Good day and welcome to the Valaris Second Quarter 2022 Earnings Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Tim Richardson, Director of Investor Relations. Please go ahead, sir.

Welcome, everyone, to the Valaris Second Quarter 2022 Conference Call. With me today are 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 of 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, last week, we issued our most recent Fleet Status Report which provides details on contracts across our rig fleet. An updated investor presentation and our drilling presentation will be available on our website after the call. Now, I’ll turn the call over to Anton Dibowitz, President and Chief Executive Officer.

Thanks, Tim and good morning and afternoon to everyone and thank you for your interest in Valaris. During today's call, I will start by providing an overview of our operational and financial performance during the quarter. I will then provide an update on the outlook for the offshore drilling market, highlight some of our recent contract awards and discuss our strategy for maximizing shareholder value during the unfolding industry up cycle. After that, I'll hand the call over to Darin to discuss our financial results and guidance. As always, our primary focus is on delivering safe, reliable and efficient operations to our customers. And we celebrated notable safety achievements during the quarter with several rigs reaching recordable free milestones, including jackup VALARIS 76 which has not had a recordable incident in 4 years. This is a fantastic accomplishment and I congratulate the crews of the VALARIS 76 and support teams on their dedication to working safely. In terms of operational efficiency, we continue our demonstrated track record of delivering strong performance to our customers, achieving 97% revenue efficiency during the quarter and 98% during the first half of the year. This is particularly impressive given the commencement of new contracts for several rigs during the first half of the year, allowing reactivations and shipyard projects. Our operating and safety performance can be adversely impacted during periods of increasing activity with rig reactivations and contract startups, we remain committed to maintaining our high levels of performance by adhering to our safe systems of work and continuing to develop the expertise of our people. We've implemented additional onboarding programs, including a new hire training program in the U.S. Gulf that utilizes one of our stacked rigs to introduce new personnel, especially those who are new to the industry, to the offshore working…

Thanks, Anton and good morning and afternoon, everyone. In my prepared remarks today, I will provide an overview of second quarter results, our outlook for the third quarter and updated guidance for full year '22 and then briefly review our financial position. I would also highlight our second quarter results press release which includes our trailing 5 quarters analysis for the income statement, balance sheet and cash flows as well as various supplemental data. Additionally, we published an updated fleet status report last week and recently began disclosing individual contract day rates and other forms of compensation. We will continue to publish day rate and other compensation information for all contracts and contract extensions on a go-forward basis where contractually allowed. As Anton mentioned earlier, the return of 4 reactivated floaters to the active fleet is expected to significantly improve our financial results in future periods and we were pleased to announce a fifth contract for 1 of our preservation stacked floaters VALARIS DS-17, in early July. As mentioned on our first quarter conference call, reactivation costs for the 4 floaters reactivated to date are expected to average $40 million to $45 million per rig. This includes all costs to reactivate the rigs that does not include mobilization costs or costs for contract or region-specific upgrades for which we would generally expect to be compensated. We anticipate that future floater reactivations including VALARIS DS-17, will be in the range of $65 million to $75 million on average. This estimate is higher than our reactivations to date due largely to inflation, both personnel and goods and services related and the need for additional spare parts following the 4 reactivations already completed. Additionally, global supply chain issues are extending the time required to reactivate a floater to approximately 12 months versus 9…

[Operator Instructions] Our first question today will come from Greg Lewis with BTIG.

I was hoping to talk a little bit about those -- it looks like we have about 3 rigs that are rolling off in the spring of 2023. I guess a couple of questions there. One is, do any of those rigs have existing options that's going to keep them working beyond that? And then, as we look at the opportunities, I guess those rigs are in West Africa and Brazil. As we think about the opportunities for those rigs, any kind of color you can give us around, I don’t know, duration and/or I don’t expect you to give us pricing but really any kind of color you could give us around how we should directionally think about those rigs knowing that they’ve been on contract for a little while here and rates have moved higher.

Greg, good question. I think we're talking about floaters, yes. So DS-15...

Yes. Just the drillships, not even the site.

Yes, yes. DS-15 in Brazil does have some options on it. And obviously, we have -- because of price we have a high expectation that given the activity levels in Brazil, that rig will continue with Total. The rigs in West Africa, there are a lot of interesting opportunities. As we said, there's a strong pipeline of tenders coming out in West Africa. So for us, the focus is making sure we find the right opportunity for those rigs to roll on. There's certainly plenty of work. It's an attractive time to have rigs available for the market and making a bit of a balance between the right longer-term program. I think recent fixtures that we've seen by us and others in the kind of 18-month, 2-year range is about where the market is on floated term fixtures, some a little bit longer, including in Brazil, stretching out to 3 and 4 years but it may be a combination of taking some short-term work to bridge to the right long-term opportunity. Obviously, we'd prefer to just roll into the next long-term opportunity but we're just going to have to see how that plays out. But there's definitely interest. They're attractive rigs. They have a great operational track record. Customers who have them, like them and we'll step to see how that market plays out.

I would just quickly what I would add. We have started disclosing options in the fleet status report. So you can see both DS-10 and DS-15 do have options.

Yes. Okay. And then the other question I wanted to ask you is and you touched on it around reactivations. I guess lead times are upwards of 12 months. And so I mean, I guess, at this point, that almost is pushing reactivations out into 2024. I guess my question is, have conversations started yet, whether it's Valaris or I know that the people talk across the industry, are we starting see -- are there starting to be conversations from rig op from customers about potentially doing those long-term contracts for work in '24 and beyond that could actually see announcements of reactivations here over the next couple of quarters? Or are we still kind of in early days on reactivations of rigs?

No, I would say that we're having discussions about term contracts that includes reactivation. Just for perspective, when we reactivated the 4 major reactivations last year, we were planning on the order of 9 months for those reactivations. And as I said in my prepared remarks, very proud of the team for actually delivering on time and on budget on overall on those projects because this is an industry that's replete with horror stories when it comes to reactivating rigs. The one thing this organization does extremely well is deliver rigs and operational prowess to deliver those rigs back to the market. Right now, we're planning on about 12 months. That's what we're planning on for the DS-17, given longer lead times, supply chain challenges. But the opportunities that we're having discussions with customers, obviously, as you said, we have some short-term rigs rolling off during '23 and we're looking at those. But a number of the opportunities that we're bidding and tendering are all the way through '23. For example, if you look at where the Petrobras tenders are. And there are a number of opportunities that people are already talking about for late '23 and moving into '24; so there's a range. I think our customers are well aware of from our discussions with them, with the lead times that it is going to take to bring additional capacity back to market and they're planning accordingly.

And our next question will come from Fredrik Stene with Clarksons Platou Securities.

Congratulations on another quarter. So my question relates to how we should think about your remaining stacked assets and also the 2 newbuilds that you have at the yard. And I think maybe even more so, this is something that should be viewed in conjunction with what's going on in Brazil right now. Obviously, your comments is quite forward leading in terms of how that region is going to contribute to demand going forward. So I was wondering if you call it had any preferences around how you would build in these stacked assets and are you already looking at opportunities for those 2 rigs at yard and if you are, do you have any idea of how long it would take them to get them, call it, ready to drill before their - or after they’re delivered? And do you have any flexibility on that delivery date, et cetera? Anything that you could kind of give me on that front would be super helpful.

Sure, Fredrik. No, thanks for the question. Look, let me take a step back for a second. Look, our priority is always to make sure that we have a high degree of utilization on the active fleet to the question we just had which is making sure we don't have significant gaps or trying up as to make sure we don't have significant gaps on rigs that are active on water, on the fleet and to roll those first. After that, we start looking at the stacked rigs which we've demonstrated ability to bring back to market. So TSV, DS-8, DS-11 and looking for work for those. And I would say that DS-13 and DS-14 as new builds come after that. We have until the end of 2023 in order to make those decisions. I think in order of timing, you're looking on par with the reactivation of a cold stacked rig to bring that rig back to market. There have been some discussions with customers. Some customers would like to take out a new build or have some very specific contract or technical requirements. But as far as our -- as we look through our priority list, it's about being disciplined about when we take rigs out for new opportunities, making sure that there are attractive opportunities and generate significant cash and it does start with rolling the active fleet and go into the attractive kind of stacked rigs and then looking at the newbuild options. That being said, just north of $119 million, the DS-13 is certainly a remaining purchase price that you would say was in money and likely you could look at DS-14 the same way. But everything else being equal, those are probably later on, on the stream for us.

I had seemed to be a bit trouble with the line. I'm not sure if that's on my side or not. So you're a bit choppy but of the U.S. line maybe work better on the transcript there? And if not, we can just rework back later. So I get the full story.

Happy to follow up offline.

And our next question will come from David Smith with Pickering Energy Partners.

Seeing something on the floater side, it feels like we haven’t seen in a while which is longer contract terms at higher and higher lead and edge day rates. It seems clear that there is more demand for deepwater churn from operators. I’m curious from what you’re seeing, if that’s a greater mix of demand for multi-well development programs, or is it a shift where turn demand is coming more from operators that they’re seeing for availability shrink and they’re locking in rigs to ensure that they have the availability to execute plans for ‘23 and ‘24.

That's a good question, David. I think what we have seen is there is an increasing activity level. There is a tender pipeline. But what we have not seen is overall a significant increase in contract durations. I think everybody, including on the customer side has been quite thoughtful about making long-term commitments, although they have work and they see it in their pipeline. So, we -- other than -- so the Petrobras tender that's out right now, one of the losses for four year contracts is about the longest contract terms we've seen really that folks are looking for. But even on kind of step-out developments in those development programs, deepwater, ultradeep rigs are more in the order of two years plus options or three years. So, I think that's fairly indicative of where the market is. And we haven't reached the place in the market where folks are securing beyond that in order to lock down their rigs. And I think part of that is because there are still some attractive, including our stack rigs that are available and can be brought back to the market. And I think part of it is also after, let's say, a very difficult 7 years, people being a little more cautious about making very long-term commitments on rig programs. But that doesn't take away from the fundamentals and the overall strength that we see in the market. I was looking at some data this morning, for example, about the mix between exploration and development. And if you talk about in order of round numbers, 90 ultra-deepwater floaters are in the market. About 30 of those are working on exploration programs. Now they're not all rank exploration by this data and some of them are step-outs but the fact that, that exploration is happening is another good sign for us in the market. But yes, you're very correct in your observation that the overall contract terms are length and durations are not where they were at the height of kind of the last market cycles. But we're still getting into a developing growing market. So let's see how that plays out.

I appreciate it. And the follow-up is, in the past, when we’ve seen visible demand grow while forward availability shrinks, we tend to see more demand come through direct negotiations versus the tender process. So I’m curious about what you’re seeing in the mix of your conversations, if it’s predominantly with in tenders, or if you’re seeing a greater mix of direct negotiations.

There's definitely be more discussion in and around tenders about direct negotiations. I think there's also a geographic component to it. And I think we did make some statements in the prepared remarks. So in more regulated environments, for example, in Brazil and especially West Africa, if you look at Angola, Nigeria, the tender processes are required. When you look at the Gulf of Mexico, there's much shorter-term visibility just because direct negotiations are much more prevalent. You don't have the same regulatory environment. So it is somewhere, as we said, where we can see, while in discussions, you can see the additional demand and folks have a need for the rigs, you may see additional demand and more direct negotiations. Historically, they have been and they will be more direct negotiations. So, I think there’s a real geographic component as well to it.

And there are no further questions at this time. So this will conclude the question-and-answer session. I'd like to turn the conference back over to Tim Richardson for any closing remarks.

Thanks, Karl 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 third quarter results. Have a good day.

And ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.