Business context and reporting period
Valaris provides offshore contract drilling services and operates a 60-rig fleet, plus a 50% interest in the ARO joint venture. This Form 10-Q covers the quarter ended June 30, 2021. Valaris emerged from Chapter 11 on April 30, 2021 and adopted fresh start accounting, creating a new reporting entity. Accordingly, post-emergence and predecessor results are not directly comparable. Management presents combined periods for trend analysis, but those combined figures are non-GAAP.
Key financial metrics
| Metric | Reported result |
|---|---|
| Revenue, combined three months ended June 30, 2021 | $293.1 million, down 25% from $388.8 million in the prior-year quarter. |
| Operating income (loss), combined three months | Loss of $28.4 million, versus a loss of $1,019.2 million in 2020; the prior-year period included $838.0 million of impairment charges. |
| Net loss attributable to Valaris, combined three months | $3,563.2 million, including $3,536.5 million of net reorganization items. The filing reports a $6.2 million attributable loss for the two-month Successor period alone. |
| Six-month combined revenue and operating result | Revenue of $600.2 million, down 29% from $845.4 million; operating loss of $874.5 million, including $756.5 million of impairment charges recorded in the predecessor period. |
| Cash and liquidity at June 30 | $608.8 million cash and cash equivalents; $53.1 million restricted cash; $821.1 million working capital; current ratio 3.1. |
| Cash flow and capital spending | Across the reported two-month Successor and four-month Predecessor periods, operating cash use totaled $65.7 million and capital expenditures totaled $16.8 million. The filing does not provide a standalone three-month cash-flow figure. |
| Debt | $544.8 million carrying value of First Lien Notes at June 30; $550 million aggregate principal issued at emergence. Notes mature in 2028 and permit annual interest of 8.25% cash, 10.25% split cash/PIK, or 12% PIK, at Valaris’s option. |
Material changes versus prior comparable period
- Combined quarterly revenue fell $95.7 million, mainly due to fewer days under contract, prior-year termination fees, sold rigs, and lower ARO-related revenue; higher day rates partly offset the declines.
- Combined quarterly contract drilling expense declined 31% to $254.3 million, primarily from lower idle-rig costs, fleet sales, and cost-control measures. General and administrative expense decreased 69% to $19.1 million.
- Quarterly utilization was 22% for floaters and 54% for jackups. Average day rates were approximately $197,000 and $98,685, respectively. Compared with the prior-year quarter, floater utilization declined while floater and jackup day rates increased.
- The restructuring eliminated approximately $7.1 billion of debt. Legacy equity was cancelled; 75 million new common shares were issued, along with warrants to former equity holders.
Outlook, commentary, risks and contingencies
- Management described the contracting environment as improving in 2021 but still challenging, with uncertainty about whether higher oil prices and tendering activity will persist. It expected difficult conditions through 2021, into 2022, and potentially beyond.
- Company backlog was $2.2 billion at August 2, 2021, up from $1.0 billion at December 31, 2020; ARO backlog was $953.2 million, up from $347.5 million. Backlog is not assured revenue and may be reduced by cancellations, downtime, or suspensions.
- COVID-19, oil-price volatility, customer spending, rig supply, contract cancellations, operational downtime, and the company’s recent bankruptcy emergence remain significant risks. The filing provides no specific earnings or revenue guidance.
- Valaris has options, not obligations, to take delivery of two newbuild drillships by December 31, 2023, at estimated prices of $119.1 million and $218.3 million, assuming delivery on that date. ARO’s longer-term newbuild program could require Valaris to contribute up to $1.25 billion in aggregate if ARO lacks operating cash or third-party financing; the commitment is subject to reductions for rig costs.
- Outstanding letters of credit totaled $114.4 million, supported by $37.4 million of collateral deposits. The company also disclosed an Indonesian well-control investigation and tax assessments and other legal matters; outcomes are uncertain.
- Cash distributions from ARO are discretionary, and ARO has not distributed earnings to its partners since formation. Valaris’s ARO notes receivable may be reduced by future joint-venture obligations, and enforcement of payment may require its partner’s consent.
Important facts for investors to verify
- Use the filing’s Successor/Predecessor periods carefully: fresh start accounting makes reported historical balances and results non-comparable, and combined management figures are non-GAAP.
- Review the First Lien Notes’ interest election, PIK implications, collateral, covenants, and ability to service debt from operating cash flow.
- Track backlog conversion, fleet utilization, day rates, customer contract extensions or cancellations, and the timing of new awards.
- Assess potential ARO funding needs, repayment of shareholder notes, and the assumptions underlying ARO backlog and future distributions.
- Monitor contingent exposures, including letters of credit, tax disputes, investigations, and the drillship purchase options.