Good day, and welcome to the Valaris Second Quarter 2025 Results Conference Call. [Operator Instructions] 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. Then I'll hand the call over to Matt, who will provide a more detailed perspective on our recent contracting success and the broader floater and jackup markets. After that, Chris will walk through our financial results and guidance, and I'll finish with some closing remarks. 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 are 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…

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…

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…

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.

[Operator Instructions] And your first question today will come from Fredrik Stene with Clarksons Securities.

Congratulations with a very strong quarter. Great to see. And obviously, great to see good string of drillship contracts coming in as well. And I think that's kind of partially what I want to touch on. A lot of these contracts are starting in the latter part of '26, as you mentioned. But you said that one of the developments from the first quarter call until today is that you're now actually seeing more activity for shorter-term work in the first part of '26 as well. So I was wondering if you could share maybe a bit more color on what this could potentially entail for the likes of the DS-10, the 15 and the 18? What kind of length are we talking about for these short-term or potentially short-term contracts? Are there any rigs that are able to -- of these three that are able to do any of this work or any additional color you could give in terms of how to think about the first half of next year?

Sure. Thanks, Fredrik. Matt here. Just, I guess, some more detailed color. The average duration varies, as you would expect, based on whether it's one well or a couple of wells. Location-wise, it's scattered across the Golden Triangle. So the different rigs that we have white space on that could potentially utilize the gap fill, we're well-positioned to service them in different locations. So they -- I think the benefit we have, obviously, with our -- with the spec of our fleet is the ability to provide services like MPD on our rigs that in short-term, customers may not be able to fill with other alternatives. So it puts us in a strong position. But there's still some work to do in a competitive environment.

Fredrik, I think there are two really important things to focus on here when we talk about that shorter term opportunities are starting to pop up. The one is that we had a clear strategy. And our strategy in contracting our fleet is to book in the white space and secure our assets on those long-term programs and then to see if there was shorter-term gap fill work that butts up against that because we want to keep costs low while we have extended idle periods. And the mere fact that we are having discussions across the market that there are these opportunities increasingly popping up from a very low base -- the last couple of quarters is a good sign for us about where the market is going. Now where those opportunities are and whether we can execute on them. And if they make sense for us, remains to be seen. But just the fact that they are developing and are showing up, I think, is a very good 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 [ like ] cost on a rig versus having a higher cost and then trying to get that paid for by shorter term contract is not necessarily always the best idea, so.

I'll be clear. Our strategy has not changed. We said we were going to secure the book and the white space, that long-term opportunity. And if we're going to add gap fill, that is going to be at the end of the current contract or likely just before in the startup to the next contract. We are not going to be keeping high operating costs in our rigs during those idle periods and chasing where we have to ramp up activity on a rig, do a well and then ramp back down again. That is not good economics. It's not beneficial to the business, and it doesn't lead to good operations. So it doesn't make sense economically, it doesn't make sense operationally. That's how we view it. If we can find something that -- a well that starts a couple of months before when we're going to be on one of these long-term programs and we can make it work, then that's what we'll be focused on.

All right. That was exactly what I wanted to hear. Just a quick follow-up on these rigs and the new contracts. Any out of the ordinary type of CapEx that we should be -- that we should think about to prep these rigs for work or nothing out of the regular?

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 on if he has a comment. When we talk about 30 opportunities, okay, let's roll back to a year ago. We were tracking about 30 opportunities, and there was clearly a white space challenge where everything got kind of pushed forward by a year. We said that we expected contracts to start getting awarded and accelerate as we go into this year. And we've seen that. So there are awards happening. But the pipeline still remains about 30 opportunities because it is being replenished or refilled with new work that is coming to market. So this work that we were -- this is not the same 30 opportunities that we were talking about a year ago. There are awards coming out of the pipeline on the back end, and there's new work coming in on the front end. What gives us confidence, what we're -- the discussions we're having with our customers and what we're seeing with them awarding contracts gives us confidence that these contracts will continue to be awarded. Yes, stuff may move around within the windows that they are targeting to have a rig startup and some of these windows can be quite broad, but we are seeing an increasing consistency in our customers delivering on the programs that they have been planning for.

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.

Okay. That's super helpful. And then just following up on that is kind of you look at the landscape of opportunities out there? And then I'd also be curious on the -- on those kind of shorter term opportunities that may pop up for a well here or a well there. Any sense -- and realizing that a long-term contract probably includes some exploration and some development. Any kind of sense for the mix between development work and exploration work of kind of the broader potential contracting opportunities that you're looking out in the market over the next couple of years?

I think rule of thumb is longer term traditionally development as they put together work streams. Options that sit within those are often future exploration on new blocks planning ahead as customers try to retain some capacity seeing a market tightening in '27 and '28 and onward. So I think -- I don't have the statistics off the top of my head with respect to the difference between exploration and development, but we are seeing a growth in exploration. They do have a tendency to be the shorter duration programs because they're multi-country, so.

I think what you're hearing is these shorter term programs have a tendency to be [ slot ] in 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.

Eddie -- so I mean, I think the positive aspects, we see seventh gen utilizations potentially exiting '26 in the 90s. That's really positive. And as that utilization grows or increases, I think you'll see day rates following suit on a similar trend. The pace will be obviously determined by the availability and the number of tenders and the duration with availabilities. But on the specific point where we're talking about the next round of fixtures that we see to be released, I mean, I wouldn't speculate on where I think some of those day rates are going to be, but you'll probably be in the band where we've been seeing. For us, having recently secured contracts all in the 4s, I think, is indicative of how we feel about the resilience 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 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 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 of 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 3, it could be 4, 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.

I think what's important to view here is that Petrobras is a really important part. Petrobras demand for high-spec and for ships is an important part of the overall floater demand. And the fact that Petrobras, whether they take it in the Mero tender or the Tupi tender is going to -- there's going to be an opportunity for the rigs that are operating in Brazil for Petrobras to be rolled over. They're going to keep their rig count flat. We -- what's interesting in Brazil to add to that is what's happening with the IOCs. We've already seen Equinor doing their program, Shell now looking at Gato do Mato. And there is quite a bit of exploration work going on from other IOCs. So beyond with a solid rig count from Petrobras, which is important for the market, plus some fines and some increased activity for IOCs, you can see a very productive 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?

Well, the details arbitration -- there is a right to appeal. Either party has the right to appeal an arbitration. But what I will say, there's a pretty high bar on that appeal. It's for kind of procedural matters. You can't just appeal to a court based on kind of the facts and circumstances and the legal finding of the arbitration panel. So we're obviously very happy with the outcome of the favorable outcome for us, and we'll just have to see how it plays out.

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 mean I don't think they lost confidence. What's important, if you look at the macro here is, one, the absolute demand for offshore -- large resource bases, highly economic. I think we cited the stat [ restart ]. If you look at what's expected to be FID-ed or sanctioned over the next couple of years, more -- 3/4 of that is below $50 a barrel. And if you had asked me kind of 6 months ago, when you see what OPEC+ adding 400,000 barrels a month back to the market plus kind of some geopolitical and tariff uncertainty, whether oil would still be trading in the mid-60s, I think a lot of people would have doubted that. So our customers feel really good about -- they're contracting the rigs. They're going ahead with their developments. They see the resources as being needed. So we definitely see a more positive outlook from our customers about going ahead with programs than we did, let's call it, 6 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 is sitting with the rig count in the mid-50s. They're marginally above where they were before they started the ramp up in '22, '23. So it's kind of ramped up and kind of back down to basically the same level. I mean there are always going to be changes in what customers -- any customer around the world needs as far as their rig fleet. But as far as we're concerned and ARO, we did the extensions last quarter. So our fleet is contracted from the Valaris side through -- mostly through the end of the decade with one rig rolling in 2027. So we feel really good about our position in Saudi.

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?

I'll let Chris start with that one and see if I maybe cover after.

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 Georges 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.