's cost-effective operations in varied regions offer a unique value proposition, particularly for international and independent clients. Against Seadrill, known for its operational efficiency and rapid deployment, Valaris's broader global presence enables it to capture opportunities in emerging markets more effectively. However, Seadrill's potentially more efficient cost structure could challenge Valaris in price-sensitive segments.

Noble Corporation, with its focus on jackup and deepwater segments and technological upgrades, directly competes with Valaris's jackup offerings. Valaris's established relationships with government-owned clients, particularly through the ARO joint venture, provide a strategic advantage in regions like the Middle East. However, Noble's continuous investment in technology could translate to faster operational cycles. Diamond Offshore, specializing in deepwater and harsh-environment operations, faces competition from Valaris's dynamically positioned semisubmersibles in challenging environments. Valaris's balanced fleet offers more versatile options, though Diamond may hold an edge in endurance for ultra-deepwater projects.

Valaris's strategic response to this competitive environment involves leveraging its high-specification fleet and strong operational track record to secure long-term contracts. The company's commitment to disciplined fleet management, including the divestiture of older, less economic rigs (such as the VALARIS 247 jackup and three semisubmersibles in 2025), further sharpens its focus on high-return assets. This strategy aims to enhance its competitive standing by offering reliable, high-performance solutions that meet evolving customer demands, particularly for complex deepwater and premium jackup operations.

Operational Excellence and Commercial Momentum

Valaris consistently demonstrates strong operational performance, a cornerstone of its strategy. The company achieved a fleet-wide revenue efficiency of 95% in the third quarter of 2025, contributing to robust financial results. This operational prowess is complemented by a highly effective commercial strategy focused on securing attractive, long-term contracts.

The company has significantly expanded its contract backlog, which now stands at $4.5 billion, reflecting over $2.2 billion in new contracted revenue added year-to-date. A key achievement includes contracting all four of its drillships with near-term availability for work commencing in 2026. This includes a two-year contract for the VALARIS DS-10 offshore West Africa and a five-well contract for the VALARIS DS-12 with BP (BP) offshore Egypt, valued at approximately $140 million and commencing in mid-Q2 2026. These awards, often at day rates above $400,000 for drillships, underscore customer preference for Valaris's high-specification assets and proven operational capabilities.

In the jackup segment, demand remains robust, particularly from national oil companies. Valaris has secured over 500 days of additional work in the North Sea and extended five jackups chartered to the ARO joint venture for five-year terms, with Valaris's remaining leased rigs to ARO now contracted into 2030, except for one rolling in 2027. This solidifies Valaris's market-leading positions in key shallow water markets like the North Sea, Australia, Trinidad, and Saudi Arabia. The ARO joint venture itself is a significant strategic asset, with its newbuild program for jackup rigs expected to be self-funded by ARO's cash flow and third-party financing, requiring no additional capital injections from Valaris.

Financial Performance and Liquidity Profile

Valaris has demonstrated strong financial performance, reflecting its operational efficiency and strategic execution. For the nine months ended September 30, 2025, total operating revenues reached $1,831.6 million, up from $1,778.2 million in the prior year period. This growth was driven by incremental revenues from the VALARIS DS-7 following its reactivation and higher average daily revenues across the fleet, partially offset by fewer operating days for some floaters. Operating income for the nine months ended September 30, 2025, surged to $437.6 million, an 88% increase from $233.1 million in the same period of 2024. Net income attributable to Valaris for the nine months ended September 30, 2025, was $265.3 million, compared to $239.7 million in the prior year.

The company's profitability has been significantly impacted by disciplined fleet management and favorable legal outcomes. In the third quarter of 2025, Valaris recognized an $88.4 million pre-tax gain from the sale of the VALARIS 247 jackup. Earlier in 2025, sales of the VALARIS 75 jackup and an Angola office building contributed an aggregate $27 million in pre-tax gains. Furthermore, a favorable arbitration decision in patent litigation with Transocean Ltd. (RIG) in July 2025 resulted in a $7.4 million recovery of legal fees for Valaris. These gains, coupled with lower operating costs from warm-stacked or retired floater rigs, have bolstered profitability.

Valaris maintains a robust liquidity position. As of September 30, 2025, cash and cash equivalents stood at $662.7 million. The company has no debt principal payments due until 2030 and retains $375 million available under its 2028 Credit Agreement. Cash flow from operating activities for the nine months ended September 30, 2025, was a strong $474 million, including $26 million in Australian tax refunds.

Capital expenditures for the same period were $237.2 million, primarily for maintenance and upgrades. Valaris's capital allocation strategy includes opportunistic share repurchases, with $75 million of shares repurchased in Q3 2025 at an average price of $49 per share, and approximately $200 million remaining under its $600 million share repurchase program. The company maintains a minimum cash balance of around $200 million to run its operations, providing significant flexibility for capital returns.

Outlook, Guidance, and Risk Considerations

Valaris's management has consistently provided an optimistic yet prudent outlook, underpinned by a clear strategic framework. For the fourth quarter of 2025, total revenues are projected to be between $495 million and $515 million, with adjusted EBITDA expected to range from $70 million to $90 million. The midpoint of this guidance implies a full-year 2025 adjusted EBITDA of approximately $625 million, a $40 million increase from previous guidance, driven by strong Q3 performance and improved jackup operating days. Full-year capital expenditures are anticipated to be around $390 million, with approximately $70 million offset by upfront customer payments for contract-specific upgrades.

The long-term outlook for deepwater drilling remains constructive. Valaris expects global drillship utilization to trough in late 2025 or early 2026, with seventh-generation drillships leading the recovery and achieving utilization levels around 90% by the end of 2026. The company is tracking over 30 floater opportunities with planned start dates in 2026 or 2027, each with durations of at least one year. Management anticipates meaningful growth in deepwater project sanctioning for both greenfield developments and exploration projects in 2026 and 2027. All 10 of Valaris's active drillships are expected to exit 2026 on contract and working.

Despite this positive outlook, several risks warrant consideration. Commodity price volatility remains a key concern; a sustained decline in oil prices could negatively impact demand and pricing for drilling services. The offshore contract drilling industry is inherently cyclical, and adverse changes in supply or demand dynamics could affect day rates and utilization. Inflationary pressures continue to drive up personnel costs and the prices of goods and services, potentially impacting margins, although some long-term contracts include escalation clauses. Furthermore, while ARO's newbuild program is expected to be self-funded, Valaris has a potential obligation to contribute up to $1.10 billion if ARO cannot secure financing, though this is not currently anticipated. Geopolitical tensions and trade policies, including potential tariffs, also introduce macroeconomic uncertainty that could affect the industry.

Conclusion

Valaris Limited stands as a compelling investment in the offshore drilling sector, underpinned by its strategic focus on a high-specification fleet and a demonstrated commitment to operational excellence and disciplined financial management. The company's technological leadership, particularly with its advanced seventh-generation drillships, provides a significant competitive advantage, enabling it to secure premium, long-term contracts even amidst market fluctuations. This technological edge, combined with a robust and growing contract backlog, positions Valaris to capitalize on the anticipated tightening of the deepwater market in the coming years.

While the industry faces near-term challenges from commodity price volatility and macroeconomic uncertainties, Valaris's proactive fleet management, cost discipline, and strategic partnerships like ARO Drilling provide resilience. The consistent upward revisions in its 2025 adjusted EBITDA guidance reflect strong execution and a positive trajectory. For discerning investors, Valaris offers a clear narrative of a company poised for sustained growth, leveraging its differentiated assets and strategic acumen to deliver long-term value in a recovering and increasingly specialized offshore market.