Offshore drilling contractor Valaris Ltd. has high expectations for the future of long-term offshore developments after its first-quarter 2024 run.

Growth in demand has led to an increase in offshore drilling market oil prices, which combined with heightened geopolitical tensions and OPEC+ production cuts, have led to what Valaris executives say will be a tighter supply-demand balance through the rest of the year, the company said in its first-quarter earnings release.

Commodity prices have also remained supportive for continued investment in long-cycle offshore projects.

“We see positive signs from the leading indicators of offshore rig demand, with global upstream capex and offshore FIDs [final investment decision] both expected to see strong growth through 2026,” President and CEO Anton Dibowitz said during a May earnings call.

The company has also increased longer contracts.

“The growth in opportunities with longer durations, as well as increased lead times between contract award and commencement, are both supportive of a sustained upcycle,” Dibowitz said.

As demand increases, day rates will continue to move higher, Dibowitz added. “While we expect to see some gaps in risk schedules this year and certain programs have pushed to 2025, leading-edge day rates continue to gradually move higher and we have recently seen an increasing number of day rate fixtures in the high $400,000s and some in the low $500,000s.”

Valaris secured new contracts and extensions in the first quarter.

Among those contracts was a multi-year agreement offshore Angola for VALARIS 144, secured at a leading-edge day rate for a benign environment jackup. Valaris also reactivated its VALARIS DS-8 drillship, increasing its operating days.

Despite certain challenges, such as jackups undergoing contract preparations and surveys that left them idle, Valaris continued to contribute to a total contract backlog surpassing $4 billion as of April 30. First-quarter 2024 was the sixth consecutive quarter of backlog growth and a 43% increase from the previous year, indicating sustained momentum for the company.

“One of the true strengths of this organization is our ability to execute complex projects and reactivation projects leading the industry,” Dibowitz said. “We've got three attractive assets in a growing and increasing demand market that we can deploy on the right contract with the right customer at the right time… but we're also willing to be patient and wait for the right opportunity to put those assets back to work because they are the best assets available on the sidelines.”

And while jackups did struggle in the first quarter, floater revenues increased due to contract commencements. The contracted benign environment floater count increased to 127 rigs, the highest it’s been since 2016.

“We continue to see a strong customer preference for high specification seventh-generation drill ships, which comprised 12 of the 13 drill ships in the Valaris fleet. Marketed utilization for this class of assets stands at 92% globally and has exceeded 90% since early 2023,” he said.

Valaris is also keeping tabs on offshore opportunities in Africa, the Mediterranean and the Gulf of Mexico.

“We are currently tracking more than a dozen opportunities offshore Africa and in the Mediterranean, with up to half of these requiring incremental rigs,” Dibowitz said. “We anticipate that the floater count in this region could rise to nearly 30 rigs over the next few years.”

Earnings

The company saw an increase in revenues to $525 million, driven by the commencement of contracts and higher revenue efficiency.

“Our performance during the first three months of the year was excellent. We finished the quarter with no lost time incidents and fleet-wide revenue efficiency of 97%,” Dibowitz said.

Net income dipped to $26 million in the first quarter, comparable to $829 million in the previous quarter. The drop was due to a tax expense of $13 million in first-quarter of 2024 compared to a tax benefit of $790 million in the fourth quarter of 2023, executives said.

Revenues from ARO Drilling, a joint venture with Saudi Aramco, saw an uptick to $138 million from $134 million the previous quarter, driven by increased operations and new contracts. The $4 million increase can largely be attributed to a full quarter of operations for newbuild jackup Kingdom 1, which commenced its maiden contract during the fourth quarter.

Offshore