Valaris Limited

Good day and welcome to the Valera's fourth quarter 2023 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone, and to withdraw your question, please press star, then two. Please note, this event is being recorded. Today, we are experiencing national AT&T coverage issues. Should the presentation be interrupted at any time, we will attempt to reconnect and continue. During Q&A, if we experience an interruption, we will do our best to continue but may separately connect with analysts after the call. We appreciate your patience. I would now like to turn the conference over to Darren Gibbons, Vice President of Investor Relations and Treasurer. Please go ahead.

Welcome everyone to the Volaris 4th Quarter 2023 Conference Call. With me today are President and CEO Anton Dibovitz, Senior Vice President and CFO Chris Weber, Senior Vice President and CCO Matt Line, and other members of our Executive Management Team. We issued our press release, which is available on our website at volaris.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. As a reminder, last week we issued our most recent fleet status report, which provides details on contracts across our rig fleet. An updated investor presentation will be available on our website after the call. Now, I'll turn the call over to Anton Dibovitz, President and CEO.

Thanks, Darren, and good morning and afternoon to everyone. During today's call, I will begin with an overview of our performance during the quarter, then provide some high-level commentary on the outlook for the offshore drilling market. and finish with an update on our capital return program. I'll then hand the call over to Matt to discuss the floater and jackup markets in more detail and provide an overview of our recent contracting success and our contracting outlook for 2024. After that, Chris will discuss our financial results and guidance before I wrap up the call with some closing comments. Before I discuss the quarter, I want to highlight some key points about our business that we will cover in more detail during this call. First, we remain confident in the strength and duration of this upcycle, and the outlook for Valeris is positive, with increasing demand and constrained supply tightening the market. Second, we continue to execute on the commercial front, with nearly $3 billion of new contract backlog secured during 2023 at meaningfully improved day rates. Today we sit with total contract backlog of more than $3.9 billion. a nearly 60 percent increase from 12 months ago. And our contracted revenue coverage of more than 90 percent in 2024 underpins the meaningful improvement we expect in this year's financial results. Third, we are maintaining our 2024 EBITDA guidance range of $500 to $600 million. And finally, we continue to demonstrate our commitment to returning capital to shareholders. We repurchased $200 million of shares in 2023, and we are now increasing our share repurchase authorization from $300 to $600 million. Starting with operations. Operating safely and efficiently remains our top priority, and we ended the year with positive momentum, with the fourth quarter's safety performance being the strongest of the year. We remain focused on continued improvement, and I would like to thank all our offshore crews and onshore personnel for their dedication to following our safe systems of work and keeping safety top of mind wherever we operate around the world. Of particular note, we had several rigs celebrate safety milestones during the quarter, and I'd like to congratulate the Valaris Norway 72, 110, and 115 for each reaching three years without a recordable incident, a fantastic achievement by these teams. We're equally proud of Valaris 110, for being awarded Total Energies and North Oil Company's Global Jackup Rig of the Year, a great example of our focus on safe and efficient operations and our collaborative approach to working with our customers. I also want to congratulate the entire Valeris team for the successful reactivation of Valeris DS8. The team completed the reactivation and executed a best-in-class importation into Brazil and customer acceptance with Petrobras. enabling the rig to commence its contract ahead of schedule. This marked the fifth drill ship reactivation that we've completed since early 2022 and our second during 2023, following the startup of DS-17 in September. We continue to make good progress on reactivating DS-7 and look forward to adding another drill ship to the active fleet later this year for a two and a half year contract offshore West Africa. Our industry-leading ability to execute these complex projects has been an important part of our growth story and a key driver for the meaningful improvement that we expect to see in our financial results in 2024 and beyond. Moving to our financial performance for the quarter, we generated adjusted EBITDA of $58 million and adjusted EBITDA, adding back one-time reactivation costs of $96 million. Chris will provide further details on our financial results and guidance a little later. Turning our attention to the market, commodity prices remain supportive for continued investment in long-cycle offshore projects, with the five-year Brent Ford price around $70 per barrel, a level at which approximately 90% of undeveloped offshore reserves are expected to be profitable. In addition, growing global demand for hydrocarbons means that these barrels will be needed to meet the world's energy needs. According to data from restart offshore upstream capex is expected to increase by 10% in 2024 and at a compound annual growth rate of 6% over the next three years. The floater market continues to develop positively, this is evident in the customer activity, we are seeing with a growing pipeline of opportunities that are providing increased term with with longer lead times a great sign for the duration of the current up cycle. However. As we mentioned in our previous quarterly call, considering lengthening contract lead times, customer-acquired upgrades, and repositioning rigs for work, we would expect to see some gaps in schedules across the industry during 2024. Looking at pricing, leading-edge day rates continue to be in the mid to high 400s, as demonstrated by our two most recent drill sub-fixtures, and we believe that they will continue to move higher over time as the remaining stacked and new-build capacity continues to diminish and the total supply and demand balance further tightens. We believe that two- to three-year programs are likely to be awarded at, or close to, leading-edge rates, while we may see lower rates for some of the five-year-plus opportunities, as some contractors may be willing to accept a lower rate to secure long-term duration and backlog. Similarly, we may see somewhat lower rates on shorter-term gap-filled jobs, to avoid rigs becoming idle. For Velaris, we are focused on maximizing the profitability of our fleet by keeping our active rigs highly utilized and securing the best contract economics possible in each unique bidding situation. Our recent purchase of new-build drill ships Velaris DS13 and DS14 at highly attractive prices demonstrates our confidence in the strength and duration of the upcycle. and we will be disciplined in waiting for the right opportunities to reactivate these rigs and Valeris DS-11. Moving to shallow water. While the recent announcement from Saudi Arabia has created some uncertainty, we remain positive on the outlook for the jack-up market. First, we expect that Saudi Arabia will continue to be the largest jack-up market in the world for the foreseeable future. We understand the recent announcement reflects a change in the timing and pace at which Saudi will develop their resources, given that they currently hold about 3 million barrels of spare capacity. The delay in increasing maximum sustainable capacity from 12 to 13 million barrels per day is expected to be focused on the expansion of just two oil fields, Safania and Manifa, and we do not think it changes the Kingdom's long-term view on the need for these resources, given their expectations for growing oil demand. The global jack-up market is extremely tight, with active utilization approaching 95%, and the contracted rig count at its highest level in nearly nine years. And we continue to see incremental demand coming to market outside of Saudi Arabia, which Matt will talk about a little bit later. And finally, approximately 90 contracted jack-ups, representing more than 20% of the contracted global jack-up fleet, are at least 40 years old. meaning it is likely that some of these rigs will be retired and the overall number of jackups in the global fleet will decline further over time. Regarding our business, we have eight rigs leased to Arrow, our unconsolidated joint venture with Saudi Aramco, with an additional two rigs scheduled to commence leases this year. For context, the charter revenue on all our leased rigs accounts for just 5% of our contract backlog. Aramco and the Kingdom remain fully committed to Arrow, including its new build program, which is a cornerstone project of the Saudi Vision 2030 program, and we think that the recent Saudi announcement will have minimal, if any, impact on our business. Moving now to an update on our capital return program. We expect to deliver significant earnings and cash flow growth over the next few years as we reprice rigs to market day rates and reactivated rigs go back to work. and we intend to return all future free cash flow to shareholders unless there is a better or more value accretive use for it. We continue to demonstrate our commitment to returning capital to shareholders. Last year, we authorized a $300 million share repurchase program and returned $200 million to shareholders, and we are now increasing the authorization to $600 million, providing increased capacity to opportunistically repurchase shares. Now I'll hand the call over to Matt to discuss the floater and jack-up markets in more detail and to provide an overview of our recent contracting success and our contracting outlook for 2024.