Valaris. Unlocking more value.
Debt-free leading offshore driller has more levers to pull.
I first wrote about Valaris in October 2021. The piece received a lot of attention and is still getting traffic to this day. At the time Philoinvestor had less than 200 subscribers. VAL was trading at less than $36 and now it’s at ~$64 (hit $78 before this market sell off) PIECE
Since then day rates for floaters and jackup rigs are on the up and up, allowing the offshore sector to recover from its multi-year downturn. Valaris has the largest fleet of rigs and the best balance sheet. The bankruptcy in 2021 allowed the company to relieve itself from its massive debt load (~$7.1 billion) and start afresh.
The constructive oil price environment improves economics for major oil companies to allocate capital to offshore projects, requiring offshore rigs owned by Valaris. Jackup and floater demand is expected to increase going forward, as per Rystad Energy.
But that’s not the only incentive — as geopolitical tensions have exploded, governments and energy companies are looking to secure supply and diversify from producers that are in risk of being removed from global energy markets. Russian sanctions and the ensuing fallout illustrates this tail risk.
Petrobras, the 🇧🇷 NOC, is ramping up for more investments in offshore (not only) as a means to increase production and employment. The new Lula government is gearing up to use Petrobras cash flows to develop Brazil industrially, create jobs and grow production to compete with international companies taking domestic market share in the past years. It seems Petrobras dividends will take a hit from these plans.
On March 6th the company announced a 3-year contract with Petrobras for DS-8, one of its stacked drill ships. The total value of the contract is $500 million.