Valaris' Q3 2025 Earnings Call: Contradictions Emerge on Market Recovery, Petrobras Contracts, and Capital Return Strategies

Date of Call: October 30, 2025

Financials Results

• Revenue: $596 million, down from $615 million in the prior quarter

Guidance:

• Revenue for Q4 2025 expected to be $495M to $515M.
• Contract drilling expense expected $390M to $405M (includes $25M–$30M of reimbursables in revenue and expense).
• G&A expected ~ $27M.
• Adjusted EBITDA expected $70M to $90M (midpoint implies FY adjusted EBITDA ~ $625M).
• CapEx expected $145M to $165M (midpoint implies FY CapEx ~ $390M).
• Expect ~$70M of upfront customer payments this year to reimburse contract-specific upgrades.

Business Commentary:

• Financial Performance and Shareholder Returns:
• Valaris reported adjusted EBITDA of $163 million for Q3, with adjusted free cash flow of $237 million, up significantly from the previous quarter.

• The company repurchased $75 million worth of shares during the quarter, demonstrating strong financial health and commitment to shareholder returns.

• Operational Excellence and Contracting Activity:

• Valaris achieved a fleet-wide operational efficiency of 95% in Q3, contributing to its financial performance.

• The company secured new contracts, including a 5-well contract for VALARIS DS-12 with BP offshore Egypt, adding nearly $200 million to its contract backlog.

• Fleet Management and Asset Sales:

• The company sold the 27-year-old jack-up VALARIS 247 for $108 million, highlighting disciplined cost and fleet management.

• Plans to mobilize rigs to reduce costs while evaluating future opportunities, demonstrating strategic fleet management.

• Offshore Drilling Market and Customer Demand:

• Demand for offshore drilling services is expected to develop as anticipated, with a robust pipeline of deepwater opportunities.
• Valaris anticipates utilization of the global drillship fleet to trough late this year or early next, with recovery expected in the second half of 2026.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted adjusted EBITDA of $163M and adjusted free cash flow of $237M, repurchased $75M of shares, added over $2.2B of backlog year-to-date and noted all 4 drillships with near-term availability are contracted—framing momentum and confidence in the commercial outlook.

Q&A:

• Question from Scott Gruber (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?
  Response: Management is committed to returning capital and will continue opportunistic share repurchases based on market conditions and available cash flexibility, not on a fixed cadence.

• Question from Scott Gruber (Citigroup): 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?
  Response: Minimum operational cash balance is roughly $200 million; amounts above that are evaluated against market outlook and cash flow profile for potential deployment.

• Question from Scott Gruber (Citigroup): 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?
  Response: Management sees an uptick in exploration discussions tied to the need for future developments and views increased exploration as constructive for long-term demand.

• Question from Gregory Lewis (BTIG): Is asset sales a mechanism to drive return of cash to shareholders or will returns be more focused on operations or both?
  Response: Priority is operationally driven sustained free cash flow to fund returns; asset sales are opportunistic when attractive and can enhance financial flexibility, but not the primary driver.

• Question from Gregory Lewis (BTIG): On MPD additional services, if it's a menu item, how often should we assume that service gets used?
  Response: While customer- and well-specific, a reasonable general assumption is MPD add-on utilization around 40%–50% of relevant wells.

• Question from Eddie Kim (Barclays): 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 ... 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?
  Response: Management believes high-spec day rates have largely troughed in the high-$300ks to low/mid-$400ks and expects utilization to trough near year-end then recover in H2 2026, with day rates following utilization improvements.

• Question from Eddie Kim (Barclays): DS-9 and DS-7 are off contract mid/late next year in Angola—likely extensions? And DS-15/DS-18 are idle today—likelihood of short-term gap-fill before long-term contracts?
  Response: Management views DS-7/DS-9 as having good extension prospects in Angola and expects gap-fill opportunities exist but not enough to fill all white space; they still expect all 10 active drillships to be working by end-2026.

• Question from Doug Becker (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.
  Response: Discussions with Petrobras are early and focused on supply-chain cost savings; Petrobras is expected to maintain a similar fleet size, so no immediate contract reductions indicated.

• Question from Doug Becker (Capital One): Aramco has issued notices calling back several suspended rigs—do you think Saudi Arabia is a source of incremental demand for Valaris next year?
  Response: Reactivation by Aramco is a positive data point that could add incremental jack-up demand; Valaris is monitoring opportunities through its JV arrangements.

• Question from Josh Jain (Daniel Energy Partners): 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?
  Response: Management is most confident in Brazil holding flat and Africa providing incremental floater demand (roughly half of long-term opportunities), while supply shifts and regional variability create potential risk outside these core markets.

• Question from Josh Jain (Daniel Energy Partners): Regarding Saudi Aramco, how many rigs do you feel they could add back over the next 3 years to meet production goals?
  Response: Management expects near-term Saudi reactivations in the mid-to-high single digits with potential for additional tenders, which would further support an already tight high-spec jack-up market.

Contradiction Point 1

Market Recovery and Day Rates

It involves differing expectations regarding market recovery and day rates for offshore drilling, which are crucial factors for Valaris' financial performance and investor expectations.

Will day rates remain below $400,000, and how will this affect activity inflection? - Eddie Kim (Barclays)

2025Q3: Utilization is expected to trough late this year or early next and recover by the end of 2026, with seventh-gen drillships exiting 2026 at 90% utilization. - Anton Dibowitz(CEO)

What are your thoughts on leading-edge day rates for upcoming contracts? - Eddie Kim (Barclays)

2025Q2: Seventh-gen utilization is expected to exit 2026 at 90%, day rates will likely follow suit. The next round of fixture day rates will be similar to what we've been seeing. - Matt Lyne(CMO)

Contradiction Point 2

Petrobras Contracts and Fleet Size

It involves changes in expectations regarding Petrobras contracts and fleet size, which are critical for Valaris' contract pipeline and financial forecasts.

What is the focus of recent discussions with Petrobras on cost reduction? - Doug Becker (Capital One Securities, Inc., Research Division)

2025Q3: Petrobras is looking to save costs across its value chain while maintaining production targets. We expect their fleet size to remain stable, which is positive for our business. - Matt Lyne(CMO)

Can you update us on Petrobras tenders and the expected number of rigs? - Doug Becker (Capital One)

2025Q2: Petrobras is expected to keep their fleet flat through the end of the decade. The current Buzios tender is expected to contract more than one rig, with potential for multiple rigs in the next tender. - Matt Lyne(CMO)

Contradiction Point 3

Market Recovery Timeline

It involves differing perspectives on the expected timeline for market recovery, which is crucial for setting investor expectations and strategic planning.

Will day rates fall below $400,000, and how would this affect activity trends? - Eddie Kim (Barclays)

2025Q3: Utilization is expected to trough late this year or early next and recover by the end of 2026, with seventh-gen drillships exiting 2026 at 90% utilization. - Anton Dibowitz(CEO)

At what Brent oil price level might some offshore FIDs be delayed? - Eddie Kim (Barclays)

2025Q1: Short-term market weakness is not deterring customers from pursuing long-term investment programs. The structural market recovery remains on track. - Anton Dibowitz(CEO)

Contradiction Point 4

Exploration Activity and Market Confidence

It reflects differing levels of optimism regarding exploration activity and market confidence, which can impact investor sentiment and strategic decisions.

What is the company's view on increased exploration interest and whether this will lead to concrete actions in the future? - Scott Gruber (Citigroup Inc., Research Division)

2025Q3: There is an increase in exploration discussions due to the necessity to develop new resources to meet energy demands. Customers are moving forward with long-cycle offshore developments despite short-term commodity price uncertainty. This bodes well for the market and supports our optimistic outlook. - Anton Dibowitz(CEO)

Has the decline in day rates increased interest in the subsea tie-back market? - Greg Lewis (BTIG, LLC, Research Division)

2025Q1: The focus remains on programs starting in 2026 and beyond. There may be opportunistic wells in 2025, but no direct link to day rate changes. The macroeconomic uncertainty hasn't affected the timeline for major projects. - Anton Dibowitz(CEO)

Contradiction Point 5

Asset Sales and Capital Return Strategy

It involves the company's strategy for returning capital to shareholders through asset sales, which could impact investor expectations and financial planning.

How should we view asset sales as a way to return cash to shareholders? - Gregory Lewis (BTIG, LLC, Research Division)

2025Q3: Capital return is driven by operational cash flow and sustained earnings. Selling assets opportunistically, like the recent sale of VALARIS 247, is an additional source of flexibility. - Anton Dibowitz(CEO)

What gives you confidence that pending programs or discussions will materialize on schedule? - Fredrik Stene (Clarksons Securities)

2024Q4: We've got a great asset base that we're going to optimize over a number of years. It's not like we need to sell a bunch of assets suddenly. - Anton Dibowitz(CEO)