Valaris Limited

Good day, and welcome to the Valeris Third Quarter 2024 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. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Nick Georges, Vice President, Treasurer, and Investor Relations. Please go ahead.

Welcome, everyone, to the Volaris third quarter 2024 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. Earlier this 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, Nick, and good morning and afternoon to everyone. During today's call, I will begin with an overview of our performance during the quarter and provide an update on the offshore drilling market. I will then hand the call over to Matt to highlight our recent contract awards, discuss the floater and jackup markets in more detail, and provide some additional color on our contracting outlook. After that, Chris will discuss our financial results and guidance before I finish with some closing comments. To begin, I want to highlight a few key points. First, We delivered excellent operating performance and financial results in the third quarter, which helped us generate $111 million of free cash flow during the period. Second, we maintain our conviction in the strength and duration of this upcycle, and we believe Valeris is well positioned to drive long term value creation. While we have seen some customer demand deferred, the pipeline of future opportunities in 2026 and beyond remains robust. We are focused on securing attractive long-term contracts and prudently managing our fleet to support our earnings and cash flow growth. Third, as expected, our free cash flow profile improved relative to the first half of the year, and we repurchased $100 million of shares during the third quarter. We remain committed to returning all future free cash flow to shareholders unless there is a better or more value accretive use for it. Turning to operations, we delivered another great quarter of operating performance with fleet-wide revenue efficiency of 98%. Achieving sustained high levels of operational performance has been an area of emphasis across the organization this year, and I'm pleased that this is our third consecutive quarter of at least 97% revenue efficiency. These results demonstrate the entire company's focus on this key objective, since delivering safe, reliable, and efficient operations is vital in building long-standing customer relationships. I'd like to thank the amazing men and women offshore and all those onshore who support them for their efforts in helping us to achieve such outstanding performance this year. I'd particularly like to congratulate the crews of Volaris DS7 for achieving 100% revenue efficiency during the third quarter. This is a fantastic accomplishment for a rig that began its contract late in the second quarter following a reactivation. and demonstrates the organization's ability to deliver complex capital projects and provide exceptional operating performance for our customers from day one. On the safety front, we are proud to be recognized for the second year in a row by the Center for Offshore Safety with its Safety Leadership Award for the development of our restricted zone analysis tool. This innovative visual planning tool identifies safe, restricted, and no-go zones for activities like pipe handling, pressure testing, and complex lifts. By helping to ensure that only authorized personnel access high-risk areas, this tool significantly reduces exposure to hazardous zones, enhancing the safety of our offshore operations. In addition, we had several rigs celebrate safety milestones during the quarter. Valeris Stavanger reached three years without a recordable incident, and DS8, DS9, DS17, 122, and Thunderhorse all achieved one year recordable free, an excellent accomplishment by each of these teams. Moving to our financial performance, adjusted EBITDA increased to $150 million in the third quarter, up from $139 million in the second quarter. This was better than our guidance primarily due to the team achieving strong operating performance during the quarter. This strong operating performance also contributed to solid free cash flow generation, and we repurchased $100 million of shares during the third quarter. Chris will provide further details of our financial results and guidance a little later. Turning now to the broader offshore drilling market. In terms of market fundamentals, global demand for hydrocarbons continues to increase, and offshore production, particularly deepwater, is expected to play an increasingly important role in providing secure and affordable energy to meet the world's growing energy needs. Deepwater production is attractive to customers due to the size of deepwater fields, compelling program economics, and the lower carbon emissions intensity relative to other sources of production. While spot Brent crude prices declined during the third quarter and have shown increased volatility of late, longer dated Brent crude prices have remained relatively stable. The five-year Brent Ford price is around $70 per barrel, a level at which more than 90% of undeveloped offshore reserves are expected to be profitable. As a result, commodity prices remain very supportive of continued investment in long cycle offshore projects. The commodity pricing environment and the demand drivers for Deepwater in particular have provided a strong project pipeline. That said, this year we have seen a year-over-year decline in the pace of contracting and a meaningful amount of customer demand being deferred into 2026. The primary drivers of these deferrals are availability of production equipment, delayed FPSOs, protracted regulatory approvals, and customers' capital discipline. While these factors have created some headwinds for next year, it is important to note that projects are being delayed as opposed to being cancelled, demonstrating our customers' commitment to deep-order production as a key component of their production portfolios. Our conviction in the strength of the market is bolstered by recent developments, including major FIDs, such as Total Energy's 10.5 billion Grand Morgue development, offshore Suriname, and Exxon's reported $10 billion investment in a deep-water project offshore Nigeria. In addition, we have seen further progression of tender processes for several long-term programs for work offshore Brazil, West Africa, and Southeast Asia. And we have also seen continued strength in day rates, particularly for high-specification drill ships. Average day rate for seventh-generation drill ships have continued to increase year-to-date, averaging approximately $500,000 in the third quarter. The fact that average day rates remain strong despite a recent modest decline in marketed utilization demonstrates that customers see this relative softness as temporary, and they are willing to pay solid rates to secure the best assets for their projects. From a floater fleet management perspective, our first priority is securing attractive long-term contracts for our assets, and we see a solid pipeline of opportunities for our high-spec floater fleet in 2026 and beyond. We're also focused on securing well programs that can provide a meaningful bridge to this longer-term work. At the same time, prudent management of our active fleet and operating costs is also a priority. If a rig is expected to have a meaningful gap between contracts, we will warm stack it to lower daily operating cost, as we are currently doing on DPS-5 and DS-10 until we secure its next contract. Moving to shallow water. The global jack-up market remains healthy, with contracted rig counts, utilization, and day rates all relatively stable. Marketed utilization for the global jack-up fleet is currently 93%. and average day rates for the key markets where we operate have remained firm. In the North Sea, day rates are in the mid-100,000s, and in niche markets, where we have a strong presence, such as Australia and Trinidad, day rates are in the mid-to-high 100,000s. Looking more broadly at the jack-up market, of the 27 rigs suspended in Saudi Arabia earlier this year, eight of these rigs have already been recontracted elsewhere, and one is expected to be scrapped. Of the remaining rigs, we expect that less than half are competitive internationally. We mentioned on our last conference call that Valeris Jackups 147 and 148, which were leased to Arrow, had received contract suspension notices from Aramco. Together with Arrow, we elected to terminate these contracts and the rigs are now stacked in the UAE alongside Valeris 143. We intend to keep these rigs preservation stacked until we see sufficiently attractive opportunities that warrant making the necessary investment to bring them back into our active fleet. We have five rigs leased to Arrow that are due to complete their existing contracts at the end of 2024 or in 2025, and we are in active discussions with Aramco about extending these rigs. In the North Sea, market conditions remain balanced, with all 20 active jackups in the UK, Danish and Dutch sectors currently contracted, and just three rigs stacked in the region. Despite some long-anticipated changes to the energy profits levy in the UK, which were confirmed yesterday in the new UK budget, we see continued customer interest in the region, including multi-year opportunities that are expected to start in late 2025 or early 2026. We have good contract coverage through 2025 for our North Sea rigs and see customer demand that lines up well with our limited availability next year. Now, I'll hand the call over to Matt to highlight our recent contract awards, discuss the floater and jack-up markets in more detail, and provide some additional color on our contracting outlook.