Valaris Ltd Aktie

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.

All right. Next up, we have Valaris this afternoon. I'm very pleased to introduce Mr. Anton Dibowitz, President and CEO of Valaris since September 2021. Previously served as CEO of Seadrill from 2017 to 2020, following various roles since 2013 and has over 20 years of drilling industry experience. Anton has a few opening remarks and a few slides, after which we'll have some Q&A. Anton, thanks for joining us today.

Sure. I can do my opening remarks sitting here if that's okay.

Yes, absolutely.

You missed the first part of my career, So I actually started at Transocean, then I went to Seadrill, but I left the best for last to be at Valaris, where hopefully we'll end a long, maybe not illustrious career. So just a couple of comments about Valaris for those of you who don't know. So who is Valaris.

Valaris is the largest offshore driller if we start on the left side of the slide, 48 rigs, 13 high-specification drillships, 2 semis in the fleet and 33 jackups. And what's really important about that fleet is that it is high specification. 12 of our 13 drillships are seventh-generation asset. That's the highest concentration of high-spec drillships in the industry. And fleet quality matters in this business. If you look at contracting over the last year or so, the dayrates and 7 gen drillships have been about 25% higher and the utilization has held in about 10 percentage points higher than the general market.

Our customers prefer high-specification assets, high hook load capacity, dual BOPs, high thrust capacity, allow them to gain efficiencies on those programs, and those programs are amplified over the development programs, which is overwhelmingly what we're chasing right now in the business. But fleet quality only matters if you can deliver operations with it.

And if you go in the middle part of that slide, very proud of the operational track record that we've delivered for our customers over the last few years. 96% revenue efficiency, that's actually realizing the value from the backlog that we book and a strong safety record. Delivering operational excellence not only allows us to realize the revenue on our contracts, it also gets us work because customers want to work with drilling contractors can deliver their programs.

Our contracting philosophy over going into this year, and I'm sure we'll talk about white space has been to book in the white space that we faced as an industry. We had 4 ships with near-term availability this year, and we've made great progress on that initiative. We've secured back-end contracts to put 3 of those drillships back to work, and the dayrates on those contracts have all been over $400,000 a day. Between that contracting success in our drillship fleet, plus what we continue to contract in our jackup fleet, we've added more than $2 billion of contract backlog, one $2 billion worth of contracts this year. $1.3 billion of that on our drillships, putting our contract backlog at $4.7 billion, which is the highest it's been in a decade.

Our operational performance, the quality of our fleet and our contracting success have all led to great financial performance in the first half of the year. Net operational performance led us to on our Q2 call, increased the midpoint of our guidance by $55 million to $585 million.

Taking a step back for a second, what do we see in the market? We see a strong case for offshore drilling and particularly for deepwater. Our customers are increasingly turning to deepwater to meet their resource needs. We believe in a positive strong future for our assets, and we will continue to exercise what are our 3 priorities in this business, and that is deliver great operational excellence for our customers, contract successfully and be astute in our commercial strategy and be good stewards of our business. And by that, I mean, manage our fleet and manage our balance sheet. And with that, we think and we are confident that we can deliver long-term value for our shareholders.

That's it. Great. Awesome. Thank you for that overview. So yes, a year ago, the big theme at our conference here was white space. But now here we are. We're in the middle of it, but it's now well understood, well telegraphed by you and your peers. It feels like we've gone through a rough period of significant uncertainty around offshore demand, but now we've sort of come out of it. Is that kind of the sense you're getting from your customers? And can you just talk about overall tone from customer conversations and how that translates to your deepwater outlook over the next 12 to 18 months.

Yes. First, sure, Amesha, thanks for having us here again. Good to see you again. It was reflecting this morning a little bit of where we were a year ago. And whitespace was the topic of the day. I think at the time, what we talked about and people ask, why do you believe or what leads you to believe that these rigs, although these programs are being pushed back that they will actually translate into to this work being delivered what we expected then was for start-ups in '26 and into '27. And what we saw at the time was while programs were being pushed back for a number of reasons, none of those programs were being taken off the table. It was really a timing issue. So white space was going to be transitory as we expected it. But obviously, there's the show me, don't tell me phenomenon. So what we were looking for was to see that the pace of contracting would pick up in the first half of this year, and we've certainly seen that happen.

And the reason for that is if you're going to start a program up in the middle of '26, ultimately, operators need to be contracting that rig 12-plus months in advance. I mean you get away with 9 months, but generally, it's about 12 months in advance. So with start-ups in '26, we expect to see contracting in '25. So we've taken that, as I said, the commercial opportunity to secure 3 out of the 4 of our ships that had near-term availability. We see a good pace of contracting across the industry.

A year ago, we were talking about 30 opportunities that we were tracking for term programs starting in the next couple of years. And we continue to see the number in the pipeline about that. And that's important because we have seen a pickup in contracting, yet the pipeline continues to fill up with additional opportunities. So the discussions we're having with our customers right now, we expect that, that pipeline of opportunities to continue to get filled up on the back end, but also contracting to continue as we head through the reminder part of this year.

Great. Just in terms of deepwater utilization, last month, you said the overall drillship utilization might trough sometime in the first half of '26, but that the seventh-gen drillship market is going to lead the recovery and exit '26 with utilization levels above 90%. So typically, that level of utilization would imply pricing increase. We're currently here in the low 400s, which is where spot pricing has been. Would you expect contract announcements in the second half of next year to kind of move up into that mid- to high 400 level where we've been over the past 2 years?

So let's talk about the development in rates. I mean what we said heading into a white space period was not that we expected to see a major moderation or change in pricing, but to see a broader range of rates. As utilization drops, there is some pricing pressure generally and people are going to follow different strategies, and you may see a broader range of rates as you go into that period. I mean, as far as our commercial execution, I'm proud that of the 3 term contracts that we signed in our ships, those rates have all been above $400,000. And I think that speaks to customers who select you based on your operational performance who appreciate and are going to utilize the specifications of your rigs are still willing to pay for that capacity in the market.

As far as the utilization piece goes, we see the pipeline of programs. Seventh-gens have led sixth-gens by about 10 percentage points through the cycle. So we still expect utilization to continue to drop on an absolute basis as we go through the remainder of the year because there are rigs that end contracts quarter-over-quarter and the start-ups of these term programs are really kind of midpoint in '26 and beyond. So we still expect utilization to drop through the end of the year into the beginning part of '26 to recover through '26. And because seventh-gens are advantaged over sixth-gens, we fully expect that seventh-gens will lead the recovery. And yes, based on the timing of start-ups of programs, we expect to be exiting '26 with utilization of 90% or better.

To your question about pricing, in some ways, it's economics 101. Pricing follows supply-demand dynamics so as the market continues to tighten through '26 and into '27, we fully expect there to be positive pricing momentum in the market. I don't want to say exactly when or exactly where, but the pricing follows the utilization and as the market tightens, especially for seventh-generation assets, we expect that to pull through into the market.

Great. As you mentioned, you've secured contracts for 3 of our 4 drillships with near-term availability. The only one that's left is the DS-12, it's warm stacked and currently without a future contract. Can you talk about some of the opportunities you're looking for this rig? And at this point, would you contract this rig for anything less than maybe a 1-year job?

For the right commercial opportunity, sure, we would. But I think we've been pretty clear on what our commercial strategy is, having continuous work and long-term work makes for a good business. So our commercial focus has clearly been on speaking out and waiting for the right opportunity to book in the white space and put our highly -- our high-specification fleet back to work. We've done that on term programs on the first 3 of those assets, and that's fully our intention to find a similar program for the 12.

And the 12 is a great rig. It's drilled the exploration well in Egypt that BP is now tendering for a development opportunity. So it has a great reputation there. It's drilled up and down West Africa and has a fantastic track record with -- in a number of basins. And there's some really, really interesting opportunities in Africa, which is the let's say, the driver of growth of incremental demand as we see it in the market right now. I mean we're tracking about 30 opportunities for startups in the next couple of years, roughly half of those in Africa. So given Valaris' long and excellent track record in Africa, the 12 is obviously well placed for a number of those programs.

There are some programs further afield kind of more internationally, but I think between those programs, we feel good about continued contracting and tender closings from operators and feel good about finding a good solid home for the 12. Never say never at the right economics, would we take something shorter. But our focus has clearly been on and we have executed on book-ending that white space, finding that next term contract for our rig to underscore and underpin our earnings visibility going forward.

And then if there are shorter-term opportunities to seek that as a secondary to having that earnings underpinned. I think one of the developments we have seen, which is also encouraging in the last 6 months or so is some shorter-term programs emerging in the market where there was almost no short-term work being talked about by operators. So across the Golden Triangle, we're actually having conversations with customers about potential short-term work. There are a lot of factors that need to come into play for it to make sense for us. You don't, as a drilling contractor, want to be ramping up activity on a rig, drilling a short-term program, having to ramp down with the cost and then ramp back up again.

So our focus will be finding that long-term contract and then seeing if we can find gap fill that sits right before that contract, and there are some incremental of those opportunities. And of course, we'll see if we can find some of that to secure some -- to fill in some of that some of that idle time on the 12, when we contracted as well as our other rigs that we've already contracted. I mean, generally, I think we've covered where we see Africa, half of the opportunities, as I said, Brazil is an interesting place. Petrobras, yes, they're redoing their 5-year plan. But generally, the expectation is that they're going to continue to enroll the contracts that they have there, either through current tenders or new tenders that are ongoing.

I think what's interesting in Brazil because Petrobras was the first leg up in incremental demand in the market. Petrobras being stable, a very important part of the deepwater business is the advent of the IOCs coming back to Brazil in a big way.

So we're drilling there for Equinor right now. They have 2 developments going on, but they're seeking a third rig to add to their portfolio. Shell is tendering for the Gato do Mato development, which is going to need a rig and then maybe not in the near term, but our DS-15 drilled the exploration well for BP on the Bumerangue field which BP, I think, publicly stated was their largest discovery in 25 years. So maybe a little bit further down the road, but fully expect that, that will be. So the increment of IOCs in Brazil is a good leg up for the market.

Gulf of Mexico, pretty stable as we see it right now, very pleased to have extended the DS-16 along with the DSA-18, expanding our relationship with Oxy there. A couple of opportunities further afield. Australia, Malaysia, some work in India for ships. These are not massive numbers, but pulling 2, 3, 4, 5 rigs out of the Golden Triangle to meet demand in those areas, which are where operators are increasingly looking for higher spec will help the supply/demand balance. So I mean, long story short, I'm kind of doing the weave, yes, not to quote somebody else. But we feel good about the prospects for the 12. I think there's a lot of opportunity in the market for it.

Got it. Great to hear. Moving beyond the 12, you do have 3 cold stacked rigs in the DS-11, DS-13, DS-14. Obviously, the priority is contracting the DS-12, of course. But what's your best estimate at this point as to when maybe one of those start working again. We're seeing -- we're hearing about the recovery in the second half of '26 and into 2027. Is 2028 a reasonable assumption for one of those to start working or?

I'm glad you made a prediction. You're not asking me to do it. Those of you who know me, I'm not much of a prognosticator as you can be proven quite wrong in this business. Look, I think '28 is a reasonable assumption if I can be so bold. If -- our focus, as you said, is clearly on keeping our active fleet highly utilized. We've done that with 3 out of 4 with near-term availability. We've rolled the 16, which was only rolling off middle of next year. Beyond that, we have the DS-7 and the DS-9. Yes, their contracts are only ending in the second half of next year. But absolutely, our focus will then turn to making sure that our active fleet is highly utilized.

The 11, 13 and 14 are great assets for us. These are the highest spec sidelined rigs sitting on the sidelines, dual BOP, seventh-generation assets. We fully are confident, believe and expect there will be a time to bring these rigs to market. But we will not bring them to market until the market is ready to take them. We're certainly not going to cannibalize our own fleet or add additional capacity to the market before the market is ready for it. Look, we've reactivated 6 drillships in the cycle, the most of any drilling contract. And we did not add a single one of those rigs to the market that wasn't against incremental demand.

We were not trying to displace existing contractors in the market. And we were successful in finding contracts that were cash accretive on the start-up costs under their initial contract and we will follow the same philosophy very clearly with the 11, 12 -- 11, 13 and 14. We expect those contracts will be there with a tightening market. And yes, I'm not going to make a prediction, but I'd say '28 is a reasonable assumption the way we see the market developing.

Great. And then a related question, just we haven't talked about reactivation expenses in quite some time. What's your latest estimate as to kind of the all-in cost of reactivation. I think when we were talking about it 1.5 years ago, not just with you but industry-wide, anywhere from $125 million all in, maybe $150 million. Is that still the estimate?

I think -- I don't think there's been a large change in reactivation costs. I mean there has been a little bit of oilfield inflation. We've done it 6x. We have a good track record of doing it. So we have a good idea and a great project team we've delivered those rigs very successfully. So I think we have a pretty good idea of it is. I think we've always been on the lower end of the broad range that you hear in the market of doing that based on the technical and engineering prowess and the fact that we stacked those rigs. These were our rigs. We've had them stack the whole time. We fully understand what it takes to bring them back. So I think that $120 million, $125 million range on average would still hold for our assets. And I think that the timing would still be about a year in order to do that project.

Got it. Just shifting gears to the jackup market. Could you just provide your latest thoughts on your outlook, maybe split between kind of benign jackups and your jackups in the North Sea. On the benign side, you obviously have a big presence with the ARO Drilling JV with Saudi Arabia. Some investors see that as a risk because of all the suspensions we've been hearing about, but they don't realize that you just signed up 5 of them, I believe, on 5-year extensions. So if you could just talk about both your benign market jackups and your North Sea jackups.

Yes. We've had number of one-on-ones this morning. I think people don't talk about jackups enough. I mean jackups are -- and our jackup fleet is an important part of what Valaris is and the Valaris story. Other people have shied away from it, but it's a really good productive business for us, and we like it as part of the portfolio. It adds to our scale, it gives us customer relationships, and it generates earnings. Our positions in jack-ups is, as you said, one piece of it is the ARO JV, the 50-50 JV with Aramco.

We leased 7 rigs into the ARO JV, and you're absolutely right. We extended 5 of those this year at significantly increased rates from where they were before and extended those rigs through 2030. So of the 7 rigs we have leased into the ARO JV, 6 of them are contracted through 2030 and the other one is contracted through 2027. Beyond that, we've got a solid position, we choose where we want to compete on the jackup market, on the high-spec and certain kind of customer market. So we're operating on a long-term contract in Qatar.

We have a great position in Trinidad where folks need high-spec assets, and you can get advantage dayrates in that market. We're in Australia with the 107. So we feel good about our benign environment jackup. Look, despite what happened with Saudi and Saudi releasing rigs and those rigs needing to make a transition into the international market, utilization of the jackup market has held at 90% or above. So this is a good market. It's a good cash-generating market.

On the harsh environment side, we have a leading presence in the North Sea. We have great customer relationships there. We do expect there to be some competition. A couple of operators decided to prioritize other basins over the North Sea but we have great contract coverage on our fleet. We see a pipeline of 20 or so opportunities between the U.K., Netherlands and the Danish sector in there. I mean, overall, our jackup fleet is 70% contract covered for 2026 and about 60% for 2027. But overall, this is a good cash generating -- EBITDA generating part of our business. Year-over-year in '25, we see growth both in average dayrates and also operating days. So we like our jackup position. It's a great part of the story.

Great. Just turning to M&A. The last big corporate M&A transaction with Noble acquiring Diamond Offshore. People have said that there might be room for one other big corporate M&A in the industry. Where do you see Valaris just in terms of positioning and your strategy in terms of corporate M&A?

I mean, absolutely. I mean, Valaris has a lot of drillers in this market, it is a product of consolidation. So we were fully subscribed to consolidation. I think investors would like to see some more consolidation. And in fact, I think our customers would it leads to kind of more solid counterparties that they can contract with the ability to operate at scale to deploy technology. So I think it will be helpful both for the investor and for the customer side of the business. I don't -- we don't look at M&A as either/or or look at it as and both strategy. I think we already have the scale that we need in this business. You need to have scale in this business to have synergies to be able to share overheads to be able to deploy technology.

We already have the scale that we need in our business. I think you've seen some M&A because folks have needed to build growth capacity or get growth capacity or upgrade their fleet profile. Now set up here before, 12 out of 13 of our ships are seventh generation. So we already have the fleet quality. We already have the scale. Our growth story is baked in with the 11, 13 and 14. So we don't need to do M&A, but will we? Absolutely. I mean, the lens is easy. Is it based on synergies and the fleet quality that you would be pairing with? Do you not degrade your fleet quality? And is it value creating and accretive to shareholders, then absolutely, we will engage in it but we don't need to. So it's a great position for us to be and to have organic growth built into the structure, but also have the opportunity to do M&A if it makes sense for our shareholders.

Got it. I have one last question, but I think we might have time for one or two questions from the audience, if we can get the mics going around. My final question is on shareholder returns. Valaris currently doesn't have a dividend. And while you did repurchase shares last year, you haven't repurchased any this year at all. You have a strong balance sheet and also receiving $100 million of sale proceeds from the VALARIS 247 soon. So should we expect shareholder returns maybe in the second half of this year? Or is that more of a 2026 event in your mind?

So let's take a step back, overall capital return philosophy. I mean our philosophy has always been clear that once we have sustained cash generation in the business, that our goal was to return that all to shareholders unless we clearly had a more value accretive use for it. Your first question was about white space. So we're going into this year with quite a bit of uncertainty. And again, we wanted to see that white space and book ending that white space would be an important part of us talking about capital returns. The other piece of it was making sure that we contracted our rigs. So we book operational performance is important.

First half of the year, we've generated significant EBITDA and cash flow and we've a little bit balanced in the second half of the year. And as you mentioned, the sale of the 247 for north of $100 million. All of these things add to our flexibility to engage in capital returns. I think we've always been clear that it's not necessarily going to be linear and it's necessarily going to be tied one-on-one with when we're generating the cash. But I think it's all significantly positive markets that help us think about give us additional flexibility in order to return capital to shareholders.

Great. Any questions from the audience? We might have time for 1 or 2. We got one up here in front.

So just following up on your comment on the cyclicality of '26, the dip and then followed by the 90% towards year-end. What, if any, oil price assumptions are behind that cycle comment?

So what do we see right now? I mean what we're seeing actually in the market is our customers rotating from short-cycle onshore developments where some of them are challenged at current oil prices to offshore large-scale developments based on, one, their need for production, needing to replace production heading towards the end of the decade. But because the programs that they're looking in these long-cycle developments are highly economic at current prices and well below. I think there's some data from [ Restart ] talking about of the projects we expect to be sanctioned in the next 3 years, 75% of those programs are economic below $50 a barrel, right? So offshore gives our customers the scale that they need. They have compelling economics, and it actually has lower emissions intensity, which is still a factor for a number of them. So we -- it's quite resilient to prices and a forward strip, that's north of [ $65 million ].

And we certainly see that from the discussions we're having with customers where we are right now about them doing that rotation, the expectation is an increase in exploration activity and greenfield development offshore in the next few years. So I feel good about it.

Great. That's about all the time we have. So Anton, thank you very much for joining us.

Yes. Thanks, as always. Appreciate it.

Thank you.