Valaris Reports Second Quarter 2021 Results

·14 min read

Emerges from Restructuring with Net Cash Position
Awarded More Than 20 New Contracts or Extensions Totaling Over $1.3 Billion of Backlog
VALARIS DS-11 Awarded Contract for 20K Project with Estimated Duration of Three-and-a-Half Years
VALARIS DS-18 Awarded Three-Year Contract
VALARIS DS-16 Awarded Two-Year Contract

HAMILTON, Bermuda, August 03, 2021--(BUSINESS WIRE)--Valaris Limited (NYSE: VAL) ("Valaris" or the "Company") today reported second quarter 2021 results.

President and Chief Executive Officer Tom Burke said, "On April 30, 2021, Valaris emerged from chapter 11 with a significantly strengthened capital structure, including a net cash position, $550 million of debt due in 2028 and an industry-leading cost structure that is scalable and adaptable to changing market conditions."

Burke added, "During the three months since emergence, our customers awarded Valaris more than 20 new contracts or extensions with associated contract backlog totaling over $1.3 billion. This figure includes an eight-well contract, with an estimated duration of three-and-a-half years, for VALARIS DS-11, a two-year contract for VALARIS DS-16 and a 420-day contract for VALARIS DPS-1, which we announced in today's fleet status report, as well as a three-year contract for VALARIS DS-18 awarded in early June. These contract awards are a testament to the technical capabilities of our fleet and the excellent operational and safety performance of our crews, and I want to take the opportunity to recognize all the teams in Valaris that have contributed to this outstanding contracting success over the past several months."

Burke concluded, "We are beginning to see early signs of a recovery in customer demand following the downturn caused by the COVID-19 pandemic, evidenced by our contracting activity over the past few months. As a result, Valaris is well-positioned to benefit from the opportunities we see in the market today. We will continue to focus on winning work for our active fleet and returning some of our high-quality stacked rigs to work as suitable opportunities arise. I am extremely proud of what Valaris has achieved during the three months since our emergence from chapter 11, and I am excited to see what the future holds for the Company."

Fresh Start Accounting

Valaris emerged from Chapter 11 bankruptcy protection on April 30, 2021 (the "Effective Date"). Upon emergence, Valaris applied fresh start accounting which resulted in Valaris becoming a new reporting entity for accounting and financial reporting. Accordingly, our financial statements and notes after the Effective Date are not comparable to our financial statements and notes prior to that date. As required by GAAP, results for the quarter must be presented separately for the predecessor period from April 1, 2021, through April 30, 2021 (the "Predecessor" period) and the successor period from May 1, 2021, through June 30, 2021 (the "Successor" period). However, the Company has combined certain results of the Predecessor and Successor periods ("Combined" results) as non-GAAP measures to compare to prior periods since we believe it provides the most meaningful basis to analyze our results.

Second Quarter Highlights

Revenues were $203 million and $90 million for the Successor and Predecessor periods, respectively. Combined revenues declined to $293 million in the second quarter 2021 from $307 million in the first quarter. Excluding reimbursable items, Combined revenues declined to $261 million in the second quarter from $277 million in the prior quarter primarily due to lower revenues from the floater fleet as two drillships working in the first quarter were between contracts for most of the second quarter.

Contract drilling expense was $169 million and $86 million for the Successor and Predecessor periods, respectively. Combined contract drilling expense increased to $254 million in the second quarter 2021 from $252 million in the first quarter. Excluding reimbursable items, Combined contract drilling expense declined to $236 million in the second quarter from $237 million in the prior quarter primarily due to fewer operating days for the floater fleet. This was partially offset by additional operating days for the jackup fleet and higher rig reactivation costs as previously stacked rigs, primarily VALARIS JU-249 and VALARIS JU-121, underwent preparations for long-term contracts.

General and administrative expense was $13 million and $6 million for the Successor and Predecessor periods, respectively. Combined general and administrative expense declined to $19 million in the second quarter 2021 from $24 million in the prior quarter primarily due to lower personnel costs.

Tax expense was $15 million and tax benefit was $16 million for the Successor and Predecessor periods, respectively. Combined tax benefit was less than $1 million in the second quarter 2021 compared to tax expense of $32 million in the prior quarter. The Combined second quarter tax provision included $12 million of discrete tax benefit primarily related to fresh start accounting adjustments. The prior quarter tax provision included $20 million of discrete tax expense related to uncertain tax positions taken for prior years. Adjusted for discrete items, Combined tax expense of $12 million in the second quarter was in line with the prior quarter.

Combined adjusted EBITDA of $17 million in the second quarter 2021 compared to $28 million in the prior quarter. Combined adjusted EBITDAR of $41 million in the second quarter 2021 compared to $39 million in the prior quarter. Combined adjusted EBITDARPS of $58 million in the second quarter 2021 compared to $57 million in the prior quarter.

Segment Highlights

Floaters

Floater revenues were $50 million and $18 million for the Successor and Predecessor periods, respectively. Combined floater revenues declined to $68 million in the second quarter 2021 from $97 million in the prior quarter. Excluding reimbursable items, Combined revenues declined to $62 million in the second quarter from $88 million in the prior quarter primarily due to fewer operating days as two drillships that were working in the first quarter were between contracts for most of the second quarter.

Contract drilling expense was $45 million and $22 million for the Successor and Predecessor periods, respectively. Combined contract drilling expense declined to $67 million in the second quarter 2021 from $84 million in the prior quarter. Excluding reimbursable items, Combined contract drilling expense declined to $63 million in the second quarter from $81 million in the prior quarter primarily due to fewer operating days in the second quarter.

Jackups

Jackup revenues were $129 million and $60 million for the Successor and Predecessor periods, respectively. Combined jackup revenues increased to $188 million in the second quarter 2021 from $173 million in the prior quarter. Excluding reimbursable items, Combined revenues increased to $167 million in the second quarter from $157 million in the prior quarter. The sequential quarter increase was primarily due to an increase in average day rates, which were $99,000 in the second quarter compared to $95,000 in the prior quarter and a four percentage point increase in utilization to 54%.

Contract drilling expense was $96 million and $49 million for the Successor and Predecessor periods, respectively. Combined contract drilling expense increased to $144 million in the second quarter 2021 from $121 million in the prior quarter. Excluding reimbursable items, Combined contract drilling expense increased to $134 million in the second quarter from $114 million in the prior quarter primarily due to $19 million higher reactivation costs in the second quarter as we prepare rigs, primarily VALARIS JU-249 and VALARIS JU-121, for long-term contracts starting later in the year.

ARO Drilling

Revenues were $84 million and $41 million for the Successor and Predecessor periods, respectively. Combined revenues increased to $125 million in the second quarter 2021 from $123 million in the prior quarter. Combined contract drilling expense increased to $93 million in the second quarter from $86 million in the prior quarter primarily due to higher personnel costs. Combined EBITDA was $28 million in the second quarter compared to $33 million in the prior quarter.

Other

Revenues were $25 million and $12 million for the Successor and Predecessor periods, respectively. Combined revenues of $37 million in the second quarter 2021 were in line with the prior quarter and Combined contract drilling expense declined to $14 million in the second quarter from $15 million in the prior quarter.

Second Quarter

(in millions of $,

Floaters

Jackups

ARO

Other

Reconciling Items

Consolidated Total

Successor

Predecessor

Combined (Non-GAAP)

Successor

Predecessor

Combined (Non-GAAP)

Successor

Predecessor

Combined (Non-GAAP)

Successor

Predecessor

Combined (Non-GAAP)

Successor

Predecessor

Combined (Non-GAAP)

Successor

Predecessor

Combined (Non-GAAP)

except %)

Two Months Ended June 30, 2021

One Month Ended April 30, 2021

Three Months Ended June 30, 2021

Two Months Ended June 30, 2021

One Month Ended April 30, 2021

Three Months Ended June 30, 2021

Two Months Ended June 30, 2021

One Month Ended April 30, 2021

Three Months Ended June 30, 2021

Two Months Ended June 30, 2021

One Month Ended April 30, 2021

Three Months Ended June 30, 2021

Two Months Ended June 30, 2021

One Month Ended April 30, 2021

Three Months Ended June 30, 2021

Two Months Ended June 30, 2021

One Month Ended April 30, 2021

Three Months Ended June 30, 2021

Revenues

49.7

18.4

68.1

128.5

59.8

188.3

84.0

40.8

124.8

24.6

12.1

36.7

(84.0)

(40.8)

(124.8)

202.8

90.3

293.1

Operating expenses

Contract drilling

45.2

21.7

66.9

95.5

48.8

144.3

62.9

29.8

92.7

9.2

4.7

13.9

(44.1)

(19.4)

(63.5)

168.7

85.6

254.3

Depreciation

7.9

15.9

23.8

7.8

17.3

25.1

9.7

4.9

14.6

0.8

3.5

4.3

(9.6)

(4.1)

(13.7)

16.6

37.5

54.1

General and admin.

3.1

1.2

4.3

9.6

5.2

14.8

12.7

6.4

19.1

Equity in earnings of ARO

4.8

1.2

6.0

4.8

1.2

6.0

Operating income (loss)

(3.4)

(19.2)

(22.6)

25.2

(6.3)

18.9

8.3

4.9

13.2

14.6

3.9

18.5

(35.1)

(21.3)

(56.4)

9.6

(38.0)

(28.4)

Second Quarter

(in millions of $,

Floaters

Jackups

ARO

Other

Reconciling Items

Consolidated Total

except %)

Combined
Q2 2021

Q1
2021

Chg

Combined
Q2 2021

Q1
2021

Chg

Combined
Q2 2021

Q1
2021

Chg

Combined
Q2 2021

Q1
2021

Chg

Combined
Q2 2021

Q1
2021

Combined
Q2 2021

Q1
2021

Chg

Revenues

68.1

97.3

(30)%

188.3

172.6

9%

124.8

122.7

2%

36.7

37.2

(1)%

(124.8)

(122.7)

293.1

307.1

(5)%

Operating expenses

Contract drilling

66.9

84.3

(21)%

144.3

120.5

20%

92.7

86.3

7%

13.9

15.1

(8)%

(63.5)

(54.0)

254.3

252.2

1%

Impairment

756.5

nm

—%

—%

756.5

nm

Depreciation

23.8

56.2

(58)%

25.1

52.4

(52)%

14.6

16.1

(9)%

4.3

11.3

(62)%

(13.7)

(13.9)

54.1

122.1

(56)%

General and admin.

—%

—%

4.3

3.0

43%

—%

14.8

21.3

19.1

24.3

(21)%

Equity in earnings of ARO

—%

—%

—%

—%

6.0

1.9

6.0

1.9

nm

Operating income (loss)

(22.6)

(799.7)

nm

18.9

(0.3)

(6400)%

13.2

17.3

(24)%

18.5

10.8

nm

(56.4)

(74.2)

(28.4)

(846.1)

nm

About Valaris Limited

Valaris Limited (NYSE: VAL) is the industry leader in offshore drilling services across all water depths and geographies. Operating a high-quality rig fleet of ultra-deepwater drillships, versatile semisubmersibles, and modern shallow-water jackups, Valaris has experience operating in nearly every major offshore basin. Valaris maintains an unwavering commitment to safety, operational excellence, and customer satisfaction, with a focus on technology and innovation. Valaris Limited is a Bermuda exempted company. To learn more, visit the Valaris website at www.valaris.com.

Forward-Looking Statements

Statements contained in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "could," "may," "might," "should," "will" and similar words and specifically include statements involving expected financial performance; expected utilization, rig commitments and availability, day rates, revenues, operating expenses including expenses related to reorganization items, cash flow, contract status, terms and duration, contract backlog, capital expenditures, insurance, financing and funding; the offshore drilling market, including supply and demand, customer drilling programs, stacking of rigs, effects of new rigs on the market and effects of declines in commodity prices; synergies and expected additional cost savings; effective tax rates; expected work commitments, letters of intent; scheduled delivery dates for rigs; performance of our joint venture with Saudi Aramco; the timing of delivery, mobilization, contract commencement, relocation or other movement of rigs; our intent to sell or scrap rigs; and general market, business and industry conditions, trends and outlook. The forward-looking statements contained in this press release are subject to numerous risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, including the effects of the chapter 11 cases on the Company's business, relationships, comparability of our financial results and ability to access financing sources, the COVID-19 outbreak and global pandemic, the related public health measures implemented by governments worldwide, which may, among other things, impact our ability to staff rigs and rotate crews; cancellation, suspension, renegotiation or termination of drilling contracts and programs, including drilling contracts which grant the customer termination rights if final investment decision (FID) is not received with respect to projects for which the drilling rig is contracted; potential additional asset impairments; our failure to satisfy our debt obligations; our ability to obtain financing, service our debt, fund negative cash flow and capital expenditures and pursue other business opportunities; adequacy of sources of liquidity for us and our customers; actions by regulatory authorities, rating agencies or other third parties; actions by our security holders; availability and terms of any financing; commodity price fluctuations, customer demand, new rig supply, downtime and other risks associated with offshore rig operations; severe weather or hurricanes; changes in worldwide rig supply and demand, competition and technology; future levels of offshore drilling activity; governmental action, civil unrest and political and economic uncertainties; terrorism, piracy and military action; risks inherent to shipyard rig construction, repair, maintenance or enhancement; our ability to enter into, and the terms of, future drilling contracts; the cancellation of letters of intent or letters of award or any failure to execute definitive contracts following announcements of letters of intent, letters of award or other expected work commitments; the outcome of litigation, legal proceedings, investigations or other claims or contract disputes; governmental regulatory, legislative and permitting requirements affecting drilling operations; our ability to attract and retain skilled personnel on commercially reasonable terms; environmental or other liabilities, risks or losses; debt restrictions that may limit our liquidity and flexibility; and cybersecurity risks and threats. In particular, the unprecedented nature of the current economic downturn, pandemic, and industry decline may make it particularly difficult to identify risks or predict the degree to which identified risks will impact the Company's business and financial condition. In addition to the numerous factors described above, you should also carefully read and consider "Item 1A. Risk Factors" in Part I and "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our most recent annual report on Form 10-K, as updated in our subsequent quarterly reports on Form 10-Q, which are available on the SEC’s website at www.sec.gov or on the Investor Relations section of our website at www.valaris.com. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward-looking statements, except as required by law.

VALARIS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

Successor

Predecessor

Combined
(Non-GAAP)

Predecessor

Two Months
Ended June
30, 2021

One Month
Ended April
30, 2021

Three
Months
Ended June
30, 2021

Three
Months
Ended March
31, 2021

OPERATING REVENUES

$

202.8

$

90.3

$

293.1

$

307.1

OPERATING EXPENSES

Contract drilling (exclusive of depreciation)

168.7

85.6

254.3

252.2

Loss on impairment

756.5

Depreciation

16.6

37.5

54.1

122.1

General and administrative

12.7

6.4

19.1

24.3

Total operating expenses

198.0

129.5

327.5

1,155.1

EQUITY IN EARNINGS OF ARO

4.8

1.2

6.0

1.9

OPERATING INCOME (LOSS)

9.6

(38.0)

(28.4)

(846.1)

OTHER INCOME (EXPENSE)

Interest income

7.8

1.0

8.8

2.6

Interest expense, net (Unrecognized
contractual interest expense for debt subject to
compromise was $32.6 million for the one
months April 30, 2021 and $100.3 million for
the three months ended March 31, 2021)

(8.0)

(1.1)

(9.1)

(1.3)

Reorganization items, net

(4.1)

(3,532.4)

(3,536.5)

(52.2)

Other, net

5.7

(1.2)

4.5

21.1

1.4

(3,533.7)

(3,532.3)

(29.8)

INCOME (LOSS) BEFORE INCOME TAXES

11.0

(3,571.7)

(3,560.7)

(875.9)

PROVISION (BENEFIT) FOR INCOME TAXES

15.1

(15.5)

(0.4)

31.7

NET LOSS

(4.1)

(3,556.2)

(3,560.3)

(907.6)

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

(2.1)

(0.8)

(2.9)

(2.4)

NET LOSS ATTRIBUTABLE TO VALARIS

$

(6.2)

$

(3,557.0)

$

(3,563.2)

$

(910.0)

LOSS PER SHARE - BASIC AND DILUTED

$

(0.08)

$

(17.81)

n/m

$

(4.56)

WEIGHTED-AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED

75.0

199.7

n/m

199.6

VALARIS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

Three Months Ended

Combined
(Non-GAAP) (1)

Predecessor

June 30,
2021

March 31,
2021

December
31, 2020

September
30, 2020

June 30,
2020

OPERATING REVENUES

$

293.1

$

307.1

$

296.5

$

285.3

$

388.8

OPERATING EXPENSES

Contract drilling (exclusive of depreciation)

254.3

252.2

304.7

307.2

370.7

Loss on impairment

756.5

838.0

Depreciation

54.1

122.1

122.4

122.4

131.5

General and administrative

19.1

24.3

26.5

72.1

62.6

Total operating expenses

327.5

1,155.1

453.6

501.7

1,402.8

Other operating income

118.1

EQUITY IN EARNINGS (LOSSES) OF ARO

6.0

1.9

(0.2)

3.9

(5.2)

OPERATING LOSS

(28.4)

(846.1)

(157.3)

(94.4)

(1,019.2)

OTHER EXPENSE

Interest income

8.8

2.6

4.5

4.7

5.7

Interest expense, net (Unrecognized contractual interest expense for debt subject to compromise was $32.6 million, $100.3 million, $94.8 million, $45.9 million for the three months June 30, 2021, March 31, 2021, December 31, 2020 and September 30, 2020, respectively)

(9.1)

(1.3)

(1.4)

(59.8)

(116.2)

Reorganization items, net

(3,536.5)

(52.2)

(30.1)

(497.5)

Other, net

4.5

21.1

1.7

(3.1)

5.1

(3,532.3)

(29.8)

(25.3)

(555.7)

(105.4)

LOSS BEFORE INCOME TAXES

(3,560.7)

(875.9)

(182.6)

(650.1)

(1,124.6)

PROVISION (BENEFIT) FOR INCOME TAXES

(0.4)

31.7

(113.5)

21.9

(15.8)

NET LOSS

(3,560.3)

(907.6)

(69.1)

(672.0)

(1,108.8)

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS

(2.9)

(2.4)

(1.8)

1.1

1.4

NET LOSS ATTRIBUTABLE TO VALARIS

$

(3,563.2)

$

(910.0)

$

(70.9)

$

(670.9)

$

(1,107.4)

LOSS PER SHARE - BASIC AND DILUTED

n/m

$

(4.56)

$

(0.36)

$

(3.36)

$

(5.58)

WEIGHTED-AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED

n/m

199.6

199.5

199.4

198.6

(1)

Represents the combined results of operations for the two-months ended June 30, 2021 and the one-month ended April 30, 2021.

VALARIS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

Successor

Predecessor

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

(unaudited)

(unaudited)

(unaudited)

(unaudited)

ASSETS

CURRENT ASSETS

Cash and cash equivalents

$

608.8

291.7

$

325.8

$

180.4

$

202.0

Restricted cash

53.1

17.1

11.4

1.2

Accounts receivable, net

436.1

...

449.8

449.2

429.7

363.3

Other current assets

119.7

366.4

386.5

453.5

500.8

Total current assets

$

1,217.7

$

1,125.0

$

1,172.9

$

1,064.8

$

1,066.1

...

PROPERTY AND EQUIPMENT, NET

897.8

10,083.9

10,960.5

11,082.4

11,192.6

LONG-TERM NOTES RECEIVABLE FROM ARO

234.3

442.7

442.7

442.7

452.8

INVESTMENT IN ARO

85.4

122.8

120.9

121.1

117.2

OTHER ASSETS

166.5

172.5

176.2

200.2

210.2

$

2,601.7

$

11,946.9

$

12,873.2

$

12,911.2

$

13,038.9

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable - trade

$

183.9

176.8

$

176.4

$

180.7

$

151.9

Accrued liabilities and other

212.7

290.6

250.4

207.3

398.1

Current maturities of long-term debt

2,518.1

Total current liabilities

$

396.6

$

467.4

$

426.8

$

388.0

$

3,068.1

LONG - TERM DEBT

544.8

4,092.2

OTHER LIABILITIES

569.8

704.6

762.4

696.9

693.2

TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE

1,511.2

1,172.0

1,189.2

1,084.9

7,853.5

LIABILITIES SUBJECT TO COMPROMISE

7,313.7

7,313.7

7,313.7

TOTAL EQUITY

1,090.5

3,461.2

4,370.3

4,512.6

5,185.4

$

2,601.7

$

11,946.9

$

12,873.2

$

12,911.2

$

13,038.9

VALARIS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Successor

Predecessor

Combined (Non- GAAP)

Predecessor

Two Months Ended June 30, 2021

Four Months Ended April 30, 2021

Six Months Ended June 30, 2021

Six Months Ended June 30, 2020

OPERATING ACTIVITIES

Net loss

$

(4.1)

$

(4,463.8)

$

(4,467.9)

$

(4,116.5)

Adjustments to reconcile net loss to net cash used in operating activities:

Reorganization items, net

3,487.3

3,487.3

Loss on impairment

756.5

756.5

3,646.2

Depreciation expense

16.6

159.6

176.2

296.0

Amortization, net

(.3)

(4.8)

(5.1)

12.2

Accretion of discount on shareholder note

(6.0)

(6.0)

Share-based compensation expense

4.8

4.8

13.5

Equity in losses (earnings) of ARO

(4.8)

(3.1)

(7.9)

11.5

Deferred income tax expense (benefit)

1.1

(18.2)

(17.1)

(109.1)

Debt discounts and other

0.4

0.4

28.8

Adjustment to gain on bargain purchase

6.3

Other

(2.5)

(4.1)

(6.6)

(2.7)

Changes in operating assets and liabilities

(25.7)

68.5

42.8

(156.7)

Contributions to pension plans and other post-retirement benefits

(0.6)

(22.5)

(23.1)

(10.6)

Net Cash Used in Operating Activities

(25.9)

(39.8)

(65.7)

(381.1)

INVESTING ACTIVITIES

Additions to property and equipment

(8.1)

(8.7)

(16.8)

(67.1)

Proceeds from Sale of Property, Plant, and Equipment

0.2

30.1

30.3

13.8

Net Cash Provided by (Used in) Investing Activities

(7.9)

21.4

13.5

(53.3)

FINANCING ACTIVITIES

Issuance of First Lien Notes

520.0

520.0

Payments to Predecessor creditors

(129.9)

(129.9)

Borrowings on credit facility

566.0

Repayments of credit facility borrowings

(15.0)

Reduction of long-term borrowings

(9.7)

Other

(1.4)

(1.4)

(1.9)

Net cash provided by financing activities

388.7

388.7

539.4

Effect of exchange rate changes on cash and cash equivalents

(0.3)

(0.1)

(0.4)

(0.2)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

(34.1)

370.2

336.1

104.8

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD

696.0

325.8

325.8

97.2

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

$

661.9

$

696.0

$

661.9

$

202.0

VALARIS LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Three Months Ended

Combined (Non-GAAP) (1)

Predecessor

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

OPERATING ACTIVITIES

Net loss

$

(3,560.3)

$

(907.6)

$

(69.1)

$

(672.0)

$

(1,108.8)

Adjustments to reconcile net loss to net cash used in operating activities:

Debtor in Possession financing fees and payments on Backstop Agreement

(3.8)

43.8

Loss on impairment

756.5

838.0

Depreciation expense

54.1

122.1

122.4

122.4

131.5

Reorganization items, net

3,487.3

(11.5)

447.9

Deferred income tax expense (benefit)

(18.0)

0.9

(2.1)

5.5

(29.6)

Debt discounts and other

0.4

8.0

14.6

Share-based compensation expense

1.0

3.8

3.6

4.3

5.7

Equity in losses (earnings) of ARO

(6.0)

(1.9)

0.2

(3.9)

5.2

Amortization, net

(.5)

(4.6)

(8.2)

2.2

9.4

Accretion of discount on shareholder note

(6.0)

Other

(7.0)

0.4

4.5

2.0

(9.3)

Changes in operating assets and liabilities

21.9

20.9

109.8

24.9

(26.8)

Contributions to pension plans and other post-retirement benefits

(0.9)

(22.2)

(1.1)

(0.4)

(6.6)

Net Cash Provided by (Used in) Operating Activities

(34.0)

(31.7)

144.7

(15.3)

(176.7)

INVESTING ACTIVITIES

Additions to property and equipment

(10.8)

(6.0)

(10.9)

(15.8)

(30.8)

Proceeds from Sale of Property, Plant, and Equipment

26.6

3.7

7.6

30.4

3.4

Net Cash Provided by (Used in) Investing Activities

15.8

(2.3)

(3.3)

14.6

(27.4)

FINANCING ACTIVITIES

Issuance of First Lien Notes

520.0

Payments to Predecessor creditors

(129.9)

Borrowings on credit facility

30.0

222.1

Payments for Debtor-in-possession financing fees and backstop agreement

3.8

(43.8)

Purchase of noncontrolling interests

(7.2)

Other

(1.4)

(1.0)

Net cash provided by (used in) financing activities

388.7

3.8

(21.0)

221.1

Effect of exchange rate changes on cash and cash equivalents

(0.3)

(0.1)

0.2

0.1

0.1

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

370.2

(34.1)

145.4

(21.6)

17.1

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD

291.7

325.8

180.4

202.0

184.9

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

$

661.9

$

291.7

$

325.8

$

180.4

$

202.0

(1)

Represents the combined results of operations for the two-months ended June 30, 2021 and the one-month ended April 30, 2021.

VALARIS LIMITED AND SUBSIDIARIES

OPERATING STATISTICS

(Unaudited)

(in millions)

Three Months Ended

Successor

Predecessor

Combined (Non-GAAP)

Predecessor

Two Months Ended June 30, 2021

One Month Ended April 30, 2021

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

REVENUES

Floaters

Drillships

$

28.9

$

13.7

$

42.6

$

81.0

$

93.8

$

35.4

$

76.2

Semisubmersibles

20.8

4.7

25.5

16.3

11.7

21.7

87.4

$

49.7

$

18.4

$

68.1

$

97.3

$

105.5

$

57.1

$

163.6

Jackups (1)

HD Ultra-Harsh & Harsh Environment

70.9

34.0

104.9

95.5

96.2

91.2

89.4

HD & SD Modern

40.7

17.0

57.7

50.5

61.1

67.8

63.5

SD Legacy

16.9

8.8

25.7

26.6

22.1

27.8

33.4

$

128.5

$

59.8

$

188.3

$

172.6

$

179.4

$

186.8

$

186.3

Total

$

178.2

$

78.2

$

256.4

$

269.9

$

284.9

$

243.9

$

349.9

Other

Leased and Managed Rigs

24.6

12.1

36.7

37.2

11.6

41.4

38.9

Valaris Total

$

202.8

$

90.3

$

293.1

$

307.1

$

296.5

$

285.3

$

388.8

ARO

Total

84.0

40.8

124.8

122.7

117.5

145.6

146.0

Valaris 50% Share

42.0

20.4

62.4

61.4

58.8

72.8

73.0

Adjusted Total (2)

$

244.8

$

110.7

$

355.5

$

368.5

$

355.3

$

358.1

$

461.8

(1)

HD = Heavy Duty; SD = Standard Duty. Heavy duty jackups are well-suited for operations in tropical revolving storm areas.

(2)

Adjusted total is Valaris consolidated total plus Valaris 50% share of ARO.

(in millions)

As of

Q2 2021
(as of August 2, 2021)

Q1 2021
(as of
March 31, 2021)

Q4 2020
(as of December 31, 2020)

Q3 2020
(as of September 30, 2020)

Q2 2020
(as of
June 30, 2020)

CONTRACT BACKLOG (1)

Floaters

Drillships

$

1,102.2

$

117.6

$

90.0

$

129.2

$

172.2

Semisubmersibles

294.0

171.4

73.7

82.3

104.9

$

1,396.2

$

289.0

$

163.7

$

211.5

$

277.1

Jackups

HD Ultra-Harsh & Harsh

364.4

403.8

358.7

400.3

484.3

HD & SD - Modern

299.9

180.6

211.8

253.4

375.1

SD - Legacy

102.9

134.4

167.1

176.3

217.0

$

767.2

$

718.8

$

737.6

$

830.0

$

1,076.4

Total

$

2,163.4

$

1,007.8

$

901.3

$

1,041.5

$

1,353.5

Other (2)

Leased and Managed Rigs

60.3

90.8

140.1

178.7

217.4

Valaris Total

$

2,223.7

$

1,098.6

$

1,041.4

$

1,220.2

$

1,570.9

ARO

Owned Rigs

818.7

869.5

84.2

146.7

212.3

Leased Rigs

134.5

192.2

263.3

347.1

422.7

ARO Total

953.2

1,061.7

347.5

493.8

635.0

Valaris 50% Share of ARO Owned Rigs

409.4

434.8

42.1

73.4

106.2

Adjusted Total (3)

$

2,633.1

$

1,533.4

$

1,083.5

$

1,293.6

$

1,677.1

(1)

Our contract drilling backlog reflects commitments, represented by signed drilling contracts, and is calculated by multiplying the contracted day rate by the contract period. Contract drilling backlog includes drilling contracts subject to final investment decision (FID) and drilling contracts which grant the customer termination rights if FID is not received with respect to projects for which the drilling rig is contracted. The contracted day rate excludes certain types of lump sum fees for rig mobilization, demobilization, contract preparation, as well as customer reimbursables and bonus opportunities. Q2 2021 contract backlog is as of August 2, 2021, being the filing date of our most recent fleet status report. Contract backlog for historical periods is as of the balance sheet date.

(2)

Leased rigs and managed rigs included in Other reporting segment.

(3)

Adjusted total is Valaris consolidated total plus Valaris 50% share of ARO owned rigs.

As of

NUMBER OF RIGS

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

Active Fleet (1)

Floaters

Drillships

4

4

4

5

7

Semisubmersibles

3

3

3

4

5

7

7

7

9

12

Jackups

HD Ultra-Harsh & Harsh Environment

10

9

9

9

10

HD & SD Modern

11

11

11

11

12

SD Legacy

4

4

4

6

7

25

24

24

26

29

Total Active Fleet

32

31

31

35

41

Stacked Fleet

Floaters

Drillships (2)

7

7

7

6

7

Semisubmersibles

2

2

2

2

4

9

9

9

8

11

Jackups

HD Ultra-Harsh & Harsh Environment

2

4

4

4

3

HD & SD Modern

8

8

8

8

8

SD Legacy

10

12

12

12

11

Total Stacked Fleet

19

21

21

20

22

Leased Rigs (3)

Jackups

HD Ultra-Harsh & Harsh Environment

1

1

1

1

1

HD & SD Modern

5

5

5

5

5

SD Legacy

3

3

3

3

3

Total Leased Rigs

9

9

9

9

9

Valaris Total

60

61

61

64

72

Managed Rigs (3)

2

2

2

2

2

ARO (4)

Owned Rigs

7

7

7

7

7

Leased Rigs

9

9

9

9

9

ARO Total

16

16

16

16

16

(1)

Active rigs are defined as rigs that are not preservation stacked.

(2)

Excludes VALARIS DS-13 and VALARIS DS-14, which Valaris has the option to purchase through year-end 2023. Prior periods have been revised to conform with the current treatment.

(3)

Leased rigs and managed rigs included in Other reporting segment.

(4)

Valaris has a 50% ownership interest in ARO. Rig count for ARO owned rigs excludes two newbuild rigs scheduled to be delivered in 2022. All ARO leased rigs are leased from Valaris and also included in Valaris leased rig count.

Three Months Ended

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

AVAILABLE DAYS - TOTAL FLEET (1)

Floaters

Drillships

1,001

990

1,043

1,274

1,274

Semisubmersibles

455

450

521

628

843

1,456

1,440

1,564

1,902

2,117

Jackups

HD Ultra-Harsh & Harsh Environment

1,153

1,170

1,328

1,196

1,183

HD & SD Modern

1,729

1,710

1,810

1,828

1,820

SD Legacy

364

360

368

368

504

3,246

3,240

3,506

3,392

3,507

Total

4,702

4,680

5,070

5,294

5,624

Other

Leased and Managed Rigs

1,001

990

1,012

1,012

1,001

Valaris Total

5,703

5,670

6,082

6,306

6,625

ARO

Owned Rigs

637

630

644

644

637

Leased Rigs (2)

819

810

828

828

819

ARO Total

1,456

1,440

1,472

1,472

1,456

(1)

Represents the maximum number of days available in the period for the total fleet, calculated by multiplying the number of rigs in each asset category by the number of days in the period, irrespective of asset status.

(2)

All ARO leased rigs are leased from Valaris and also included in Valaris leased and managed rigs available days.

Three Months Ended

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

AVAILABLE DAYS - ACTIVE FLEET (1)

Floaters

Drillships

364

360

368

460

637

Semisubmersibles

273

270

276

368

455

637

630

644

828

1,092

Jackups

HD Ultra-Harsh & Harsh Environment

819

630

867

736

910

HD & SD Modern

1,001

810

982

920

1,183

SD Legacy

364

360

368

490

546

2,184

1,800

2,217

2,146

2,639

Total

2,821

2,430

2,861

2,974

3,731

Other

Leased and Managed Rigs

1,001

990

1,012

1,012

1,001

Valaris Total

3,822

3,420

3,873

3,986

4,732

ARO

Owned Rigs

637

630

644

644

637

Leased Rigs (2)

819

810

828

828

819

ARO Total

1,456

1,440

1,472

1,472

1,456

(1)

Represents the maximum number of days available in the period for the active fleet, calculated by multiplying the number of rigs in each asset category by the number of days in the period, for active rigs only. Active rigs are defined as rigs that are not preservation stacked.

(2)

All ARO leased rigs are leased from Valaris and also included in Valaris leased and managed rigs available days.

Three Months Ended

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

OPERATING DAYS (1)

Floaters

Drillships

185

329

352

142

382

Semisubmersibles

137

90

56

71

157

322

419

408

213

539

Jackups

HD Ultra-Harsh & Harsh Environment

674

582

579

572

572

HD & SD Modern

742

683

669

750

842

SD Legacy

339

360

367

366

481

1,755

1,625

1,615

1,688

1,895

Total

2,077

2,044

2,023

1,901

2,434

Other

Leased and Managed Rigs

1,001

990

1,012

951

1,001

Valaris Total

3,078

3,034

3,035

2,852

3,435

ARO

Owned Rigs

609

609

599

619

615

Leased Rigs (2)

684

687

437

814

802

ARO Total

1,293

1,296

1,036

1,433

1,417

(1)

Represents the total number of days under contract in the period. Days under contract equals the total number of days that rigs have earned and recognized day rate revenue, including days associated with early contract terminations, compensated downtime and mobilizations. When revenue is deferred and amortized over a future period, for example when we receive fees while mobilizing to commence a new contract or while being upgraded in a shipyard, the related days are excluded from days under contract.

(2)

All ARO leased rigs are leased from Valaris and also included in Valaris leased and managed rigs operating days.

Three Months Ended

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

UTILIZATION - TOTAL FLEET (1)

Floaters

Drillships

18

%

33

%

34

%

11

%

30

%

Semisubmersibles

30

%

20

%

11

%

11

%

19

%

22

%

29

%

26

%

11

%

25

%

Jackups

HD Ultra-Harsh & Harsh Environment

58

%

50

%

44

%

48

%

48

%

HD & SD Modern

43

%

40

%

37

%

41

%

46

%

SD Legacy

93

%

100

%

100

%

99

%

96

%

54

%

50

%

46

%

50

%

54

%

Total

44

%

44

%

40

%

36

%

43

%

Other

Leased and Managed Rigs

100

%

100

%

100

%

94

%

100

%

Valaris Total

54

%

54

%

50

%

45

%

52

%

Pro Forma Jackups Including Leased Rigs

63

%

60

%

56

%

59

%

63

%

ARO

Owned Rigs

96

%

97

%

93

%

96

%

97

%

Leased Rigs (2)

83

%

85

%

53

%

98

%

98

%

ARO Total

89

%

90

%

70

%

97

%

97

%

(1)

Rig utilization is derived by dividing the number of operating days by the number of available days in the period for the total fleet.

(2)

All ARO leased rigs are leased from Valaris and also included in Valaris leased and managed rigs utilization.

Three Months Ended

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

UTILIZATION - ACTIVE FLEET (1)

Floaters

Drillships

51

%

91

%

96

%

31

%

60

%

Semisubmersibles

50

%

33

%

20

%

19

%

34

%

51

%

66

%

63

%

26

%

49

%

Jackups

HD Ultra-Harsh & Harsh Environment

82

%

92

%

67

%

78

%

63

%

HD & SD Modern

74

%

84

%

68

%

82

%

71

%

SD Legacy

93

%

100

%

100

%

75

%

88

%

80

%

90

%

73

%

79

%

72

%

Total

74

%

84

%

71

%

64

%

65

%

Other

Leased and Managed Rigs

100

%

100

%

100

%

94

%

100

%

Valaris Total

81

%

89

%

78

%

72

%

73

%

Pro Forma Jackups Including Leased Rigs

86

%

93

%

80

%

85

%

78

%

ARO

Owned Rigs

96

%

97

%

93

%

96

%

97

%

Leased Rigs (2)

83

%

85

%

53

%

98

%

98

%

ARO Total

89

%

90

%

70

%

97

%

97

%

(1)

Rig utilization is derived by dividing the number of operating days by the number of available days in the period for the active fleet.

(2)

All ARO leased rigs are leased from Valaris and also included in Valaris leased and managed rigs utilization.

Three Months Ended

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

REVENUE EFFICIENCY (1)

Floaters

Drillships

100.0

%

95.7

%

97.1

%

98.3

%

96.6

%

Semisubmersibles

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

98.2

%

98.8

%

98.9

%

98.5

%

Jackups

HD Ultra-Harsh & Harsh Environment

100.0

%

95.1

%

95.7

%

92.1

%

80.5

%

HD & SD Modern

99.8

%

99.7

%

99.8

%

94.3

%

98.7

%

SD Legacy

96.9

%

100.0

%

100.0

%

100.0

%

100.0

%

99.0

%

99.3

%

99.1

%

95.2

%

96.3

%

Total

99.3

%

98.9

%

99.0

%

96.0

%

97.1

%

(1)

Revenue efficiency is day rate revenue earned as a percentage of maximum potential day rate revenue.

Three Months Ended

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

AVERAGE DAY RATES (1)

Floaters

Drillships

$

212,000

$

208,000

$

214,000

$

155,000

$

161,000

Semisubmersibles

178,000

164,000

160,000

262,000

197,000

$

197,000

$

198,000

$

206,000

$

190,000

$

172,000

Jackups

HD Ultra-Harsh & Harsh Environment

$

141,000

$

140,000

$

120,000

$

138,000

$

129,000

HD & SD Modern

73,000

70,000

74,000

73,000

70,000

SD Legacy

72,000

70,000

55,000

65,000

63,000

$

99,000

$

95,000

$

86,000

$

93,000

$

86,000

Total

$

114,000

$

116,000

$

110,000

$

104,000

$

106,000

Other

Leased and Managed Rigs

31,000

32,000

6,000

36,000

37,000

Valaris Total

$

87,000

$

89,000

$

76,000

$

80,000

$

84,000

ARO

Owned Rigs

$

99,000

$

98,000

$

116,000

$

116,000

$

115,000

Leased Rigs (2)

93,000

89,000

99,000

91,000

94,000

ARO Total

$

96,000

$

93,000

$

109,000

$

102,000

$

103,000

(1)

Average day rates are derived by dividing contract drilling revenues, adjusted to exclude certain types of non-recurring reimbursable revenues, lump-sum revenues, revenues earned during suspension periods and revenues attributable to amortization of drilling contract intangibles, by the aggregate number of contract days, adjusted to exclude contract days associated with certain suspension periods, mobilizations, demobilizations and shipyard contracts.

(2)

All ARO leased rigs are leased from Valaris and also included in Valaris leased and managed rigs average day rates.

(in millions)

Three Months Ended

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

DRILLSHIPS

Adjusted Revenues (1)

$

38.4

$

66.4

$

71.1

$

28.9

$

69.3

Adjusted operating expense (2)

41.6

52.8

62.0

77.6

90.6

Rig operating margin

(3.2)

13.6

9.1

(48.7)

(21.3)

Rig operating margin %

(8)

%

20

%

13

%

(169)

%

(31)

%

Other operating expenses

Depreciation

21.4

43.0

42.8

42.4

43.1

Loss on impairment