Good day, everyone, and welcome to Valaris' Third Quarter 2021 Financial Results Conference Call. Please note that this event is being recorded. I will now turn the call over to Mr. Tim Richardson, Director of Investor Relations, who will moderate the call. Please go ahead, sir.

Welcome, everyone, to the Valaris Third Quarter 2021 Conference Call. With me today are Interim President and CEO, Anton Dibowitz; Interim CFO and Vice President Investor Relations and Treasurer, Darin Gibbins; 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 will refer to GAAP and non-GAAP financial measures. Please see the press release on our website for additional information and required reconciliations. As a reminder, we issued our most recent Fleet Status Report, which provides details on contracts across our rig fleet on October 27. An updated investor presentation will be available on our website after the call. Now I'll turn the call over to Anton Dibowitz, Interim President and CEO.

Thanks, Tim, and good morning and afternoon to everyone. Welcome to the call, and thank you for your interest in Valaris. During today's call, I will start by providing a brief overview of Valaris, highlighting the key attributes that make Valaris the industry leader in offshore drilling. I'll then provide some commentary on the current state of the offshore drilling market and highlight some of our recent contract wins. I will also provide an update on ARO Drilling, a 50-50 joint venture with Saudi Aramco. Lastly, I will discuss some of our recent developments on sustainability. After that, I'll hand the call over to Darin for a financial update, including preliminary 2022 guidance. Valaris is the largest drilling contractor by fleet size, but more importantly, we have the highest quality fleet in the industry as ranked by an independent third party. That fleet is managed by a best-in-class team that is guided by strong values and a purpose-driven culture. Our operations have unmatched scale and geographic reach with a presence in virtually all major offshore regions, and the most extensive customer base of any offshore driller. And those operations are delivered with an industry-leading cost structure built around the shared services model, which allows our cost structure to quickly adapt to changes in the market environment. We focus every day on delivering safe, reliable and efficient operations to our customers. And I would like to take this opportunity to thank the Valaris team for continuing to deliver the strong performance that our customers have come to expect from us, again, during the third quarter. This performance is evidenced by the 99% revenue efficiency, both during the third quarter and year-to-date, and our personal safety performance that has improved 25% year-to-date in 2021 as compared to our full year 2020 performance.…

Thanks, Anton, and good morning, everyone. I'm excited to be speaking to you all today on my first conference call at a time when we are seeing tangible signs of a market recovery. The volume of recent contract awards and associated backlog, particularly for the floater fleet, has provided greater visibility into future earnings. And as a result, I will be providing preliminary 2022 guidance on today's call. In our most recent fleet status report published last week you can see an encouraging view for floater day rate progression over the next few years with average day rates increasing meaningfully each year. In my prepared remarks today, I will provide an overview of third quarter results our outlook for the fourth quarter and full year 2021 and provide preliminary guidance for 2022. In addition, I will briefly review our financial position and capital structure. I would also like to highlight our third quarter results press release. Beginning last quarter, we significantly enhanced the level of disclosure in our press release to provide additional transparency. You'll continue to see a trailing five-quarter analysis for the income statement, balance sheet and cash flows as well as supplemental data by asset category for revenues, contract backlog and average day rates, utilization, revenue efficiency, rig numbers and available and operating days. You will also see offshore gross margins by asset category and onshore support costs that are incurred supporting rig operations. As a reminder, these costs are included within contract drilling expense on a consolidated basis and include non-G&A items such as our regional support basis. As Anton mentioned earlier, we have been successful in winning contracts for several of our preservation stacked assets. As a result, we will be incurring onetime reactivation costs to put these rigs back to work. We estimate it…

[Operator Instructions] And the first question comes from Fredrik Stene with Clarksons Platou Securities. Please go ahead.

Fredrik from Clarksons here. Congratulations on the first full quarter as a restructured entity. I wanted to touch upon the recent reactivations because that's been a discussion point with several of our clients here around the -- how you have approached it with your -- or in discussions with the clients. And I'm thinking the rate levels that would justify these reactivations. And as a side comment, I believe you're in a bit of a different position than some of your peers as several of these assets have been stacked for a shorter amount of time. So I was wondering the way you bid in these assets, the periods that you have been comfortable with, and potentially the upfront fees or mobilization fees that you received for them, have you bid in, call it, the lowest hanging fruits now? Or has it been more about bilateral discussion with clients based on asset capabilities, et cetera? And do you expect that the rest of your stacked, floater fleet in particular, can be reactivated economically at the same levels as you've done so far?

Fredrik, thanks for the question. I think there are a couple of questions there, but let me walk through them in series. I mean, obviously, the market has developed significantly since the start of the year, but generally, the way that we look at it is that for every job that we look at, it needs to be justified, including the reactivation. We obviously have quite an advantage over the general fleet. The average stacked period of our stacked rigs have been in preservation stack for less than two years when talking about floaters now where the average fleet stacked carried is approaching four years, around three and half. So for us, it's a relatively easier project to reactivate a rig, and I know there's been debate about numbers that various folks have pegged on reactivation costs, but we stand by our costs. The way we look at it is that especially for our rigs, the reactivation cost needs to be reimbursed or significantly reimbursed by the customer. That obviously can take a couple of different forms upfront within the mobilization payment part of it reimbursed based on the contract value or a combination of the two. But as I said, the market has significantly improved. The spot market and clearing day rates that we see today are significantly ahead of where they were eight months ago. And as I said in my prepared remarks, the hurdle rates that we're going to consider when we look at future reactivations need to move commensurately with that. That would apply both to follow-on contracts, but definitely, before we take additional capacity out onto the market. Look, to be frank, we were in a position at the start of the year where 4 out of our 11 drillships were active and on the market. And we've taken a great effort and a great job has been done by the team in order to get capacity out onto the market to have some earnings visibility. The average backlog in our floater fleet has improved from around eight months at the start of the year to around 20 months where it's a tighten now. But we still have three great assets left floaters that we can bring back to the market when it makes sense, and we'll be diligent in what opportunities we put them on. So I think that probably covers most of your questions.

Yes. That's very helpful. And I'm sure you know I put those questions about in a bit of a messy way. But you definitely touch up on the key points here. Just a follow-up on the assets that you haven't reactivated at this point on the floater side, and also actually on the jackup side, are you in active discussions for work for any of those assets?

We will -- obviously, we bid where we have attractive opportunities. So where the rigs are -- the way we consider it active rigs or rigs that are moving to contract. So we bid rigs beyond the rigs that are in the active fleet and working or on the way to a contract the economics need to be justified. So there is definitely additional work available. I mean we're seeing additional work in the Gulf of Mexico. Obviously, we talked about Brazil and what's happening there. Ongoing tenders, but we expect there to be more. And West Africa, as I mentioned, out of the lows that they were in last year as additional work scopes that are under a tender there. So we definitely see opportunities -- increasing opportunities.

[Operator Instructions] The next question comes from Greg Lewis with BTIG. Please go ahead.

I was -- I just had a question on the ARO fleet, not for the JV owned rigs, but for the leased assets. And just trying to understand, obviously, the two new builds, the 2005, 2006, are going to be delivering in -- next year. But as we look at the existing lease in rig fleet at ARO, is there any kind of way that we should be thinking about the evolution of ARO, i.e, is the fleet going to kind of be flattish to higher from here? Or could we see it I guess, as the new build program has changed, could we actually potentially see it maybe dip down in the medium term before it then accelerates growing in the outer years?

Look, I think a step back from ARO specifically for a second and look at the Saudi market in general. Saudi Aramco has a significant drive to increase rigs and, in fact, bring rigs from out of country to ads to their drilling programs. Obviously, ARO itself has the newbuild program, seven rigs owned by ARO and seven rigs leased in. We are in discussions for additional lease extensions on a number of the leased rigs. So I think it's fair to expect them to carry on within ARO operated by ARO. But there's also definitely capacity given Saudi Aramco's plans to increase the number of rigs that ARO is operating in the kingdom.

Greg, I'll just comment. There are two legacy jackups at ARO, leased to ARO. Those, if they aren't extended, are more likely retirement candidates.

But we do other assets around the fleet. And obviously, we're actively tendering in the tenders that are going in the Kingdom with our stacked assets and working assets, and we'll just have to see how it develops.

Okay. And then just as I think about maybe some of those rigs that are either in Asia or I guess we have a couple in the Atlantic Basin. Are there any limitations or upgrades that would be required on any of those rigs or pretty much as we think about the rigs that are idle that could be marketed to Saudi? Are those rigs basically plug and play here or would they need some upgrades to be able to get in country to work for ARO?

Saudi Aramco has had some very specific and very high standards on how they want their assets to operate, very specific configurations, API, monogrammed, well controlled equipment. They're continually upgrading and extending their well-controlled manual. So I think it's true to say of our rigs and of pretty much any rig in the world that's going into Saudi Arabia that there is a fairly material CapEx upgrade program required in order to operate, which is part of the reason why rigs that go in there generally work not only because of stable work streams that Saudi Aramco has, but also because of that CapEx barrier to entry in order to get into the Kingdom.

[Operator Instructions] And it looks like we have no further questions. So this concludes our question-and-answer session. I'll now turn the conference back over to Tim Richardson for any closing remarks.

Thanks, Tom, and thank you to everyone on the call for your interest in Valaris. We look forward to speaking with you again when we report our fourth quarter results. Have a good day.

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