Valaris Ltd Stock

Hello, and welcome, everyone joining today's Stronger Together Investor Call with Transocean and Valaris. [Operator Instructions] Please note, this call is being recorded, and we are standing by should you need any assistance. It is now my pleasure to turn the meeting over to David Keddington, Vice President and Treasurer at Transocean.

Thank you, Britney, and good morning, everyone. Welcome to our conference call to discuss today's exciting combination of Transocean and Valaris. Leading today's call will be Transocean President and CEO, Keelan Adamson; and Valaris President and CEO, Anton Dibowitz. In addition to the information contained in our press release, the 8-K filed this morning and the remarks that we shared on this call we'd like to direct you to the investor presentation available on both companies' website that contains more details of the transaction.

Following our prepared comments, we will take your questions. [Operator Instructions] Before we begin, I'd like to remind everyone that today's call will include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially please refer to our news release and SEC filings for more information. With that, I'll hand the call over to Transocean's CEO, Keelan Adamson.

Good morning, and thanks, everyone, for dialing in. I'm joined this morning by Valera's CEO, Anton Dibowitz and other members of our management team. We look forward to taking your questions following prepared remarks. Here's a quick snapshot of what we will cover today. First is deal rationale. This transformational combination creates significant value for shareholders and customers. Together, we will be a much stronger company as we advance our strategic priorities. Next, Anton will discuss how Valaris quality rig portfolio complements ours and the flexibility the combined company will provide our customers. And lastly, I'll conclude with an overview of expected transaction synergies and how they strengthen our ongoing cost reduction efforts. So let's get started.

We believe that the combination of Transocean and Valaris will have significant benefits for shareholders and customers. It's also very well timed. We agree with the broadly held view that we are at the beginning of a multiyear up cycle in offshore drilling, our best-in-class fleet, people and customer service will clearly differentiate us from our peers. Customers will benefit from an enhanced offering of high-specification drillships and semisubmersibles as well as a modern jackup fleet. Our harsh environment rig portfolio is expanded and the ARO JV will allow us to reestablish a valued relationship with Saudi Aramco. Our reach will be extended across new and attractive geographies.

Our combined people, processes and assets will enable our customers to achieve better project delivery and economics. Importantly, we see this as a highly strategic and well-timed acquisition that will deliver substantial value as we head into what we believe is a multiyear up cycle in offshore drilling. The implied premium in the transaction is about 10% to 20% over a 60- to 90-day period. We have identified deal-related cost synergies of more than $200 million in this all-stop transaction. Together, we will be a leaner, more profitable enterprise. Note that these savings are in addition to Transocean's ongoing cost reduction efforts. For the past century Transocean has led the drilling industry into new frontiers, expanding operating capabilities in the deepest waters and harshest environments.

We will continue to deploy innovation and leading-edge technology to make our business even safer, more reliable and focused on exceeding customer expectations. The transaction enhances our role as an industry pacesetter supporting customers in their mission to efficiently develop resources around the world. I've consistently emphasized our strategic priorities and our commitment to advance these with urgency and agility in all that we do. We believe that today's transaction does just that. It checks all the boxes. It optimizes the value of differentiated assets, generates industry-leading cash flow and creates a strong full cycle capital structure.

Transocean is a premier offshore operator. Our uptime performance last year was just shy of 98%. And more importantly, we have had 0 operational integrity events or lost time incidents. We pride ourselves on delivering high-performing, disciplined and predictable service to our customers and look forward to expanding that experience across a broader fleet. As you know, One of our top priorities has been strengthening our financial foundation. We know that our debt level negatively impacts our equity value. This transaction addresses that and our combined asset portfolio will be capable of generating significant cash to accelerate debt reduction.

With a pro forma backlog of more than $10 billion, we have clear visibility on our future cash flow and we expect that our leverage ratio will drop to about 1.5x within 24 months of closing. We also expect our liquidity to improve and our cost of capital to decline. This transaction puts us in a great position for the future. Global oil demand is expected to increase. And in the context of declining production, the upstream industry is already moving to develop new fields and increased investment in offshore exploration. Forecasts call for a 150% increase in deepwater project sanctioning by the year-end 2027.

Our combined fleet will be clearly differentiated to meet this demand. We will offer the most technologically advanced floater fleet in the business directed by experienced and proven personnel. For harsh environment work, we maintain 7 highly capable semisubmersibles and for deepwater, the pro forma company will include 24 seventh-gen drillships and 2 eighth-gen drillships. We will also operate a modern jackup fleet, 31 strong, 11 of which are designed for harsh environments. These assets provide a strategic presence in key shallow water geographies. We are excited to add jackups at this point in the cycle and expect to generate incremental cash flow as a result.

This combination aligns with all of Transocean's strategic priorities while creating significant customer benefits and a pathway to a higher equity value for shareholders of both companies. Before I hand it over to Anton, let me thank all the employees that worked hard to get this deal done. But more importantly, for the dedication and commitment behind building 2 great companies. We are excited to welcome the Valaris team, and we will be stronger together on the road ahead. I'll turn it over to Anton to provide some thoughts. Anton.

Thanks, Keelan, and good morning all. I share Keelan's excitement for this transaction, which offers customers the most diverse fleet of premier drilling assets in the world. Together, we will have an optimized global footprint, the diversified fleet of high-quality assets, and a strong financial profile to support shareholder value creation. After careful consideration with the assistance of financial and legal advisers, our Board determined that this transaction represents the best path for the company and maximizes value for our shareholders.

We are excited to reach an agreement that delivers meaningful value for Valaris shareholders who will benefit from their share of the synergies and have the opportunity to participate in the compelling and significant future upside potential of the combined company. Like Transocean, our culture is aligned around safety and customer service. Together, we joined 2 great cultures and create the best fleet in the business, bar none. Keelan and his team are an incredibly capable operators with a strong track record of value creation. Our confidence in the future of the combined company is underpinned by our aligned values and shared operating vision. I would like to thank our incredible employees for their safe and hard work every day as well as our customers around the world. I'm excited about the transaction and committed to ensuring the combined company is set up for success in this next chapter. I'll turn the call back to Keelan.

Thanks, Anton. Let me quickly hit the synergies before summarizing the key takeaways of this transaction. Transocean has been on a mission to safely lower costs. This is good for shareholders, and it's good for our customers. Prior to today's announcement, we had already reduced our cost structure by about $100 million and are on track to deliver another $150 million in savings in 2026. With Valaris, we've identified more than $200 million in annual deal-related synergies. When capitalized, this is expected to add more than $1.5 billion of value equal to roughly 15% of our combined market cap. .

In closing, the merits of this transaction are clear. The transaction benefits customers and shareholders by creating a leading company well positioned for the up cycle in the offshore drilling business. Following close, the transaction will be accretive to free cash flow and earnings on a per share basis. It complements our ongoing cost-saving initiatives, and it establishes a significant backlog at $10 billion with attendant cash flow visibility to accelerate our debt reduction and strengthen our capital structure. We are focused on closing this transaction in the second half of 2026 and will immediately go to work to add value. This concludes our prepared remarks. We look forward to your questions. David?

Thank you, Keelan. We'll now open up the conference line for questions. .

[Operator Instructions] And our first question comes from Eddie Kim with Barclays.

Keelan and Anton, congratulations on this deal. I think a lot of people have been waiting for 1 final large M&A in the offshore drilling space, but I don't think Transocean acquiring Valaris was really on many people's radar. First, could you provide some background on how the transaction came together? And Keelan, specifically for you, Transocean became a pure-play deepwater driller when you sold your jackup fleet way back in 2017. Now you're acquiring a large fleet of jackups. Is now the right time to get back into the shallow water drilling market? Or is there maybe a thought to potentially part ways with that part of the fleet sometime in the future? Any thoughts there would be great.

Eddie, not -- wasn't expecting that question at all, thanks very much. Yes, we're -- I think, trying to consolidate in this business has been difficult for a while. And we've been watching our customers managed to achieve that and some parts of the supply chain as well. And so this was a great opportunity to put the right transaction at the right time with the right companies together. So we're really excited about the opportunity that's ahead of us here and the potential of the combination. I would say to you that the fleets of Valaris complement our fleet greatly.

We're building a driller that is able to address any requirements in all water jets across the world. And we're really excited about that. We're building some scale. We're being able to position ourselves for this upcoming upcycle where the CapEx spend is going to increase across all sectors. And I really think the opportunity that's provided by the jackup fleet allows us to add more incremental cash to our business. So for us, it's all about ensuring that we can build a high-quality asset base that we can deliver outstanding performance to our customers generate industry-leading cash flow and delever our balance sheet.

Got it. Great. My follow-up is just on the regulatory environment as it relates to M&A. Is there any region where you'd anticipate some challenges in getting the deal over the finish line. Your primary kind of region of overlap is in Brazil. But even that doesn't look too bad in the context of how many rigs are drilling in the country right now. Just any thoughts on regulatory environment would be great.

Eddie, we've obviously done a comprehensive review of any potential regulatory issues, and we're very confident that there are none that are presented with this transaction.

Congrats on the deal again.

We'll move to Scott Gruber with Citi. .

Congrats on the deal to both teams. I have a question on the target leverage ratio, comfort in returning cash to shareholders. You mentioned a targeted ratio of about 1.5x within 24 months. Is that the ratio we would feel comfortable to begin returning cash to shareholders and how do you think about the right leverage ratio longer term?

Yes. Thanks for the question. I think we've been pretty consistent in our message with respect to our strategic priorities, which is to delever our capital structure, our balance sheet as fast as we can. And that will continue to be our main priority, especially with this transaction. This transaction obviously provides a huge opportunity for us to accelerate that process. And once we get to the right levels, we'll evaluate every option that's available to us at that time.

We'll move to Doug Becker with Capital One.

Sticking with the deleveraging team, what are the key assumptions beyond executing on the $10 billion of pro forma backlog to get to about 1.5x debt leverage as the target is.

I think when you look at our contract coverage across our combined fleet, we have a lot of that contract coverage in place to deliver that cash flow to generate -- to deliver us to 1.5x. So we're very comfortable with that coverage that's going to generate that cash flow.

So no heroic assumptions on recontracting, so encouraging. And then on the synergies, I really like how you framed the present value is about 15% of the pro forma market cap. What are the costs associated with realizing those savings and just any color on how much is going to be OpEx versus CapEx.

Doug, this is Thad. I mean, we haven't -- we don't anticipate that it's going to be a significant cost associated with achieving the savings aside from the usual sort of restructuring element that you'd see, some point in the not-too-distant future as we move down the path, we'll start thinking about that and communicate those sorts of things. We haven't yet provided any specific information on the split -- most of the cost savings will be realized from operational efficiencies, redundancies, things of that nature. And I think that that's sort of sufficient level of detail right now.

Congratulations.

We'll move to Fredrik Stene with Clarksons Securities.

Thank you, Anton, and respected teams. Congratulations on the transaction, a major one. Also happy to see that my thesis from December 2023, suddenly, came to fruition, although a bit later than I had expected. Anyways, I wanted to touch upon fleet rationalization now that you are becoming the undisputed largest player here, maybe focusing on the ultra-deepwater side. I think you -- when you merge, you'll end up having control of all stacked 70 assets as far as I'm concerned, which leads me to kind of ask in terms of the rest of your floaters, there will be a mix of 7, 8 gen -- 7 gen, 6 gens and also some semis in between. Have you identified any assets among your current warm fleet that would potentially be taken out in favor of those stacked 7 Gs or any other type of floater fleet rationalization beyond that?

Yes. Thanks, Fredrik. I would say in answer to that question, we've already rationalized as Transocean. We have gone through a significant process and removing assets that quite frankly, don't meet the requirements of today's demand and capabilities over the last several years. I think we're over 65 to 69 rigs that we've divested over the last while. So when we look at this, we obviously believe that these assets are going to meet a up-cycle demand. And so at this present moment in time, no, we are always continuing to reevaluate our fleet, decide what is the best composition that we need to address the growing demand, and we'll continue to do so.

Perfect. And just one, I guess this goes to Thad, on shareholder returns. While the deleveraging is the priority currently. What pro forma this exercise, what would be the strict limitations on when you can return cash to shareholders. I guess it's 3.5x under your current structure. Anything else to consider just as we think about how cash generated in '26 -- or not necessarily in '26 and '27, but 2028 and beyond is going to be used.

Yes. So I'd suggest that's the current limitation. And certainly, as we progress this -- planning for this transaction closing later this year, we'll also be progressing any sort of capital restructuring that we may do. So while that is a threshold that exists currently, it could be very different sort of given the size and scope and heft that this additional fleet brings to the picture. So generally speaking, I would suggest that we would be in a position to start discussing the potential to return capital to shareholders after the transaction closes, keeping in mind, of course, that the key priority here is deleveraging. This is a cyclical industry, capital intensive. And even at a debt metric of 3.5x, there's still an awful lot of gross debt that needs to be addressed.

I congratulate you all again.

We'll move to Greg Lewis with BTIG.

Congrats on the deal to both sides, I know this was a long time coming. Thad, just since you mentioned the goal of deleveraging, I guess, aggressively, obviously, a quick way to do that is to sell rigs, I don't know how much appetite there is on the floater side, we don't see a lot of transactions. But on the jackup side, there is, could we or should we be -- and I believe Valaris has been selling off anyway. And I guess, maybe, Anton, you can talk to this also. Are we in a holding pattern until this transaction closes? Or should we -- is -- I guess this is more a question for Anton, could we see Valaris continue to accelerate its sellout out of the -- sell off some of its noncore jackups?

Look, I think I'm going to take that question. And I think I've answered that before on the call. We believe in this fleet. We are excited about the combination this company is going to be, the potential of this combination. We appreciate that the CapEx that's going to be required for upstream as we move forward to meet the demand for oil and gas hydrocarbons is going to cover all those spaces. And this combination is all about being able to be positioned for that opportunity. So we will continue to operate the jackups and are excited to do so.

Okay. Great. And then I guess, Anton, I know that Valaris was looking at selling or buying as is all the companies over the last couple of years. I guess what I would just say is, at this point in the cycle, what just gives you the comfort in taking rig stock. What are you seeing? And what is kind of your expectations over the next kind of 1 to 2 years and how you see the market progressing that made you willing to take stock as opposed to stock and cash at this point? .

Look, I think I'll largely reiterate what Keelan just said. Part of the strength of this combination is our ability to complement what are 2 high-specification floater fleets with world-class jack-up expertise that we bring to the combination. Jackups are a strong cash flow contributing segment in our business and it will be a strong cash flow generating part of the combined entity. And part of Keelan, when he opened the remarks at the beginning, said stronger together. And I think that epitomizes what we're trying to achieve here and will achieve with this combined company. When you put these world-class fleets together, these world-class cultures together, and generate significant synergies as a result of the transaction.

Congrats on the transaction.

We'll move to Keith Beckmann with Pickering Energy Partners.

And I just had kind of a follow-up maybe a little bit around the fleet rationalization. I know the DPS-1 and the MS-1, I believe, rolled off late this past year, and I believe they're sitting on a warm stack now. Do you have sort of an outlook around those rigs? Or does it potentially make more sense to maybe scrap 1 of those or try to sell them? Any color on that?

I think I will pass that to Anton since it's part of his fleet.

DPS-1 and MS-1 have had a great track record in Australia. Yes, part of financial discipline is managing costs on rigs, if they don't have near-term future contracts, but we continue to market those rigs worldwide. And we'll just have to see how that plays out.

[Operator Instructions] And we'll take our next question from Dalton Willett with Charmos Capital Partners.

Just a quick question on the jackup fleet. Do you guys see that as something you will plan to operate over the long term? Or is there a chance to accelerate some of the deleveraging by looking to divest those assets longer term or in the medium term?

Yes. I think it's in line with some other questions we've had. We fully intend to continue operating the jackup fleet. It generates good strong cash flow and the opportunities for that part of the fleet in the backdrop of a growing demand and an increase in CapEx that's going to the upstream, it looks like a very favorable opportunity. .

We have no further questions in the queue. I'll turn the program back over to our presenters for closing remarks.

Okay. Thanks. We'd like to thank everyone for joining our call today, and we invite you to follow up with both companies' Investor Relations contact for any additional inquiries. We look forward to speaking with you again in a couple of weeks at our earnings call. And with that, we'll end our call.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, everyone, and welcome to the Valaris Third Quarter 2025 Results Conference Call. [Operator Instructions] Please also note today's event is being recorded.

At this time, I would like to turn the conference call over to Nick Georgas, Vice President, Treasurer and Investor Relations. Please go ahead.

Welcome, everyone, to the Valaris Third 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 will 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 to everyone. I'll begin today's call with a summary of our third quarter performance and highlight our recent commercial achievements. I'll then provide an update on the offshore drilling market before discussing how our continued focus on operational excellence, commercial execution and disciplined cost and fleet management is driving long-term value for shareholders. I'll then turn the call over to Matt, who will provide additional detail on our contracting activity and the broader floater and jack-up markets. After that, Chris will walk through our financial results and guidance, and I'll finish with a few closing remarks.

To begin, I want to highlight a few key points. First, I want to thank the entire Valaris team for continuing to deliver safe and efficient operations. This solid operational performance contributed to another strong quarter of financial results with meaningful EBITDA and free cash flow generation. Second, we continue to execute our commercial strategy, having recently secured an attractive contract for VALARIS DS-12 with BP Offshore Egypt. With this award, all 4 of our drillships with near-term availability are now contracted for work beginning next year. Third, despite near-term commodity price uncertainty, demand for offshore drilling services is developing as we expected. We continue to see a robust pipeline of deepwater opportunities for our high-specification fleet, and we are in advanced customer discussions for our drillships scheduled to complete contracts in the second half of 2026. In summary, we remain focused on delivering outstanding operational performance, executing on our commercial strategy and prudently managing our costs and fleet. By staying disciplined and focused on these priorities, Valaris is well positioned to deliver long-term value for our shareholders.

Moving to operations. Delivering safe and efficient operations is always our top priority. It protects our people, strengthens relationships with our customers and serves as the foundation for everything we do. Our teams once again delivered solid operational performance, achieving fleet-wide revenue efficiency of 95% in the third quarter. This execution helped deliver another quarter of strong financial results, including adjusted EBITDA of $163 million and adjusted free cash flow of $237 million. In addition, we repurchased $75 million of shares during the quarter, demonstrating our commitment to returning capital to shareholders.

Several rigs reached notable safety milestones during the quarter. VALARIS Stavanger marked an impressive 4 years recordable-free, a remarkable achievement that reflects the crew's commitment to safety and the strength of their leadership. In addition, 7 other rigs, floaters VALARIS DS-12, DS-18 and DPS-1, along with jack-ups VALARIS 92, 123, 247 and 249, each achieved 1-year recordable-free. Congratulations to all involved on these outstanding results.

We were also proud to be recognized by the Center for Offshore Safety for the third consecutive year, most recently for our Video After Action Review initiative, reflecting both the strength of our safety culture and our commitment to continuous improvement through innovation.

We continue to execute our commercial strategy. This is supported by a solid operational performance since many of our recent contract awards have come from existing customers, reflecting the strength of our relationships and the confidence they place in us to deliver safe and efficient operations. Great example is our recent contract for VALARIS DS-12, which will return to Egypt with BP, building on our previous campaign that included drilling the successful El King 2 and El Fayum 5 exploration wells earlier this year.

Egypt continues to make meaningful progress in attracting investment from IOCs with several majors awarded offshore acreage in a licensing round earlier this year. Valaris has a long and successful history operating offshore Egypt, spanning roughly 2 decades of drilling programs, including 7 years for BP. We're excited about this upcoming campaign and the prospect for continued activity offshore Egypt in the years ahead.

At the start of the year, we outlined our commercial focus on securing attractive contracts to bookend the white space for our drillships with near-term availability. And we have accomplished this objective as these 4 rigs are now contracted for work beginning next year. This is a fantastic achievement by our commercial team and everyone across the organization who played a role in making it happen.

Turning now to the broader macro environments in the offshore drilling market. The long-term outlook for our industry is becoming increasingly constructive. There is a growing consensus that today's near-term oil supply surplus will give way to a structurally tighter market later in the decade as a result of historic underinvestment and slowing non-OPEC production growth. Our customers continue to emphasize the need for sustained investment in oil and gas, particularly in offshore developments that provide secure, reliable and affordable energy supply. The IEA recently highlighted that nearly 90% of global upstream spending is required just to offset natural field declines, underscoring how much investment is needed to simply maintain existing production. Without continued investment, the IEA estimates global oil production would fall by 8% per year on average over the next decade, equivalent to losing more than the annual output of Brazil and Norway each year over the same time frame.

Demand for offshore drilling continues to unfold as we expected, with customers increasingly looking to offshore projects, particularly deepwater, which offers large accessible resource potential, compelling project economics and comparatively lower carbon emissions to meet future energy needs. Even with some near-term commodity price uncertainty, customers are moving forward with long-cycle offshore developments, and we anticipate meaningful growth in deepwater project sanctioning over the next few years as customers pursue greenfield and brownfield developments as well as exploration. Importantly, most of these projects are expected to be economically viable well below current oil prices. According to Rystad, approximately 70% of deepwater spending expected to be sanctioned over the next 3 years is tied to programs with breakeven prices below $50 per barrel compared to a 5-year forward price above $65 per barrel. This reinforces our expectation that the floater opportunities we've been tracking will continue converting to contracts. And based on our ongoing conversations with customers, we anticipate additional awards for Valaris and the broader industry in the coming months. We continue to expect that utilization for the global drillship fleet will trough late this year or early next year before improving in the second half of 2026 as rigs begin new contracts. And we anticipate seventh-generation drillships will exit 2026 with utilization levels around 90%

Customers continue to prefer the most technically capable and efficient assets, which aligns well with our high-specification drillship fleet with 12 of our 13 ships being seventh- generation units, the highest concentration in the industry. Seventh-generation drillships have historically enjoyed a utilization and day rate advantage, and we expect this trend will continue. We have strategically positioned our assets with customers in basins where we see sustained long-term demand, and we believe that this targeted commercial approach will allow us to maintain more consistent utilization over time.

Turning to jack-ups. Shallow water demand remains robust with global utilization around 90%, driven primarily by national oil companies focused on energy security and infrastructure development. Recently, Saudi Aramco has issued notices calling back several suspended rigs to resume operations next year, which we expect will further support the supply and demand balance of the global jack-up fleet.

Our versatile jack-up fleet continues to be a significant and reliable driver of earnings with EBITDA from the segment increasing year-over-year, driven by more operating days and higher average day rates. This reflects our strategic focus on markets where we hold strong positions, such as our market-leading position in the North Sea, in Saudi Arabia through our rigs leased to ARO and in niche markets that require high-specification assets like Trinidad and Australia.

Turning to our broader fleet management strategy, we remain focused on maintaining our high-quality and efficient asset base while prudently managing our costs and fleet. This includes tightly managing expenses between contracts, selling assets when we can achieve attractive prices and retiring rigs when their expected future economic benefit no longer justifies their associated costs. This focus was recently demonstrated by the highly accretive sale of 27-year-old jack-up VALARIS 247, which we closed during the quarter for $108 million in cash. Consistent with our disciplined approach to cost management, following completion of their current programs, we plan to mobilize VALARIS MS-1 and DPS-1 to Malaysia, where we will quickly reduce costs by warm stacking both rigs while we evaluate future opportunities.

Before handing over to Matt, I'd like to briefly recap a few key points about the market and our strategy. Our customers continue to highlight the need for ongoing investment in oil and gas, particularly in offshore developments that offer secure, reliable and affordable energy supply. Demand for offshore drilling is developing as we expected, and customers are increasingly turning to offshore projects to support future energy demand. We're well positioned to continue executing our commercial strategy by securing attractive floater contracts supported by our global scale and high-spec fleet. We're in advanced discussions with customers regarding opportunities for rigs scheduled to complete contracts in the second half of 2026, and we will continue to pursue gap-fill programs in the first half of next year. Against this positive backdrop, we remain focused on 3 strategic priorities: delivering outstanding operational performance, executing our commercial strategy and prudently managing our costs and fleet. By staying disciplined and focused on these priorities, Valaris is well positioned to deliver long-term value for shareholders.

With that, I'll now hand the call over to Matt.

Thanks, Anton, and good morning and afternoon, everyone. I'll begin with a summary of our recent contract awards before providing updates on the major floater and jack-up markets where we operate. Since our second quarter call, we've secured new contracts and extensions, adding nearly $200 million to our contract backlog. And we are in advanced customer discussions on several contract opportunities for both drillships and jack-ups that we expect to conclude before year-end. Starting with drillships, year-to-date, we've added approximately $1.4 billion of backlog for our drillship fleet, representing 9 years of total contract duration. Most recently, we've secured a 5-well contract for VALARIS DS-12 with BP offshore Egypt. The contract is expected to commence in mid-second quarter 2026 with an estimated duration of 350 days and a total contract value of approximately $140 million. The contract also includes 3 option wells, which could extend the program to more than 2 years in total duration.

Turning to jack-ups. We have secured more than 500 days of additional work in the North Sea, including contract extensions for the VALARIS Norway, 121 and 122 as well as a 4-month program for the 248, which helps bridge most of the gap between the SPS and the start of the next program in 2026. Fleet-wide, we've added over $2.2 billion in contracted revenue backlog year-to-date, significantly enhancing our contract coverage for 2026 and beyond. And current total backlog stands at $4.5 billion.

Turning now to the major floater and jack-up regions where we operate. Consistent with last quarter, we are tracking more than 30 longer-term floater opportunities with planned start dates in 2026 and 2027, each with durations of a year or more. We continue to see programs we are tracking progress through the commercial process with long-term contracts typically awarded at least 9 months before their planned commencement. We expect to see further awards both for Valaris and our peers before year-end. Offshore Africa, including West Africa, East Africa and the Mediterranean, remains the most active region for future floater demand, representing roughly half of the long-term opportunities in our pipeline.

Starting with Egypt, the country is experiencing declining output from mature fields and views new offshore exploration and development as key to satisfy growing domestic demand. The government has made meaningful progress attracting IOC investment with several majors awarded offshore blocks in a licensing round earlier this year, and we look forward to continuing our long history of operations offshore Egypt in the years ahead. Elsewhere in the Mediterranean, Cyprus is a potential bright spot with exploration and development programs anticipated in 2026 and 2027.

Angola is facing a similar situation to Egypt, with production from mature fields declining, resulting in total production recently dropping below 1 million barrels per day for only the second time this decade. The Angolan government is focused on stabilizing production above this level by incentivizing both new exploration and brownfield development. We currently have the VALARIS DS-7 and DS-9 working offshore Angola with the DS-7 currently drilling an exploration well in Block 47 for Azule. Both rigs have delivered strong operational performance, positioning them well for follow-on work when their current contracts expire in the second half of 2026.

Elsewhere in West Africa, we expect to see growth offshore Nigeria with 2 multiyear programs with IOCs presently in the tendering phase, one of which is expected to be awarded soon. Offshore Ivory Coast, Eni has issued a request for information for a long-term development program at the Baleine field that is expected to commence in 2027. Similarly, we anticipate incremental demand from Namibia, where TotalEnergies is expected to tender soon for a long-term development for its Venus project, potentially leading to several years of work for multiple rigs. Other operators are advancing plans for further exploration and potential development programs that could begin within the next couple of years.

In Mozambique, Eni recently reached FID on its Coral North project and is tendering for a drillship to start work in the second half of 2026. Additional tenders for programs starting in 2027 with TotalEnergies and Exxon are expected in the coming months.

Valaris has a long and successful track record offshore Africa. And we expect development activity around the continent will be the main driver of incremental floater demand over the next few years. With 5 of our high-specification drillships now contracted around the continent, we are well positioned to benefit from this growth.

Moving to Brazil, we continue to expect that Petrobras' rig count remains stable. Petrobras also recently received an environmental license to drill an exploration well in the Equatorial Margin, an important step toward potential future development activity in this region, which lies adjacent to the prolific offshore basins of Guyana and Suriname. Beyond Petrobras, we also see opportunities with IOCs in Brazil, including Shell's Orca project, formerly known as Gato do Mato, which is nearing award. In addition, we expect that BP's Bumerangue discovery, which was drilled by VALARIS DS-15 will lead to future appraisal and development activity. Overall, we continue to see solid floater demand offshore Brazil and expect it remains the largest market for deepwater rigs.

In the U.S. Gulf, customer demand remains healthy with several term extensions announced by our peers following the long-term Oxy contracts for VALARIS DS-16 and DS-18 that we announced in July. We were pleased to have secured these contracts as they provided 5 years of backlog, solidified our presence in the region and deepened our relationship with Oxy, who is a major leaseholder in the U.S. Gulf. We expect this market to remain fairly balanced with demand largely met by the existing supply of the rigs in the region.

Outside of the Golden Triangle, we are tracking requirements for 7 drillships offshore India, Southeast Asia and Australia, representing more than 10 years of firm demand. This activity could draw additional supply away from the Golden Triangle as recently occurred with the drillship mobilizing to Indonesia after completing work offshore West Africa.

Valaris MS-1 and DPS-1 are scheduled to complete contracts offshore Australia during the fourth quarter. We currently see no new work for these rigs in 2026 but continue to have discussions about potential opportunities in 2027 and beyond. In line with our disciplined fleet management approach, we plan to mobilize both rigs to Malaysia to be warm stacked while we evaluate these opportunities.

Turning to jack-ups, current global marketed utilization remains steady at around 90%. We have strong and focused presence in strategic shallow water markets. This has helped us to achieve industry-leading contract coverage on our jack-up fleet with nearly 80% of available days of our active rigs contracted for 2026 and more than 60% contracted for 2027. In benign environments, we have open availability in 2026 for just 2 rigs, VALARIS 106 in Indonesia and VALARIS 107 in Australia. We are in advanced customer discussions for both rigs and expect to secure additional work soon.

In the North Sea, recent awards have enhanced our contract coverage. We now have availability on just 2 of our jack-ups in the region during the first half of next year, and we are tracking a number of short-term opportunities that line up well with our limited availability during this time. Looking further ahead, we anticipate demand improves across the region in the second half of 2026 and into 2027. In the U.K., we see a range of opportunities that include gas drilling, plug and abandonment work, new energy and infrastructure projects, and we anticipate supply will largely meet demand. We expect activity in the Dutch sector will remain steady, keeping 4 rigs busy, and we see opportunities in Denmark for up to 2 rigs during 2026, representing an uptick in activity given no rigs are currently operating there.

Our strong operational track record and long-standing customer relationships have supported our best-in-class utilization in the region over the past few years, and we continue to see multiple opportunities well suited for our rigs with availability in 2026. In summary, we are successfully executing our commercial strategy, having secured more than $2.2 billion in new backlog so far this year. We continue to engage constructively with customers on future programs, and our focus remains on building backlog through attractive contracts that will further strengthen our earnings and cash flow.

I'll now hand the call over to Chris, who will take you through the financials.

Thanks, Matt, and good morning and afternoon, everyone. In my prepared remarks today, I'll begin with an overview of our third quarter results, followed by our outlook for the fourth quarter. Starting with our third quarter results, total revenues were $596 million compared to $615 million in the prior quarter, primarily due to fewer operating days for our floater fleet as drillships VALARIS DS-15 and DS-18 completed contracts midway through the third quarter without immediate follow-on work. In addition, jack-up VALARIS 247 completed its contract in late July and was sold in August. These items are partially offset by more operating days for several rigs in the jack-up fleet.

Adjusted EBITDA was $163 million compared to $201 million in the prior quarter. The decrease was primarily due to fewer operating days for our floater fleet and the $24 million nonrecurring benefit we recognized in the second quarter from a previously disclosed favorable arbitration outcome. Third quarter adjusted EBITDA exceeded our guidance range of $120 million to $140 million, primarily due to certain contracts running longer than previously anticipated, higher revenues from ARO leased rigs and lower support costs. Third quarter CapEx totaled $70 million, coming in below guidance due to timing as certain project spend has shifted to the fourth quarter.

During the quarter, we generated $198 million of cash flow from operations and received just over $100 million in net proceeds from the sale of VALARIS 247. After deducting capital expenditures, this resulted in $237 million of adjusted free cash flow. We repurchased $75 million of shares in the third quarter at an average price of $49 per share. We ended the quarter with $676 million of cash and cash equivalents.

Moving now to our fourth quarter outlook, we expect total revenues in the range of $495 million to $515 million, down from $596 million in the third quarter. The anticipated decrease is primarily due to fewer operating days across the fleet. Within our floater fleet, drillships VALARIS DS-15 and DS-18 are currently idle after completing contracts during the third quarter. and semisubmersible VALARIS DPS-1 and MS-1 are both expected to complete contracts offshore Australia before year-end. For our jack-up fleet, VALARIS 247 was sold during the third quarter and VALARIS 120 and 248 are expected to have fewer operating days due to a mobilization between jobs for the 120 and out-of-service time for the 248 SPS. We also expect lower revenues from ARO leased rigs as VALARIS 116 and 250 begin shipyard projects.

We expect contract drilling expense of $390 million to $405 million compared to $406 million in the third quarter. The decrease is primarily due to cost reduction on rigs that have completed contracts without immediate follow-on work. Both revenue and contract drilling expense in the fourth quarter are expected to include $25 million to $30 million of reimbursable items. We anticipate G&A expense will be approximately $27 million, in line with the prior quarter as we continue to prudently manage our cost structure. Fourth quarter adjusted EBITDA is expected to be $70 million to $90 million. Finally, we expect CapEx of $145 million to $165 million, which is higher than prior quarters due to certain project spend shifting from earlier in the year. The midpoint of our fourth quarter guidance implies expected full year adjusted EBITDA of approximately $625 million, which is roughly $40 million above the midpoint of guidance we provided on our second quarter call. This increase is primarily due to our outperformance in the third quarter as well as an expected improvement in our fourth quarter outlook, mostly driven by more operating days for the jack-up fleet. The midpoint of our fourth quarter CapEx guidance implies expected full year CapEx of approximately $390 million, roughly in line with the midpoint of our prior guidance. As a reminder, we expect to receive approximately $70 million in upfront payments from customers this year to reimburse certain contract-specific upgrades. This concludes my review of our financial results and guidance.

I'll now hand the call back to Anton for some closing remarks.

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 want to reiterate my appreciation to the entire Valaris team for continuing to deliver safe and efficient operations, which contributed to another strong quarter of financial results with meaningful EBITDA and free cash flow generation. Second, we continue to execute our commercial strategy, and as a result, all 4 of our drillships with near-term availability are now contracted for work beginning next year. Third, demand for offshore drilling services is developing as we expected. We continue to see a robust pipeline of deepwater opportunities for our high-specification fleet, and we're in advanced customer discussions for our drillships scheduled to complete contracts in the second half of 2026.

In summary, we continue to focus on delivering outstanding operational performance, executing our commercial strategy and prudently managing our costs and fleet. By staying disciplined and focused on these priorities, Valaris is well positioned to deliver long-term value for 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] Our first question today comes from Scott Gruber from Citigroup.

So, it was good to see the repurchases this quarter. I'm curious about your appetite moving forward. Looking at consensus, there isn't a forecast for much free cash next year as we transition to better times. But you do have $660 million of cash on the balance sheet. Can you speak to an appetite to use that cash to buy back additional shares now ahead of the potential recovery in late '26 and '27?

Yes, Scott, this is Chris. One, we remain committed to returning capital to shareholders. We executed the $75 million of repurchases in the quarter. We're excited about that. Reflects our confidence in the market and the outlook. But we've always said that our repurchases aren't necessarily going to be linear, not in a straight line, and we're going to be opportunistic, and that's what you saw this quarter. As we move forward, we'll see how the year progresses, what flexibility that provides for additional share repurchases, but excited what we were able to execute this quarter.

What's your level of cash that you need to run the business? What's kind of a minimum cash balance for working capital purposes?

Yes. I mean from a minimum cash perspective, I would say around $200 million to run the business. And where we hold cash in excess of that is just really with regards to kind of what are we seeing in the market, what's the cash flow profile of our business going forward and then those sort of things.

Great. And then if I could sneak one more in. There's been a discussion around renewed appetite for exploration on various conference calls this quarter. Just wondering your perspective, in your conversations with customers, is there a tangible desire to increase exploration activity here in the years ahead? Are those conversations material? Or is it kind of a side conversation at this point?

This is Anton. I'll take it. Look, there's always some exploration going on. Even in a lot of development programs that we've been drilling historically, customers will slot in an exploration well here or there. But we do see an increase in exploration discussions. And that's based on the necessity. The consensus is that we're going to need additional developments in order to meet the world's energy needs as we head towards the end of the decade. And in order to get those developments, our customers need to explore. So, I think it's a simple cause and effect. I think it's great for the market that there is additional exploration or increase in exploration activity expected from the various prognosticators in the market, also from the discussions we're having with our customers, and I think it portends well for where the market is going.

Our next question comes from Greg Lewis from BTIG.

Anton, I was hoping you could elaborate maybe a little bit more on Scott's question about shareholder returns. We saw the sale of the rig. That was obviously a nice profit. Cash flow was pretty good, really good. Is there any kind of way to think about -- you're going to have opportunities to sell rigs, some of the noncore rigs in the future. Balance sheet is obviously strong. Is that kind of a -- should we think about asset sales as a mechanism to drive some of this return of cash to shareholders? Or is it going to be more focused on the operations of the business or maybe a little bit of both?

Look, I'd start -- it's going to be focused on the operations of the business. I mean I want to first take a step back and say, we are committed to returning our free cash flow, sustained free cash flow to shareholders unless there's clearly a better or more accretive use for it. I think we've demonstrated that. Part of cost and discipline and fleet management comes to when there are opportunities like we had with the 247, a 27-year-old rig, and we can get a highly attractive price for it, it makes sense for us to divest that asset, and that obviously increases our financial flexibility. But at its base, our capital return needs to be driven by delivering operational cash flow. We are working through this white space period. So, Chris was asked the question before, when we understand and have these rigs, and we fully expect that our 10 active ships will be all working, exiting '26 under contract that will, again, underwrite our ability and flexibility as far as it comes to capital return. So, in summary -- let me take a step back and just summarize. It needs to be driven by operational delivery of operations and sustained earnings and the ability to sell assets when there are attractive opportunities, it is just opportunistic over and above that.

Okay. Great. And then the other question I had was around some of the recent term deals you did that have that MPD additional services. Kind of curious, it seems like the market ebbs and flows between MPD being built into the price versus MPD being kind of like a menu item. In the event that it's a menu item, is there any way to kind of -- knowing that every well is different, every customer is different, is there any kind of rough estimate how we should be thinking about how much of the time maybe -- if there is MPD as an add-on service, how much of the time should we be thinking about that service being used?

It's very -- I'd love to give you an easy answer, but it is very, very customer dependent. It depends what sort of drilling they're doing. So, it is contract specific, well specific, is it a development? So, it's hard to -- Matt, I don't know if you want to.

Yes. I think Anton hit the nail on the head that each customer is so different, so there's no large rule. But I think you can assume, if you're just running general analysis, somewhere between 40% to 50% utilization.

Our next question comes from Eddie Kim from Barclays.

Just a bigger picture question here. You reiterated your expectation for seventh-gen drillships exiting 2026 at utilization around 90%. At the same time, we have seen a few day rates below $400,000 a day that DS-12 included in that, though I know that Egypt is a lower OpEx environment for you guys. But some investor concern around maybe some more day rate prints below $400,000. First, do you think those are coming? And second, how is that impacting your view on activity inflection higher in the back part of next year? It seems that it isn't, but just wanted to get your thoughts and your confidence level around that.

Okay. A few questions in there. I think this is how I describe it. We believe the market is playing out as we expected. I think that day rates for high-spec ships have largely troughed in the high 300s, kind of low to mid -400 range. As an industry, we're working through a period of white space and then there are a number of tenders that are in progress right now, and you'll probably see some additional prints contract awards in that range as those contracts work through the tender process. But we continue to expect that utilization will trough towards the end of this year, early next year and then a recovery beyond that, exiting as an industry, high-spec ships above -- at or above 90% at the end of '26, and inevitably, day rates follow utilization. But for now, I think day rates have troughed as we see it for the cycle in the kind of high 300s, low to mid-400 range.

Great. Great. My follow-up is just on your rigs coming off contract next year. You have absorbed a lot of white space with your recent contract awards. But the DS-9 and the DS-7 are off contract mid- to late next year, both in Angola. And based on your, I mean, constructive outlook in Angola and West Africa in general, it feels like it's likely that those could get extended without any idle time between contracts. Just any thoughts there? And then [indiscernible] DS-15, DS-18 have long-term contracts starting end of next year, but are idle today. What's the likelihood that you'll be able to secure some short-term gap-fill work for those before long-term contracts commence?

Matt, do you want to start on the gap-fill and then I'll come across as how we view them.

Sure. I mean I think -- well, first off, Angola on the 9 and the 7, as I mentioned in my prepared remarks, you're seeing a decrease in production, so I think the government is working closely with the IOCs to incentivize drilling. So, I think your read is right that we see positive discussions regarding the future contracting opportunities for those rigs. And equally, they have performed extremely well, which just further benefits the likelihood that they'll have strong potential for extensions. From a gap-fill perspective, we've done a great job of bookending the near-term availability on our assets. And while there are some short-term opportunities available in the market, probably not enough to fill all the rigs that have white space right now, but we continue to chase work that fits the longer-term opportunities that we've secured.

I think Matt covered it well. Our expectation is that high-spec rigs will exit '26, 90% plus utilization. Our team has done a fantastic job of delivering our commercial strategy to date, and I expect them to continue to do that. No pressure, Matt. But we expect that all 10 of our active drillships will exit '26 on contract and working.

Our next question comes from Doug Becker from Capital One.

Valaris has a couple of rigs with Petrobras in Brazil. I want to get a sense for the focus of recent discussions with them to help reduce costs.

Matt, do you want to?

Sure. I mean I think it's been widely reported that Petrobras are looking across their entire value supply chain for potential savings in 2026. So, while it's early days in discussions amongst all of their services, we've seen these discussions materialize before. So, I think what's important is recognizing that they want to maintain their production targets, which means they are likely to maintain a fleet of similar size over the long term, which is positive for us. And so, while constructive discussions continue, it's too soon to kind of discuss the specifics around it.

I think Matt said it really well. We expect Petrobras' rig fleet to remain stable. They have clear goals on what their production, and that's going to mean they need to maintain a significant and the most significant drillship fleet in the world. And the discussions are very early days and very, very constructive. So, we'll just have to see how it plays out across the industry.

Definitely sounds encouraging. Maybe switching to Saudi Arabia. You mentioned Aramco has issued notices calling back several suspended rigs. It sounds like there's also been a recent tender. Do you think Saudi Arabia is a source of incremental demand, incremental work for Valaris next year?

Really positive to see Saudi Aramco reactivating and calling back suspended rigs. So, I think when you look at a global utilization of the jack-up market hovering around 90%, it just adds further benefit to that market. So, we see that as a really positive data point. On incremental demand, there are -- there is potential for that. And with some idle capacity sitting over in the Middle East, we continue to monitor that closely together with our joint venture, which operates in Saudi Arabia.

And our next question comes from [ Josh Jain ] from Daniel Energy Partners.

Those in the market generally seem in unison with respect to a recovery in deepwater in the second half of '26. And I think the recent contract announcements largely support that. Maybe you could just talk a bit more about where geographically do you have the most confidence that rig counts will hold or increase and which regions do you see as having potential risk if we're in uncertain crude environment?

Matt, do you want to give Josh [indiscernible]?

Sure. I mean -- I think we've touched a few of these in some of the answers already given in the prepared remarks. But I think we largely see South America, Brazil holding flat, maintaining their fleet size, which is also the largest floater market. So that's a very positive sign. Incremental demand in Africa. We've mentioned the FID of Eni's project in Mozambique and then there's some strong signs of that force majeure being lifted for 2 other major IOCs with Exxon and Total. So some positive work in East Africa and obviously announcing some work in Egypt with decreasing production there, trying to turn that around is showing some other -- some unique opportunities in the Med and West Africa. So, what we have seen though, is some rigs shifting locations as well with Asia carrying a number of opportunities without sufficient supply sitting over there and customers really continuing the trend of focusing on higher-spec assets, you could see some migration from the Golden Triangle to service some of the opportunities in Asia. Roughly half that -- sorry, let me just go -- roughly half -- take a step back from that, roughly half that incremental demand, a big driver of incremental demand will be Africa and Africa in general. There is about 25% of that were coming from beyond the Golden Triangle and fairly stable in the U.S. Gulf and South America.

Great. Thanks. And then I wanted to pry just a little bit on Aramco and Doug hit it with his last question. But with -- I guess what's changed a little bit over the last 18 months is I feel like Saudi has definitely gotten a bit more aggressive with respect to their production goals that they're talking about hitting over the next 6, 12, 24 months. Maybe you could just offer a little bit more insight and maybe not into '26, but just longer term, how many rigs do you feel like they ultimately could be adding back over the next 3 years, just given the volatility that we've seen and to ultimately meet their lofty production goals?

I think what I'd focus on in the recent news out of people talking about rigs going back to Saudi Aramco, Saudi Aramco's desire to bring rigs back into production is the fact that in the global fleet, high-spec jack-up utilization is 90% above, 90% and above. So, the market has held in there. The talk is in the near term, kind of mid- to high single digits plus potential for additional tenders beyond that. And every rig that goes back into their fleet is further supportive of the global market. So overall, the jack-up market, high-spec jack-up market is fairly healthy. And I think just to the extent they choose to bring rigs back in order to meet their production targets, it's just further support for a market that's already attractive.

And ladies and gentlemen, at this time, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Nick Georgas for any closing remarks.

Thanks, Jamie, 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 fourth quarter 2025 results. Have a great rest of your day.

And with that, we'll be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your lines.