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What changed in Valaris Ltd's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Valaris Ltd's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+598 added−679 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-21)

Top changes in Valaris Ltd's 2023 10-K

598 paragraphs added · 679 removed · 98 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

57 edited+20 added−325 removed28 unchanged
Biggest changeBribery Act 2010, could result in fines, criminal penalties, drilling contract terminations and materially adversely affect our financial position, operating results or cash flows. • Increasing regulatory complexity could adversely impact our offshore drilling operations and reduce demand. • Compliance with or breach of environmental laws could be costly and limit our operations. • The Internal Revenue Service ("IRS") may not agree with the conclusion that we should be treated as a foreign corporation for U.S. federal tax purposes. • U.S. tax laws and IRS guidance could affect our ability to engage in certain transactions. • Governments may pass laws that subject us to additional taxation or may challenge our tax positions. • Our consolidated effective income tax rate may vary substantially over time. • We are subject to litigation that could have a material adverse effect on us. • The rights of our shareholders are governed under Bermuda law, and as a result, holders of our Common Shares may have difficulty enforcing civil judgments against us. • Our bye-laws restrict shareholders from bringing legal action against our officers and directors. • Provisions in our bye-laws could delay or prevent a change in control of our company. • Legislation enacted in Bermuda as to Economic Substance may affect our operations. • Our business could be affected as a result of activist investors.
Biggest changeInternal Revenue Service (“IRS”) may not agree with the conclusion that we should be treated as a foreign corporation for U.S. federal tax purposes. • Governments may pass laws that subject us to additional taxation or may challenge our tax positions. • Our consolidated effective income tax rate may vary substantially over time. • We are subject to litigation that could have a material adverse effect on us. • As a Bermuda company, it may be difficult enforcing judgments against us, our directors and officers. • Our bye-laws restrict shareholders from bringing legal action against our officers and directors. • Provisions in our bye-laws could delay or prevent a change in control of our company. • Legislation enacted in Bermuda as to Economic Substance may affect our operations. • Our business could be affected as a result of activist investors.
Lyne has over 20 years of offshore drilling experience in various international locations. Mr. Lyne has a Bachelor of Science degree in Engineering from Montana Technological University. Davor Vukadin was appointed Senior Vice President, General Counsel and Secretary in May 2022. Before being named to his current position, Mr.
Lyne has over 20 years of offshore drilling experience in various international locations. Mr. Lyne has a Bachelor of Science degree in Engineering from Montana Technological University. 12 Davor Vukadin was appointed Senior Vice President, General Counsel and Secretary in May 2022. Before being named to his current position, Mr.
Our EAP provides access to counselors and other mental health professionals as well as discounts to fitness centers, financial guidance and other benefits in support of our overall commitment to maintain a healthy workforce. Feedback from our employees plays a key role in creating an agile, collaborative and trustworthy culture.
Our EAP provides access to counselors and other mental health professionals as well as discounts to fitness centers, financial guidance and other benefits in support of our overall commitment to maintain a healthy workforce. 10 Feedback from our employees plays a key role in creating an agile, collaborative and trustworthy culture.
Our insurance program also provides hull and machinery coverage to us for physical damage (including total loss) to our rigs, cargo and equipment, excluding damage arising from a named windstorm in the U.S. Gulf of Mexico. We separately purchase a small limit of named windstorm insurance for our floater rigs in the U.S. Gulf of Mexico.
Our insurance program also provides hull and machinery coverage for physical damage (including total loss) to our rigs, cargo and equipment, excluding damage arising from a named windstorm in the U.S. Gulf of Mexico. We separately purchase a small limit of named windstorm insurance for our floater rigs in the U.S. Gulf of Mexico.
We seek to promote a healthy environment by prioritizing the mental and physical health and needs of our employees while recognizing them for their achievements and accomplishments. For example, in most countries where we work, we offer an employee assistance program (“EAP”) to employees and their families.
We seek to promote a healthy environment by prioritizing the mental and physical health and other needs of our employees while recognizing them for their achievements and accomplishments. For example, in most countries where we work, we offer an employee assistance program (“EAP”) to employees and their families.
He received an MBA in Finance and Strategy from the Wharton School and a BA in Economics and English Literature from Vanderbilt. 15 Gilles Luca became Senior Vice President and Chief Operating Officer in December 2019. Previously, he served as Senior Vice President, Operations Support. He joined Ensco in 1997. Mr.
He received an MBA in Finance and Strategy from the Wharton School and a BA in Economics and English Literature from Vanderbilt. Gilles Luca became Senior Vice President and Chief Operating Officer in December 2019. Previously, he served as Senior Vice President, Operations Support. He joined Ensco in 1997. Mr.
Training and Competency We are focused on developing talent and leadership among both our onshore and offshore employees. In 2021, we launched the Building Organizational Leadership (BOLD) training program. This program is designed to engage, support and provide leadership tools for our offshore supervisors, helping them assess and develop their team’s understanding and use of our safety processes and policies.
Training and Retention We are focused on developing talent and leadership among both our onshore and offshore employees. In 2021, we launched the Building Organizational Leadership (BOLD) training program. This program is designed to engage, support and provide leadership tools for our offshore supervisors, helping them assess and develop their team’s understanding and use of our safety processes and policies.
Any such legislation or regulatory programs could also increase the cost of consuming oil and natural gas, and thereby reduce demand for oil and natural gas, which could reduce our customers’ demand for our services. Consequently, legislation and regulatory programs to reduce greenhouse gas emissions could have an adverse effect on our financial position, operating results and cash flows.
Any such legislation or regulatory programs could also increase the cost of consuming oil and natural gas, and thereby reduce demand for oil and natural gas, which could reduce our customers’ demand for our services. Consequently, legislation and regulatory programs to reduce GHG emissions could have an adverse effect on our financial position, operating results and cash flows.
He holds a Master Degree in Petroleum Engineering from the French Petroleum Institute and a Bachelor in Civil Engineering. Matthew Lyne became the Senior Vice President and Chief Commercial Officer of Valaris in September 2022. Previously, he served as Executive Vice President, Chief Commercial and Strategy Officer of Seadrill Limited from May 2021 to September 2022.
He holds a Master's Degree in Petroleum Engineering from the French Petroleum Institute and a Bachelor in Civil Engineering. Matthew Lyne became the Senior Vice President and Chief Commercial Officer of Valaris in September 2022. Previously, he served as Executive Vice President, Chief Commercial and Strategy Officer of Seadrill Limited from May 2021 to September 2022.
BP plc, our only customer who accounts for 10% or more of consolidated revenues, accounted for 15% of consolidated revenues. Competition The offshore contract drilling industry is highly competitive. Drilling contracts are, for the most part, awarded on a competitive bid basis.
BP plc, our only customer who accounts for 10% or more of consolidated revenues, accounted for 11% of consolidated revenues. Competition The offshore contract drilling industry is highly competitive. Drilling contracts are, for the most part, awarded on a competitive bid basis.
Our insurance program provides coverage that is customary for our industry. Generally, our insurance program provides third-party liability coverage up to $750.0 million. We retain the risk for liability not indemnified by the customer in excess of, and for risks not covered by, our insurance coverage.
Our insurance program provides coverage that is customary for our industry. Generally, our insurance program provides third-party liability coverage up to $805.0 million. We retain the risk for liability not indemnified by the customer in excess of, and for risks not covered by, our insurance coverage.
Chapter 11 Proceedings and Emergence from Chapter 11 On August 19, 2020 (the “Petition Date”), Valaris plc (“Legacy Valaris” or “Predecessor”) and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court under the caption In re Valaris plc, et al., Case No. 20-34114 (MI) (the “Chapter 11 Cases”).
Emergence from Financial Restructuring On August 19, 2020 (the “Petition Date”), Valaris plc (“Legacy Valaris” or “Predecessor”) and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court under the caption In re Valaris plc, et al., Case No. 20-34114 (MI) (the “Chapter 11 Cases”).
Laws and regulations curtailing exploration and development drilling for oil and natural gas will directly affect us for economic, environmental, safety or other policy reasons. It is also possible that these laws, regulations and political initiatives could adversely affect our operations in the future by significantly increasing our operating costs or restricting areas open for drilling activity. See "Item 1A.
Laws and regulations curtailing exploration and development drilling for oil and natural gas will directly affect us for economic, environmental, safety or other policy reasons. It is also possible that these laws, regulations and political initiatives could adversely affect our operations in the future by significantly increasing our operating costs or restricting areas open for drilling activity.
The information contained on our website is not included as part of, or incorporated by reference into, this report. 16 RISK FACTORS SUMMARY An investment in our securities involves a high degree of risk.
The information contained on our website is not included as part of, or incorporated by reference into, this report. 13 RISK FACTORS SUMMARY An investment in our securities involves a high degree of risk.
Contract Drilling Operations Our business consists of four operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups, (3) ARO and (4) Other, which consists of management services on rigs owned by third-parties and the activities associated with our lease arrangements with ARO. Floaters, Jackups and ARO are also reportable segments.
Contract Drilling Operations Our business consists of four operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups, (3) ARO and (4) Other, which consists of management services on rigs owned by third parties and the activities associated with our lease arrangements with ARO.
The table below sets forth certain information regarding our executive officers as of February 21, 2023: Name Age Position Anton Dibowitz 51 President and Chief Executive Officer Christopher Weber 50 Senior Vice President and Chief Financial Officer Gilles Luca 51 Senior Vice President and Chief Operating Officer Matthew Lyne 48 Senior Vice President and Chief Commercial Officer Davor Vukadin 49 Senior Vice President and General Counsel Set forth below is certain additional information on our executive officers, including the business experience of each executive officer for at least the last five years: Anton Dibowitz became the President and Chief Executive Officer of Valaris in December 2021, following his service as the Company’s interim President and Chief Executive Officer since September 2021.
The table below sets forth certain information regarding our executive officers as of February 22, 2024: Name Age Position Anton Dibowitz 52 President and Chief Executive Officer Christopher Weber 51 Senior Vice President and Chief Financial Officer Gilles Luca 52 Senior Vice President and Chief Operating Officer Matthew Lyne 49 Senior Vice President and Chief Commercial Officer Davor Vukadin 50 Senior Vice President and General Counsel Set forth below is certain additional information on our executive officers, including the business experience of each executive officer for at least the last five years: Anton Dibowitz became the President and Chief Executive Officer of Valaris in December 2021, following his service as the Company’s interim President and Chief Executive Officer since September 2021.
Price is often the primary factor in determining which contractor is awarded a contract, although quality of service, operational and safety performance, equipment suitability and availability, location of equipment, reputation and technical expertise also are factors.
Price is often the primary factor in determining which contractor is awarded a contract, although quality of service, operational and safety performance, equipment suitability and availability, location of equipment, reputation and technical expertise also are factors. Non-U.S.
Risk Factors - The success of our business depends on the level of activity in offshore oil and natural gas exploration, which can be significantly affected by volatile oil and natural gas prices.” 6 Our drilling contracts are negotiated with our customers, and most contracts are awarded following competitive bidding.
See “ Item 1A . Risk Factors - The success of our business depends on the level of activity in offshore oil and natural gas exploration, which can be significantly affected by volatile oil and natural gas prices.” Our drilling contracts are negotiated with our customers, and most contracts are awarded following competitive bidding.
ESG Risks • Regulation of greenhouse gases and climate change could have a negative impact on our business. • Consumer preferences for alternative fuels and electric-powered vehicles, as part of the global energy transition, may lead to reduced demand for our services. 18 • Increased scrutiny from stakeholders and others regarding our ESG practices, initiatives and reporting responsibilities could result in additional costs or risks.
Sustainability Risks • Regulation of GHGs and climate change could have a negative impact on our business. • Consumer preferences for alternative fuels and electric-powered vehicles, as part of the global energy transition, may lead to reduced demand for our services. • Increased scrutiny from stakeholders and others regarding our sustainability practices, initiatives and reporting responsibilities could result in additional costs or risks. 15
Risks Related to Our Business, Operations, Indebtedness and Market Conditions • The success of our business depends on the level of activity in offshore oil and natural gas exploration, development and production, which can be significantly affected by volatile oil and natural gas prices. • The offshore contract drilling industry is highly competitive and cyclical. • Our current backlog of contract drilling revenue may not be fully realized and may decline significantly in the future. • Our business will be materially adversely affected if we are unable to secure contracts on economically favorable terms or if option periods in existing contracts are not exercised as expected. • Our customers may be unable or unwilling to fulfill their contractual commitments to us, including their obligations to pay for losses, damages or other liabilities. • The loss of a significant customer or customer contract, as well as customer consolidation and changes to customer strategy, could materially adversely affect our business. • Our long-term contracts are subject to the risk of cost increases, which could adversely affect our profitability. • Our information technology systems, including rig operating systems and critical data, are subject to cybersecurity risks. • Rig reactivation, upgrade and enhancement projects are subject to risks, including delays and cost overruns, which could materially adversely affect our financial position, operating results or cash flows. • We make significant expenditures to meet customer requirements, maintain our fleet to comply with laws and the applicable regulations and standards of governmental authorities and organizations, or to expand our fleet, and we may be required to make significant expenditures to maintain our competitiveness. • Failure to recruit and retain skilled personnel could adversely affect our business. • Our shared service center may not create the operational efficiencies that we expect and may create risks relating to the processing of transactions and recording of financial information. • We may not realize the expected benefits of our ARO joint venture. • Joint venture investments could be adversely affected by our joint venture partners' actions, financial condition and liquidity and disputes between us and our joint venture partners. • Our business involves operating hazards, and our insurance and indemnities from our customers may not be adequate to cover any potential losses. • Geopolitical events and violence could affect the markets for our services and have a material adverse effect on our business and cost and availability of insurance. • Our drilling contracts with national oil companies may expose us to greater risks than we normally assume in drilling contracts with non-governmental customers. • The impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, could have a material adverse effect on our business, financial condition and results of operations. 17 • Unionization efforts and labor regulations in certain countries in which we operate could materially increase our costs or limit our flexibility with regard to the management of our personnel. • Significant equipment or part shortages, supplier capacity constraints, supplier production disruptions, supplier quality and sourcing issues or price increases could materially adversely affect our financial position, operating results or cash flows. • Our operating and maintenance costs will not necessarily fluctuate in proportion to changes in our operating revenues. • Our ability to pay our operating and capital expenses and make payments due on our debt depends on many factors beyond our control. • The Indenture (as defined below) governing the First Lien Notes contains provisions that could limit our business activities. • Our actual financial results after emergence from bankruptcy may not be comparable to our projections filed with the Bankruptcy Court in the course of the Chapter 11 Cases. • The exercise of all or any number of outstanding warrants or the issuance of stock-based awards may dilute the holders of our Common Shares.
Risks Related to Our Business, Operations, Financing Arrangements and Market Conditions • The success of our business depends on the level of activity in offshore oil and natural gas exploration, development and production, which can be significantly affected by volatile oil and natural gas prices. • The offshore contract drilling industry is highly competitive and cyclical. • Our current backlog of contract drilling revenue may not be fully realized and may decline significantly in the future. • Our business will be materially adversely affected if we are unable to secure contracts on economically favorable terms or if option periods in existing contracts are not exercised as expected. • Our customers may be unable or unwilling to fulfill their contractual commitments to us, including their obligations to pay for losses, damages or other liabilities. • The loss of a significant customer or customer contract, as well as customer consolidation and changes to customer strategy, could materially adversely affect our business. • Our long-term contracts are subject to the risk of cost increases, which could adversely affect our profitability. • Our network and systems, including rig operating systems and critical data, are subject to cybersecurity risks and technical disruptions. • Rig reactivation, upgrade and enhancement projects are subject to risks, including delays and cost overruns, which could materially adversely affect our financial position, operating results or cash flows. • We make significant expenditures to meet customer requirements, maintain our fleet to comply with laws and the applicable regulations and standards of governmental authorities and organizations, or to expand our fleet, and we may be required to make significant expenditures to maintain our competitiveness. • Failure to recruit and retain skilled personnel could adversely affect our business. • Our shared service center may not create the operational efficiencies that we expect and may create risks relating to the processing of transactions and recording of financial information. • We may not realize the expected benefits of our ARO joint venture. • Joint venture investments could be adversely affected by our joint venture partners’ actions, financial condition and liquidity and disputes between us and our joint venture partners. • Our business involves operating hazards, and our insurance and indemnities from our customers may not be adequate to cover any potential losses. • Geopolitical events and violence could materially adversely affect the markets for our services and have a material adverse effect on our business and cost and availability of insurance. • Our drilling contracts with national oil companies may expose us to greater risks than we normally assume in drilling contracts with non-governmental customers. • Unionization efforts and labor regulations in certain countries in which we operate could materially increase our costs or limit our flexibility with regard to the management of our personnel. 14 • Significant equipment or part shortages, supplier capacity constraints, supplier production disruptions, supplier quality and sourcing issues or price increases could materially adversely affect our financial position, operating results or cash flows. • Our operating and maintenance costs will not necessarily fluctuate in proportion to changes in our operating revenues. • Our ability to pay our operating and capital expenses and make payments due on our debt depends on many factors beyond our control. • The agreements governing our debt, including the Indenture and the Credit Agreement, contain various covenants that impose restrictions on us and certain of our subsidiaries. • We may experience risks associated with future mergers, acquisitions or dispositions of businesses or assets or other strategic transactions. • Our actual financial results after emergence from bankruptcy may not be comparable to our projections filed with the Bankruptcy Court in the course of the Chapter 11 Cases. • The exercise of all or any number of outstanding warrants or the issuance of stock-based awards may dilute the holders of our Common Shares.
We seek to control major operational hazards with effective safeguards and to implement our management systems to protect the health and safety of our personnel. 11 Our Safe Systems of Work are designed with the aim of completing each job safely and efficiently: • Work Instruction – Step-by-step description of how to complete specific work activities, including mandatory precautions to be implemented; • Permit to Work – Formal authorization and control process for the safe execution of potentially hazardous work that may present risk to people, environment or assets; • Energy Isolation – Formal isolation of all energy sources before performing work on equipment; • Job Safety Analysis – Identification and control of job hazards before starting work; and • Stop Work Authority – Empowerment to stop work if a risk to people, environment or assets is perceived to exist.
Our Safe Systems of Work are designed with the aim of completing each job safely and efficiently: • Work Instruction – Step-by-step description of how to complete specific work activities, including mandatory precautions to be implemented; • Permit to Work – Formal authorization and control process for the safe execution of potentially hazardous work that may present risk to people, environment or assets; • Energy Isolation – Formal isolation of all energy sources before performing work on equipment; • Job Safety Analysis – Identification and control of job hazards before starting work; and • Stop Work Authority – Empowerment to stop work if a risk to people, environment or assets is perceived to exist.
A portion of our employees and contractors working outside of the U.S. are represented by collective bargaining or similar agreements, which are subject to periodic salary negotiation. As of December 31, 2022, women comprised 29% of our onshore employees and 1% of our offshore employees.
A portion of our employees and contractors working outside of the U.S. are represented under collective bargaining or similar agreements, which are subject to periodic salary negotiation. As of December 31, 2023, women comprised 30% of our onshore employees and 1% of our offshore employees.
Operations Revenues from non-U.S. operations were 78%, 87%, 81% and 83% of our total consolidated revenues during the year ended December 31, 2022 (Successor), the eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor) and the year ended December 31, 2020 (Predecessor), respectively. See "Item 1A.
Operations Revenues from non-U.S. operations were 80%, 78%, 87% and 81% of our total consolidated revenues during the years ended December 31, 2023 and 2022, eight months ended December 31, 2021 (Successor), and four months ended April 30, 2021 (Predecessor), respectively. See " Item 1A.
Well-control events generally include an unintended release from a well that cannot be contained by using equipment on site, such as a blowout preventer, by increasing the weight of drilling fluid or by diverting the fluids safely into production facilities. Our customers typically indemnify us for most well-control events.
Well-control events generally include an unintended release from a well that cannot be contained by using equipment on site, such as a blowout preventer, by increasing the weight of drilling fluid or by diverting the fluids safely into production facilities.
Our values are designed to guide us in support of our purpose: • Integrity – Doing the right thing; whether or not anyone is watching; • Safety – Causing no harm is always a priority; • Excellence – Delivering value to our customers while consistently raising the bar on performance; • Respect – Treating others the way we would like to be treated; • Ingenuity – Solving problems creatively; and • Stewardship – Safeguarding where we work for the next generation Our Ethics and Compliance Policy and our Code of Conduct (the “Code”) form the foundation of our compliance and ethics program, which provides guidance on how to uphold our values.
Our values are designed to guide us in support of our purpose: • Integrity – Doing the right thing; whether or not anyone is watching; • Safety – Causing no harm is always a priority; • Excellence – Delivering value to our customers while consistently raising the bar on performance; • Respect – Treating others the way we would like to be treated; • Ingenuity – Solving problems creatively; and • Stewardship – Safeguarding where we work for the next generation.
Subject to the exceptions noted below, our customers typically assume most of the responsibility for and indemnify us from any loss, damage or other liability resulting from pollution or contamination arising from operations, including as a result of blowouts, cratering and seepage, when the source of the pollution originates from the well or reservoir, including costs for clean-up and removal of pollution and third-party damages.
Subject to the exceptions noted below, our customers typically assume most of the responsibility for and indemnify us from any loss, damage or other liability resulting from pollution or contamination arising from operations. Such pollution or contamination may be as a result of blowouts, cratering and seepage, when the source of the pollution originates from the well or reservoir.
Although it is not possible at this time to predict how legislation or new regulations that may be adopted to address greenhouse gas emissions would impact our business, any such future laws and regulations could require us or our customers to incur increased operating costs or incremental capital expenditures.
Although it is not possible at this time to predict how compliance with any such legislation or new regulations would impact our business, any such future laws and regulations could require us to incur increased operating costs or incremental capital expenditures.
However, for smaller vendors, the liability is usually limited to the value, or double the value, of the contract for the purchase of such equipment or services. 9 We generally indemnify the customer for legal and financial consequences of spills of waste oil, fuels, lubricants, motor oils, pipe dope, paint, solvents, ballast, bilge, garbage, debris, sewage, hazardous waste and other liquids, the discharge of which originates from our rigs or equipment above the surface of the water and in some cases from our subsea equipment.
We generally indemnify the customer for legal and financial consequences of spills of waste oil, fuels, lubricants, motor oils, pipe dope, paint, solvents, ballast, bilge, garbage, debris, sewage, hazardous waste and other liquids, the discharge of which originates from our rigs or equipment above the surface of the water and in some cases from our subsea equipment.
We currently own 52 rigs, including 11 drillships, four dynamically positioned semisubmersible rigs, one moored semisubmersible rig, 36 jackup rigs and a 50% equity interest in Saudi Aramco Rowan Offshore Drilling Company ("ARO"), our 50/50 unconsolidated joint venture with Saudi Aramco, which owns an additional seven rigs.
We currently own 53 rigs, including 13 drillships, four dynamically positioned semisubmersible rigs, one moored semisubmersible rig, 35 jackup rigs and a 50% equity interest in ARO, our 50/50 unconsolidated joint venture with Saudi Aramco, which owns an additional eight rigs.
We have translated the Code into nine different languages, making it widely accessible to our employees across the globe. We maintain an Ethics Hotline that is available to all employees, either online or by phone, to confidentially seek guidance or raise a concern. 10 The Code is reviewed on a periodic basis and approved by our board of directors.
We maintain an Ethics Hotline that is available to all employees, either online or by phone, to confidentially seek guidance or raise a concern. The Code is reviewed on a periodic basis and approved by our board of directors.
We provide regular training in health, safety, environmental and emergency response to our employees, as relevant to their roles, and we mandate that our employees complete training related to the Code, covering topics such as anti-corruption, workplace behavior and conflicts of interest. In addition, in 2022, all employees were assigned human trafficking prevention training, including procedures for reporting concerns.
We provide regular training in health, safety, environmental and emergency response to our employees, as relevant to their roles, and we mandate that our employees complete training related to the Code, covering topics such as anti-corruption, workplace behavior and conflicts of interest.
Our drilling contracts customarily provide that each party is responsible for injuries or death to their respective personnel and loss or damage to their respective property (including the personnel and property of each parties’ contractors and subcontractors) regardless of the cause of the loss or damage.
Such indemnities typically include costs for clean-up and removal of pollution and third-party damages. 7 Our drilling contracts customarily provide that each party is responsible for injuries or death to their respective personnel and loss or damage to their respective property (including the personnel and property of each parties’ contractors and subcontractors) regardless of the cause of the loss or damage.
Management's Discussion and Analysis of Financial Condition and Results of Operations " for backlog information. Insurance and Indemnification Matters Our insurance program provides coverage, subject to the policies' terms and conditions and to the extent not otherwise assumed by the customer under the indemnification provisions of the drilling contract, for third-party liability claims arising from our operations.
Risk Factors - Our non-U.S. operations involve additional risks not associated with U.S. operations." Insurance and Indemnification Matters Our insurance program provides coverage, subject to the policies' terms and conditions and to the extent not otherwise assumed by the customer under the indemnification provisions of the drilling contract, for third-party liability claims arising from our operations.
From time to time, our drilling rigs may be utilized as accommodation units or for non-drilling services, such as workovers and interventions, plug and abandonment and decommissioning work. Demand for our drilling services is based upon many factors beyond our control. See “Item 1A.
Our drilling rigs drill and complete oil and natural gas wells. From time to time, our drilling rigs may be utilized as accommodation units or for other ancillary services such as well workovers and interventions, plug and abandonment and decommissioning work and carbon capture and sequestration projects. Demand for our drilling services is based upon many factors beyond our control.
The International Convention on Oil Pollution Preparedness, Response and Cooperation, the International Convention on Civil Liability for Oil Pollution Damage 1992, the U.K. Merchant Shipping Act 1995, Marpol 73/78 (the International Convention for the Prevention of Pollution from Ships), the U.K.
Merchant Shipping Act 1995, Marpol 73/78 (the International Convention for the Prevention of Pollution from Ships), the U.K.
Globally, there are a number of legislative and regulatory proposals at various levels of government to address the greenhouse gas emissions that contribute to climate change, such as laws or regulations incentivizing or mandating the use of alternative energy sources such as wind power and solar energy and programs to mandate or incentivize the conversion from internal combustion engine powered vehicles to electric-powered vehicles.
Globally, there are a number of legislative and regulatory proposals and executive orders at various levels of government in jurisdictions where we operate to address the GHG emissions that contribute to climate change, such as laws or regulations requiring reporting on GHG emissions, incentivizing or mandating the use of alternative energy sources such as wind power and solar energy, phasing-out of fossil fuel subsidies, reducing GHG emissions, increasing fuel efficiency standards, adopting carbon pricing mechanisms, restricting oil and gas development and programs to mandate or incentivize the conversion from internal combustion engine powered vehicles to electric-powered vehicles.
Also, former holders of Legacy Valaris' equity were issued warrants (the "Warrants") to purchase Common Shares. See “ Note 2 – Chapter 11 Proceedings” and " Note 3 - Fresh Start Accounting" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional details regarding the reorganization, Chapter 11 Cases and related items.
See “ Note 9 - Shareholders' Equity" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on the issuance of the Common Shares and Warrants. See “ Note 2 – Chapter 11 Proceedings” and " Note 3 - Fresh Start Accounting" to our consolidated financial statements included in "Item 8.
Our board of directors' ESG Committee, formed in 2021, regularly meets to address sustainability topics and is responsible for overseeing the Company’s policies, programs and practices related to ESG responsibilities and the Company’s management of risks in such areas.
Sustainability Consistent with our purpose of providing responsible solutions that deliver energy to the world, we are focused on sustainability-related matters. Our board of directors' Safety and Sustainability Committee regularly meets to address sustainability topics and is responsible for overseeing the Company’s policies, programs and practices related to sustainability and the Company’s management of risks in such areas.
Employees We employed approximately 5,450 personnel worldwide including contract employees, and approximately 3,933 personnel excluding contract employees, as of December 31, 2022. Our employees represented 71 nationalities spread across 26 locations. The majority of our personnel work on our offshore installations and are compensated on an hourly basis.
Employees We had a global workforce of approximately 5,985 persons including contractors, and approximately 4,261 persons excluding contractors, as of December 31, 2023. Our personnel represented 74 nationalities spread across 23 locations. The majority of our personnel work on our offshore installations and are compensated on an hourly basis.
The above description of our insurance program and the indemnification provisions of our drilling contracts is only a summary as of the date hereof and is general in nature.
Our contracts generally provide that, in the event of any such spill from our rigs, we are responsible for the related fines and penalties. The above description of our insurance program and the indemnification provisions of our drilling contracts is only a summary as of the date hereof and is general in nature.
We also utilize technology that enables us to monitor fuel consumption and GHG emissions across our rig fleet. For further discussion of ESG risks and considerations see “Risk Factors” in Item 1A and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K.
For further discussion of sustainability-related risks and considerations see “Risk Factors” in Item 1A and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K.
See “ Note 8 - Debt" for additional information on the First Lien Notes. On the Effective Date, the Legacy Valaris Class A ordinary shares were cancelled and common shares of Valaris with a nominal value of $0.01 per share (the “Common Shares”) were issued.
On the Effective Date, the Legacy Valaris Class A ordinary shares were cancelled and common shares of Valaris with a nominal value of $0.01 per share (the “Common Shares”) were issued. Also, former holders of Legacy Valaris' equity were issued warrants (the "Warrants") to purchase Common Shares.
On the Effective Date, we successfully completed our financial restructuring and together with the Debtors emerged from the Chapter 11 Cases. Upon emergence from the Chapter 11 Cases, we eliminated $7.1 billion of debt and obtained a $520 million capital injection by issuing the first lien secured notes (the "First Lien Notes").
Upon emergence from the Chapter 11 Cases, we eliminated $7.1 billion of debt and obtained a $520 million capital injection by issuing the first lien secured notes (the "First Lien Notes"). See “ Note 8 - Debt" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on the First Lien Notes.
In certain cases, vendors who provide equipment or services to us limit their pollution liability to a specific monetary cap, and we assume the liability above that cap. Typically, in the case of original equipment manufacturers, the cap is a negotiated amount based on mutual agreement of the parties considering the risk profiles and thresholds of each party.
Typically, in the case of original equipment manufacturers, the cap is a negotiated amount based on mutual agreement of the parties considering the risk profiles and thresholds of each party. However, for smaller vendors, the liability is usually limited to the value, or double the value, of the contract for the purchase of such equipment or services.
In addition, our drilling contracts typically provide for our customers to indemnify us, generally based on replacement cost minus some level of depreciation, for loss or damage to our down-hole equipment, and in some cases for a limited amount of the repair of or replacement cost of our subsea equipment, unless the damage is caused by our negligence, normal wear and tear or defects in our equipment.
However, exceptions may exist as it relates to damages due to our negligence. In addition, our drilling contracts typically provide for our customers to indemnify us, generally based on replacement cost minus some level of depreciation, for loss or damage to our down-hole equipment.
Human Capital We believe our people are one of the most important elements of our success, and we benefit from a motivated, engaged, and diverse workforce. Our approach to attracting, developing, and retaining a diverse workforce of high-performing talent is anchored in a long-term employment model that seeks to foster personal growth and engagement.
Our approach to attracting, developing, and retaining a diverse workforce of high-performing talent is anchored in a long-term employment model that seeks to foster personal growth and engagement. Purpose and Culture At Valaris, our purpose is to provide responsible solutions that deliver energy to the world.
We also maintain insurance for exposures to personal injuries, damage to or loss of property and certain business risks.
In some cases, we are indemnified by our customer for a limited amount of the repair of or replacement cost of our subsea equipment. We also maintain insurance for exposures to personal injuries, damage to or loss of property and certain business risks.
We own and operate 52 rigs, of which 17 are located in the Middle East and Africa, 16 are located in Europe and the Mediterranean, 13 are located in North and South America and six are located in Asia and Pacific Rim as of December 31, 2022. Our drilling rigs drill and complete oil and natural gas wells.
Floaters, Jackups and ARO are also reportable segments. 5 We own and operate 53 rigs, of which 16 are located in the Middle East and Africa, 16 are located in North and South America, 16 are located in Europe, and five are located in Asia and the Pacific Rim as of December 31, 2023.
We encourage you to review our latest Sustainability Report, located on our website (www.valaris.com), for more detailed information regarding our sustainability and human capital programs and initiatives. Nothing on our website, including our Sustainability Report or sections thereof, shall be deemed incorporated by reference into this report or other filings that we make with the SEC.
We encourage you to review our latest Sustainability Report, located on our website (www.valaris.com), for more detailed information regarding our sustainability and human capital targets, including our GHG emissions intensity reduction target, programs and initiatives.
Increased oil prices were due to, among other factors, rebounding demand for hydrocarbons, a measured approach to production increases by OPEC+ members and a focus on cash flow and returns by major exploration and production companies. The constructive oil price environment led to an improvement in contracting and tendering activity in 2021 as compared to 2020.
Since 2021, oil prices have become relatively more stable due to, among other factors, rebounding demand for hydrocarbons, a measured approach to production increases by OPEC+ members, reduction in supply due to Russia’s invasion of Ukraine and the subsequent sanctions placed on Russia, and a focus on cash flow and returns by major exploration and production companies.
While contracting and tendering activity has increased, contract awards remain subject to a highly competitive bidding process, which could result in lower margin contracts that also contain less favorable contractual and commercial terms, including reduced or no mobilization and/or demobilization fees; reduced day rates or zero day rates during downtime; reduced standby, redrill and moving rates and reduced periods in which such rates are payable; reduced caps on reimbursements for lost or damaged downhole tools; reduced periods to remediate downtime due to equipment breakdowns or failure to perform in accordance with the contractual standards of performance before the operator may terminate the contract; certain limitations on our ability to be indemnified from operator and third- party damages caused by our fault, resulting in increases in the nature and amounts of liability allocated to us; and reduced or no early termination fees and/or termination notice periods. 7 Backlog Information See "Item 7.
While contracting and tendering activity has increased, contract awards remain subject to a highly competitive bidding process, which could result in contracts that contain unfavorable contractual and commercial terms, such as certain limitations on our ability to be indemnified from operator and third-party damages caused by our fault, resulting in increases in the nature and amounts of liability allocated to us.
Our contracts generally provide that, in the event of any such spill from our rigs, we are responsible for fines and penalties. Major Customers We provide our contract drilling services to major international, government-owned and independent oil and gas companies. During the year ended December 31, 2022, our five largest customers accounted for 43% of consolidated revenues.
Backlog Information See " Item 7 . Management's Discussion and Analysis of Financial Condition and Results of Operations " for backlog information. 6 Major Customers We provide our contract drilling services to major international, government-owned and independent oil and gas companies. During the year ended December 31, 2023, our five largest customers accounted for 40% of consolidated revenues.
In 2022, we created a new business function and management position focused on sustainability and new energy opportunities and have an employee-led cross-functional working group to identify and evaluate opportunities and promote sustainable business practices. We publish an annual sustainability report aligned with Sustainability Accounting Standards Board (SASB) standards and report scope 1, 2 and 3 greenhouse gas (GHG) emissions.
We have a dedicated department focused on sustainability and new energy and also have an employee-led cross-functional working group to identify and evaluate opportunities and promote sustainable business practices.
Regulatory, Legal and Tax Risks Failure to comply with anti-corruption and anti-bribery statutes, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, could result in fines, criminal penalties, drilling contract terminations and materially adversely affect our financial position, operating results or cash flows.
Regulatory, Legal and Tax Risks • Failure to comply with anti-corruption and anti-bribery statutes could result in fines, criminal penalties and drilling contract terminations. • Increasing regulatory complexity could adversely impact our operations and reduce demand. • Compliance with or breach of environmental laws can be costly and limit our operations. • The U.S.
We also have options to purchase two recently constructed drillships on or before December 31, 2023. Our customers include many of the leading international and government-owned oil and gas companies, in addition to many independent operators. We are among the most geographically diverse offshore drilling companies with current operations spanning six continents.
Our customers include many of the leading international and government-owned oil and gas companies, in addition to many independent operators. We are among the most geographically diverse offshore drilling companies with global operations. The markets in which we operate include the Gulf of Mexico, South America, the North Sea, the Middle East, Africa and Asia Pacific.
On March 3, 2021, the Bankruptcy Court confirmed the Debtors' chapter 11 plan of reorganization.
On March 3, 2021, the Bankruptcy Court confirmed the Debtors' chapter 11 plan of reorganization. On April 30, 2021 (the "Effective Date"), we successfully completed our financial restructuring and together with the Debtors emerged from the Chapter 11 Cases.
Approximately 650 personnel attended the program in 2022. In addition to the BOLD offshore program, we designed and piloted an onshore leadership program in 2022 which we expect to implement for our senior onshore leaders commencing in 2023.
Approximately 492 personnel attended the program in 2023. We implemented an onshore leadership program in 2023, which included eight separate onshore leadership sessions, which was delivered to 157 personnel.
Removed
The markets in which we operate include the Gulf of Mexico, South America, the North Sea, the Middle East, Africa and Asia Pacific. We provide drilling services on a day rate contract basis.
Added
We provide drilling services on a day rate contract basis.
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In 2020, the combined effects of the global COVID-19 pandemic, the significant decline in the demand for oil and the substantial surplus in the supply of oil resulted in significantly reduced demand and day rates for offshore drilling provided by the Company and increased uncertainty regarding long-term market conditions.
Added
Demand for offshore drilling services continues to improve as evidenced by increasing global utilization and day rates for offshore drilling rigs. In recent years, oil prices have experienced significant volatility as a result of the global COVID-19 pandemic, production disputes among major oil producing countries and various other factors.
Removed
These events had a significant adverse impact on our expected liquidity position and financial runway and led to the filing of the Chapter 11 Cases (as defined herein). In 2021, Brent crude oil prices increased from approximately $50 per barrel at the beginning of the year to nearly $80 per barrel by the end of the year.
Added
This volatility meaningfully impacted both the supply of, and demand for, offshore rigs.
Removed
Oil prices remained volatile through 2022. In the first half of 2022, Brent crude oil prices and volatility increased dramatically, in large part due to Russia’s invasion of Ukraine, which led to sanctions being placed on Russia, including its ability to export crude oil and other petroleum products.
Added
In 2023, prices have remained at levels that are supportive of offshore exploration and development activity. The more constructive oil price environment has led to an improvement in contracting and tendering activity for our industry.
Removed
The anticipated impact on supply drove Brent crude oil prices above $130 per barrel in early March 2022. By the end of December 2022, the Brent crude price had declined to approximately $83 per barrel due in part to high inflation rates and fears of a global recession that could negatively impact oil demand.
Added
Rig attrition in the industry over the last decade, particularly for floaters, has resulted in a smaller global fleet of rigs that is available to meet customer demands. Consequently, our outlook for the offshore drilling business is positive.
Removed
Despite the high volatility in spot oil prices described above, our customers tend to be more focused on medium-term and long-term commodity prices when making investment decisions due to the longer lead times for offshore projects.
Added
We currently carry limited insurance for loss of hire for several of our rigs. Our customers typically indemnify us for most well-control events.
Removed
These forward prices experienced far less volatility in 2022 and have maintained levels which are highly constructive for offshore project demand. 5 The outlook for the offshore drilling industry has improved since the beginning of 2021, as evidenced by increasing global utilization and day rates for offshore drilling rigs, most notably for drillships.
Added
Our insurance program and the terms of our drilling contracts may change in the future. In certain cases, vendors who provide equipment or services to us limit their pollution liability to a specific monetary cap, and we assume the liability above that cap.
Removed
However, heightened geopolitical tensions have increased volatility, inflation is increasing costs of operations and the impacts from the COVID-19 pandemic remains uncertain. More recently, the combination of global inflation and a tightening of monetary policy has led to increasing fears of a global economic recession that may have a negative impact on demand for hydrocarbons.
Added
Additional information on insurance and indemnification matters and related risks is discussed in “Item 1A. Risk Factors,” which should be read in conjunction with the foregoing information.
Removed
As a result, there is still uncertainty around the sustainability of the improvement in oil prices and the recovery in demand for, and profitability of, offshore drilling services.
Added
We incorporate by reference herein the disclosures on governmental regulations, including environmental matters, contained in the following sections of this Annual Report on Form 10-K: • "Item 1A. Risk Factors – Regulatory, Legal and Tax Risks"; • "Item 1A. Risk Factors – Sustainability Risks"; • "Item 3. Legal Proceedings"; and • "Item 7.
Removed
In connection with the Chapter 11 Cases, on and prior to April 30, 2021 (the "Effective Date"), Legacy Valaris effectuated certain restructuring transactions, pursuant to which the successor company, Valaris, was formed and through a series of transactions Legacy Valaris transferred to a subsidiary of Valaris substantially all of the subsidiaries, and other assets, of Legacy Valaris.
Added
Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Effects of Climate Change and Climate Change Regulation. 8 The International Convention on Oil Pollution Preparedness, Response and Cooperation, the International Convention on Civil Liability for Oil Pollution Damage 1992, the U.K.
Removed
We do not currently carry insurance for loss of hire. Any such lack of reimbursement from the loss of day rate revenues may cause us to incur substantial costs.
Added
Additionally, climate change is receiving increasing attention from scientists and legislators, and significant focus is being put on companies in the oil and natural gas industry.
Removed
However, in certain drilling contracts our customer’s responsibility for damage to its property and the property of its other contractors contains an exception to the extent the loss or damage is due to our negligence, which exception is usually subject to negotiated caps on a per occurrence basis, although in some cases we assume responsibility for all damages due to our negligence.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe Indenture contains covenants that limit, among other things, the Company's ability and the ability of the guarantors and other restricted subsidiaries, to: (1) incur, assume or guarantee additional indebtedness; (2) pay dividends or distributions on equity interests or redeem or repurchase equity interests; (3) make investments; (4) repay or redeem junior debt; (5) transfer or sell assets; (6) enter into sale and lease back transactions; (7) create, incur or assume liens; and (8) enter into transactions with certain affiliates.
Biggest changeThe Indenture, the Credit Agreement and the related agreements governing our indebtedness contain covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to: • incur additional debt and issue preferred stock; • incur or create liens; • redeem and/or prepay certain debt; • pay dividends on our shares or repurchase shares; • make certain investments; • engage in specified sales of assets; • enter into transactions with affiliates; and • engage in consolidation, mergers and acquisitions.
In the event ARO has insufficient cash from operations or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program.
Further, in the event ARO has insufficient cash or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program.
As a result of frequent changes in the taxing jurisdictions in 59 which our drilling rigs are operated and/or owned, changes in profitability levels and changes in tax laws, our annual effective income tax rate may vary substantially from one reporting period to another.
In addition, as a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in the overall level of our income and changes in tax laws, our consolidated effective income tax rate may vary substantially from one reporting period to another.
Restrictions on GHG emissions or other related legislative or regulatory enactments could have an indirect effect in those industries that use significant amounts of petroleum products, which could potentially result in a reduction in demand for petroleum products and, consequently, our offshore contract drilling services. We are currently unable to predict the manner or extent of any such effect.
Restrictions on GHG emissions or other related legislative or regulatory enactments could have an indirect effect in those industries that use significant amounts of petroleum products, which could potentially result in a reduction in demand for petroleum products and, consequently, our offshore contract drilling services.
Should we be targeted by any such litigation, we may incur liability, which, to the extent that societal pressures or political or other factors are involved, could be imposed without regard to the company’s causation of or contribution to the asserted damage, or to other mitigating factors.
Should we be targeted by any such litigation or investigations, we may incur liability, which could be imposed without regard to the causation of or contribution to the asserted damage, or to other mitigating factors.
In some instances, the movement of drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries.
In some instances, the movement of drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries, which may result in the imposition of transaction taxes, which could be material.
In addition, our drilling contracts generally permit early termination of the contract by the customer for convenience (without cause), exercisable upon advance notice to us, and in certain cases without making an early termination payment to us. There can be no assurances that our customers will be able to or willing to fulfill their contractual commitments to us.
Generally, our drilling contracts permit early termination of the contract by the customer for convenience (without cause), exercisable upon advance notice to us, and in certain cases without making an early termination payment to us.
We are currently unable to predict the manner or extent of any such effect. In addition, in recent years the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds, has promoted divestment of fossil fuel equities and pressured lenders to cease or limit funding to companies engaged in the extraction of fossil fuel reserves.
In recent years the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds, has promoted the divestment of fossil fuel equities and pressured lenders to cease or limit funding to companies engaged in the extraction of fossil fuel reserves. Such initiatives could ultimately interfere with our access to capital, business activities and operations.
Such environmental initiatives aimed at limiting climate change and reducing air pollution could ultimately interfere with our business activities and operations. Finally, increasing attention to the risks of climate change has resulted in an increased possibility of lawsuits brought by public and private entities against oil and gas companies in connection with their greenhouse gas emissions.
Finally, increasing attention to the risks of climate change has resulted in an increased possibility of lawsuits or investigations brought by public and private entities against oil and natural gas companies in connection with their GHG emissions.
The joint venture partners intend for the newbuild jackup rigs to be financed out of available cash from ARO's operations and/or funds available from third-party debt financing. ARO paid a 25% down payment from cash on hand for each of the newbuilds ordered in January 2020 and is actively exploring financing options for the remaining payments due upon delivery.
The joint venture partners intend for the newbuild jackup rigs to be financed out of ARO's available cash on hand or from operations and/or funds available from third-party financing. In October 2023, ARO entered into a $359.0 million term loan to finance the remaining payments due upon delivery of the first two newbuild jackups and for general corporate purposes.
Accordingly, during periods of declining profitability, our income tax expense may not decline proportionally with income, which could result in higher effective income tax rates. Furthermore, we will continue to incur income tax expense in periods in which we operate at a loss. Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services.
In periods of declining profitability, our income tax expense may not decline proportionately with income. Further, we may continue to incur income tax expense in periods in which we operate at a loss. Income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary, as does the tax base to which the rates are applied.
Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control.
Our ability to pay our operating and capital expenses and make payments due on our debt depends on our future performance, which will be affected by financial, business, economic, legislative and other factors, many of which are beyond our control.
ARO ARO currently owns a fleet of seven jackup rigs, leases another eight jackup rigs from us and has plans to purchase 20 newbuild jackup rigs over an approximate 10-year period. In January 2020, ARO ordered the first two newbuild jackups, each with a shipyard price of $176.0 million.
The s hareholder agreement governing the joint venture (the "Shareholder Agreement") specifies that ARO shall purchase 20 newbuild jackup rigs over an approximate 10-year period. The first two newbuild jackups were ordered in January 2020.
The Notes Receivable from ARO, which are governed by the laws of Saudi Arabia, mature during 2027 and 2028. In the event that ARO is unable to repay the Notes Receivable from ARO when they become due, we would require the prior consent of our joint venture partner to enforce ARO’s payment obligations.
In the event of a dispute with ARO over the repayment of the Notes Receivable from ARO, our ability to enforce the payment obligations of ARO or to exercise other remedies are subject to several significant limitations, including that our ability to accelerate outstanding amounts under the Notes Receivable from ARO is subject to the consent of Saudi Aramco and that the Notes Receivable from ARO are governed by the laws of Saudi Arabia, and we are limited to the remedies available under Saudi law.
Removed
Item 1A. Risk Factors - Our long-term contracts are subject to the risk of cost increases, which could adversely impact our profitability." 48 The outlook for the offshore drilling industry has improved since the beginning of 2021, as evidenced by increasing global utilization and day rates for offshore drilling rigs, most notably for drillships.
Added
Item 1A. Risk Factors Risks Related to Our Business, Operations, Financing Arrangements and Market Conditions The success of our business depends on the level of activity in offshore oil and natural gas exploration, development and production, which can be significantly affected by volatile oil and natural gas prices.
Removed
However, the combination of global inflation and a tightening of monetary policy has led to increasing concerns of a global economic recession that may have a negative impact on demand for hydrocarbons. As a result, there is still uncertainty around the sustainability of the improvement in oil prices and the recovery in demand for, and profitability of, offshore drilling services.
Added
The success of our business depends on the level of activity in offshore oil and natural gas exploration, development and production. Oil and natural gas prices, and market expectations of these prices, significantly affect the level of drilling activity. Historically, when operator capital spending declines, utilization and day rates also decline.
Removed
Backlog Our contract drilling backlog reflects commitments, represented by signed drilling contracts, and is calculated by multiplying the contracted operating day rate by the contract period. The contracted day rate excludes certain types of lump sum fees for rig mobilization, demobilization, contract preparation, as well as customer reimbursables and bonus opportunities.
Added
Numerous factors may affect oil and natural gas prices and the level of demand for our services, including: • regional and global economic conditions and changes therein, including recessions, • oil and natural gas supply and demand, which is affected by worldwide economic activity and population growth, • expectations regarding future energy prices, • the desire and ability of OPEC+, its members and other oil-producing nations, such as Russia, to reach further agreements to set and maintain production levels and pricing and to implement existing and future agreements, • the availability of capital for oil and natural gas participants, including our customers, and capital allocation decisions by our customers, including the relative economics of offshore development versus alternative prospects, • the level of production by non-OPEC countries, • U.S. and non-U.S. tax policy, including the U.K. windfall tax on oil and gas producers in the British North Sea, • advances in exploration and development technology, including with respect to onshore shale, • costs associated with exploring for, developing, producing and delivering oil and natural gas, • the rate of discovery of new oil and natural gas reserves and the rate of decline of existing oil and gas reserves, • investors reducing, or ceasing to provide, funding to the oil and natural gas industry in response to initiatives to limit climate change, • laws and government regulations that limit, restrict or prohibit exploration and development of oil and natural gas in various jurisdictions, or materially increase the cost of such exploration and development, • the development and exploitation of alternative fuels or energy sources, resulting in reduced capital spending by our customers on oil and natural gas projects, and increased demand for electric-powered products, including electric-powered vehicles, • disruption to exploration and development activities due to hurricanes and other adverse weather conditions and the risk thereof, • natural disasters or incidents resulting from operating hazards inherent in offshore drilling, such as oil spills, • the worldwide military or political environment, including the invasion of Ukraine by Russia and the conflict in the Middle East and any related political or economic responses, global macroeconomic effects of trade disputes and increased tariffs and sanctions and uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas or geographic areas in which we operate, or acts of terrorism, and 16 • the occurrence or threat of epidemic or pandemic diseases and any government response to such occurrence or threat.
Removed
Our backlog excludes ARO's backlog, but includes backlog from our rigs leased to ARO at the contractual rates, which are subject to adjustment under the terms of the shareholder agreement governing the joint venture. ARO backlog is inclusive of backlog on both ARO owned rigs and rigs leased from us.
Added
Higher commodity prices may not necessarily translate into increased activity, however, and even during periods of high commodity prices, customers may cancel or curtail their drilling programs, or reduce their levels of capital expenditures for exploration and production for a variety of reasons, including their expectations for future oil and natural gas prices, the cost of exploration efforts, extended periods of price volatility, their lack of success in exploration efforts and re-allocating capital expenditures for renewable energy projects.
Removed
As an unconsolidated 50/50 joint venture, when ARO realizes revenue from its backlog, 50% of the earnings thereon would be reflected in our results in the equity in earnings of ARO in our Consolidated Statement of Operations.
Added
These factors could cause our revenues and profits to decline and limit our future growth prospects. Any significant decline in day rates or utilization of our drilling rigs could materially adversely affect our financial position, operating results and cash flows.
Removed
The earnings from ARO backlog with respect to rigs leased from us will be net of, among other things, payments to us under bareboat charters for those rigs. See " Note 5 - Equity Method Investment in ARO" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information.
Added
In addition, these risks could increase instability in the financial and insurance markets and make it more difficult for us to access capital and obtain insurance coverage that we consider adequate or are otherwise required by our contracts. The offshore contract drilling industry is highly competitive and cyclical.
Removed
The following table summarizes our and ARO's contract backlog of business as of February 21, 2023 and 2022 (in millions): February 21, 2023 February 21, 2022 Floaters (1) $ 1,376.9 $ 1,665.3 Jackups 742.3 643.0 Other (2) 344.0 135.6 Total $ 2,463.2 $ 2,443.9 ARO $ 1,731.8 $ 1,501.1 (1) Our backlog as of February 21, 2022 included approximately $428 million attributable to a contract awarded to VALARIS DS-11 for an eight-well deepwater project in the U.S.
Added
Our industry is highly competitive, and our contracts are traditionally awarded on a competitive bid basis. Pricing, safety records and competency are key factors in determining which qualified contractor is awarded a contract. Rig availability, location and technical capabilities also can be significant factors in the determination.
Removed
Gulf of Mexico that was expected to commence in mid-2024. In June 2022, the customer terminated the contract. As a result of the contract termination, we received an early termination fee of $51.0 million which is included in revenues on our Consolidated Statements of Operations for the year ended December 31, 2022 (Successor).
Added
If we are not able to compete successfully, our revenues and profitability may decline. Demand for offshore contract drilling services is highly cyclical, which is primarily driven by the demand for drilling rigs and the available supply of drilling rigs.
Removed
As of the date of the termination, we had incurred costs to upgrade the rig pursuant to the requirements of the contract. Costs incurred for capital upgrades specific to the customer requirements were considered to be impaired and as such, we recorded a pre-tax, non-cash loss on impairment in the second quarter of 2022 of $34.5 million.
Added
Demand for drilling rigs is driven by the levels of offshore exploration and development conducted by oil and natural gas companies, which is beyond our control and may fluctuate substantially from year-to-year and from region-to-region.
Removed
Additional costs were recorded for penalties and other costs incurred upon cancellation of equipment ordered. See " Note 4 - Revenue from Contracts with Customers" and " Note 7 - Property and Equipment" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information.
Added
Prolonged periods of reduced demand or excess rig supply have required us, and may in the future require us, to idle, sell or scrap rigs and enter into low day rate contracts or contracts with unfavorable terms.
Removed
(2) Other includes the bareboat charter backlog for the jackup rigs leased to ARO to fulfill contracts between ARO and Saudi Aramco in addition to backlog for our managed rig services.
Added
There can be no assurance that the current demand for drilling rigs will increase in the future or that any short-term improvement to market conditions will be sustained. Any decline in demand for drilling rigs or oversupply of drilling rigs could materially adversely affect our financial position, operating results or cash flows.
Removed
Substantially all the operating costs for jackups leased to ARO through the bareboat charter agreements will be borne by ARO. 49 The increase in our backlog of $19.3 million is primarily due to recent contract awards and contract extensions, partially offset by the termination of the VALARIS DS-11 contract and revenues realized.
Added
Our current backlog of contract drilling revenue may not be fully realized and may decline significantly in the future. As of February 15, 2024 and February 21, 2023, our contract backlog was approximately $3.9 billion and $2.5 billion, respectively. This amount reflects the remaining contractual terms multiplied by the applicable contractual day rate.
Removed
As revenues are realized and if we experience customer contract cancellations, we may experience declines in backlog, which would result in a decline in revenues and operating cash flows.
Added
The contractual revenue may be higher than the actual revenue we ultimately receive because of a number of factors, including rig downtime or suspension of operations.
Removed
The increase in ARO's backlog of $230.7 million is primarily due to contract awards and extensions, including contract awards for VALARIS 76 and 108, which are expected to be leased to ARO following completion of their existing contracts, partially offset by revenues realized.
Added
Several factors could cause rig downtime or a suspension of operations, many of which are beyond our control, including the early termination, repudiation or renegotiation of contracts, breakdowns of equipment, work stoppages, including labor strikes, shortages of material or skilled labor, surveys or inspections by government and maritime authorities, inability to obtain the requisite permits or approvals, periodic classification surveys, severe weather, strong ocean currents or harsh operating conditions, the occurrence or threat of epidemic or pandemic diseases, and any government response to such occurrence or threat and force majeure events. 17 Our customers may seek to terminate , repudiate or renegotiate our drilling contracts for various reasons, including in the event of damage or a total loss of the drilling rig, the suspension or interruption of operations for extended periods due to breakdown of major rig equipment, failure to comply with performance conditions or equipment specifications, the failure of the customer to receive final investment decision (FID) with respect to projects for which the drilling rig was contracted or other reasons and “force majeure” events beyond the control of either party or other specific conditions.
Removed
The following table summarizes our and ARO's contract backlog of business as of February 21, 2023 and the periods in which revenues are expected to be realized (in millions): 2023 2024 2025 and beyond Total Floaters $ 753.6 $ 562.2 $ 61.1 $ 1,376.9 Jackups 428.0 195.2 119.1 742.3 Other 141.9 112.8 89.3 344.0 Total $ 1,323.5 $ 870.2 $ 269.5 $ 2,463.2 ARO $ 470.5 $ 598.8 $ 662.5 $ 1,731.8 The amount of actual revenues earned and the actual periods during which revenues are earned will be different from amounts disclosed in our backlog calculations due to a lack of predictability of various factors, including unscheduled repairs, maintenance requirements, weather delays, contract terminations or renegotiations and other factors.
Added
In cases where customers are required to make an early termination payment, such payments would provide some level of compensation to us for the lost revenue from the contract but in many cases would not fully compensate us for all of the lost revenue.
Removed
Our drilling contracts generally contain provisions permitting early termination of the contract if the rig is lost or destroyed or by the customer if operations are suspended for a specified period of time due to breakdown of major rig equipment, unsatisfactory performance, "force majeure" events beyond the control of either party or other specified conditions.
Added
There can be no assurances that our customers will be able to or willing to fulfill their contractual commitments to us. A decline in oil and natural gas prices and any resulting downward pressure on utilization may cause some customers to consider early termination of select contracts despite having to pay onerous early termination fees in certain cases.
Removed
BUSINESS ENVIRONMENT Floaters Starting in 2021, the more constructive oil price environment has led to an improvement in contracting and tendering activity for floaters.
Added
Customers may request to renegotiate the terms of existing contracts, or they may request early termination or seek to repudiate contracts. In addition, financially distressed customers may seek to negotiate reduced termination fees as part of a restructuring package. Furthermore, as contracts expire, we may be unable to secure new contracts for our drilling rigs.
Removed
The number of contracted benign environment floaters has increased to 115 from a low of 101 in early 2021, contributing to a 10% increase in utilization, from 73% to 83%, for the active fleet over the same period. This increase in activity is particularly evident for drillships.
Added
Therefore, revenues recorded in future periods could differ materially from our current backlog. Our inability to realize the full amount of our contract backlog or to secure a new contract with substantially similar terms on a timely basis could materially adversely affect our financial position, operating results or cash flows.
Removed
Utilization for the active drillship fleet has been sustained at above 85% for more than twelve months, resulting in a meaningful improvement in day rates for this class of assets.
Added
Our business will be materially adversely affected if we are unable to secure contracts on economically favorable terms or if option periods in existing contracts are not exercised as expected. Our ability to renew expiring contracts or obtain new contracts and the terms of any such contracts will depend on market conditions.
Removed
In 2022, we completed the reactivation of three drillships and one semisubmersible which have commenced long-term contracts, and we were awarded an additional long-term contract for one of our stacked drillships that is expected to commence in mid-2023. Our backlog for our floater segment was $1.4 billion and $1.7 billion as of February 21, 2023 and 2022, respectively.
Added
In December 2023, we took delivery of VALARIS DS-13 and VALARIS DS-14 (the "Newbuild Drillships") for an aggregate purchase price of approximately $337.0 million, which are currently uncontracted. Our customers’ decisions to exercise option periods resulting in additional work for the rig under contract also depend on market conditions.
Removed
The decrease in our backlog was due to the termination of the VALARIS DS-11 contract, which represented approximately $428 million of backlog, and revenues realized, partially offset by contract awards and contract extensions. 50 Utilization for our floaters was 45% during the year ended December 31, 2022, compared to 29% during the year ended December 31, 2021.
Added
We may be unable to renew our expiring contracts, including contracts expiring due to a failure by the customer to exercise option periods, or obtain new contracts for the Newbuild Drillships or the drilling rigs under contracts that have expired or have been terminated.
Removed
Average day rates were approximately $213,000 during the year ended December 31, 2022, compared to $193,000 during the year ended December 31, 2021. The increase in average day rate and utilization is primarily due to the four reactivated floaters commencing contracts during 2022.
Added
In addition, the day rates under any new contracts or any renegotiated contracts may be substantially below the existing day rates, which could materially adversely affect our financial position, operating results or cash flows.
Removed
As of December 31, 2022, the benign environment floater supply declined by 43% to 159 from a peak of 281 in late 2014. Globally, there were 17 newbuild drillships and benign environment semisubmersible rigs reported to be under construction that could increase global supply, of which 13 were scheduled to be delivered before the end of 2023.
Added
If customers do not exercise option periods under contracts that we currently expect to be exercised, we may face increased idle time associated with the related rigs, as we may have difficulty securing additional work to cover the option periods.
Removed
Most newbuild floaters were uncontracted. Further, with regard to supply, there were 28 benign environment floaters that are either older than 20 years of age and currently idle or have been stacked for more than three years. There were two additional benign environment floaters older than 20 years that have contracts expiring in six months without follow-on work.
Added
In addition, we may choose to stack idle rigs that are not under contract, which would require us to incur stacking costs for such rigs. Our customers may be unable or unwilling to fulfill their contractual commitments to us, including their obligations to pay for losses, damages or other liabilities.
Removed
Operating costs associated with keeping these rigs idle as well as expenditures required to re-certify or reactivate some of these aging rigs may prove cost prohibitive. Drilling contractors may elect to scrap or cold stack a portion of these rigs.
Added
Some of our customers may be subject to liquidity risk that could lead them to seek to repudiate, cancel or renegotiate our drilling contracts or fail to fulfill their commitments to us under those contracts. These risks are heightened in periods of depressed market conditions.
Removed
A sustained constructive oil price environment and continued demand for offshore projects or further rationalization of drilling rig supply are necessary to maintain current floater utilization and day rates. Jackups Contracting and tendering activity for jackups began to improve during 2021 as a result of the more constructive oil price environment.
Added
Our drilling contracts provide for varying levels of indemnification and allocation of liabilities between our customers and us with respect to loss or damage to property and injury or death to persons arising from the drilling operations we perform.
Removed
Further, we have seen a notable increase in jackup activity in 2022, primarily driven by demand from the Middle East. The number of contracted jackups has increased to 394 from a low of 341 in early 2021, contributing to a 13% increase in utilization, from 78% to 91%, for the active fleet over the same period.
Added
Under our drilling contracts, liability with respect to personnel and property customarily is allocated so that we and our customers each assume liability for our respective personnel and property.
Removed
Our backlog for our jackup segment was $742.3 million and $643.0 million as of February 21, 2023 and 2022, respectively. The increase in our backlog was due to contract awards and contract extensions, partially offset by revenues realized.
Added
Our customers have historically assumed most of the responsibility for, and indemnified us from loss, damage or other liability resulting from, pollution or contamination, including clean-up and removal, and third-party damages arising from operations under the contract when the source of the pollution originates from the well or reservoir, including those resulting from blowouts or cratering of the well.
Removed
Utilization for our jackups was 66% during the year ended December 31, 2022, compared to 54% during the year ended December 31, 2021. The increase in utilization is primarily due to the sale of stacked jackups in 2022 and late 2021.
Added
However, we regularly are required to assume a limited amount of liability for pollution damage caused by our negligence, which 18 liability generally has caps for ordinary negligence, with much higher caps or unlimited liability where the damage is caused by our gross negligence or willful misconduct.
Removed
Average day rates were approximately $94,000 during the year ended December 31, 2022, compared to approximately $95,000 during the year ended December 31, 2021. As of December 31, 2022, jackup supply declined by 9% to 493 from a peak of 542 in early 2015.
Added
Notwithstanding a contractual indemnity from a customer, there can be no assurance that our customers will be financially able to fulfill their indemnification obligations to us for such losses. In addition, under the laws of certain jurisdictions, such indemnities under certain circumstances are not enforceable if the cause of the damage was our gross negligence or willful misconduct.
Removed
Globally, there were 20 newbuild jackup rigs reported to be under construction that could increase global supply, of which 15 were scheduled to be delivered before the end of 2023. Most newbuild jackups were uncontracted.
Added
This could result in us having to assume liabilities in excess of those agreed in our contracts due to customer balance sheet or liquidity issues or applicable law. The loss of a significant customer or customer contract, as well as customer consolidation and changes to customer strategy, could materially adversely affect our business.
Removed
Further, with regard to supply, there were 79 jackups that are either older than 30 years and currently idle or have been stacked for more than three years. There were a further 17 jackups that are 30 years or older and have contracts expiring within the next six months without follow-on work.
Added
We provide our services to major international, government-owned and independent oil and natural gas companies. During 2023, our five largest customers accounted for 40% of consolidated revenues, with our largest customer representing 11% of our consolidated revenues and a significant percentage of our operating cash flows.
Removed
Expenditures required to re-certify or reactivate some of these rigs may prove cost prohibitive and drilling contractors may instead elect to scrap or cold stack these rigs.
Added
Our financial position, operating results or cash flows may be materially adversely affected if any of our higher day rate contracts were terminated or renegotiated on less favorable terms or if a major customer terminates its contracts with us, fails to renew its existing contracts with us, requires renegotiation of our contracts or declines to award new contracts to us.

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Item 2. Properties

Properties — owned and leased real estate

6 edited+2 added−5 removed6 unchanged
Biggest changeProperties Contract Drilling Fleet The following table provides certain information about the rigs in our drilling fleet as of February 21, 2023: Rig Name Rig Type Year Built/ Rebuilt Design Maximum Water Depth/ Drilling Depth Location Status Floaters VALARIS DS-4 Drillship 2010 Dynamically Positioned 12,000'/40,000' Brazil Under contract VALARIS DS-7 Drillship 2013 Dynamically Positioned 10,000'/40,000' Spain Preservation stacked (1) VALARIS DS-8 Drillship 2015 Dynamically Positioned 12,000'/40,000' Spain Preservation stacked (1) VALARIS DS-9 Drillship 2015 Dynamically Positioned 12,000'/40,000' Angola Under contract VALARIS DS-10 Drillship 2015 Dynamically Positioned 12,000'/40,000' Nigeria Under contract VALARIS DS-11 Drillship 2013 Dynamically Positioned 12,000'/40,000' Spain Preservation stacked (1) VALARIS DS-12 Drillship 2013 Dynamically Positioned 12,000'/40,000' Angola Under contract VALARIS DS-13 Drillship Under construction (2) Dynamically Positioned 12,000'/40,000' South Korea Option (2) VALARIS DS-14 Drillship Under construction (2) Dynamically Positioned 12,000'/40,000' South Korea Option (2) VALARIS DS-15 Drillship 2014 Dynamically Positioned 12,000'/40,000' Brazil Under contract VALARIS DS-16 Drillship 2014 Dynamically Positioned 12,000'/40,000' Gulf of Mexico Under contract VALARIS DS-17 Drillship 2014 Dynamically Positioned 12,000'/40,000' Spain Under reactivation (3) VALARIS DS-18 Drillship 2015 Dynamically Positioned 12,000'/40,000' Gulf of Mexico Under contract VALARIS DPS-1 Semisubmersible 2012 Dynamically Positioned 10,000'/35,000' Australia Under contract VALARIS DPS-3 Semisubmersible 2010 Dynamically Positioned 8,500'/37,500' Gulf of Mexico Preservation stacked (1) VALARIS DPS-5 Semisubmersible 2012 Dynamically Positioned 8,500'/35,000' Mexico Under contract VALARIS DPS-6 Semisubmersible 2012 Dynamically Positioned 8,500'/35,000' Gulf of Mexico Preservation stacked (1) VALARIS MS-1 Semisubmersible 2011 F&G ExD Millennium 8,200'/40,000 Australia Under contract Jackups VALARIS 54 Jackup 1982/2004 F&G L-780 MOD II-C 300'/25,000' Saudi Arabia Under contract VALARIS 72 Jackup 1981/2011 Hitachi K1025N 225'/25,000' United Kingdom Under contract VALARIS 75 Jackup 1999 MLT Super 116-C 400'/30,000' Gulf of Mexico Preservation stacked (1) VALARIS 76 Jackup 2000 MLT Super 116-C 350'/30,000' Saudi Arabia Under contract VALARIS 92 Jackup 1982/2003 MLT 116-C 210'/25,000' United Kingdom Under contract VALARIS 102 Jackup 2002 KFELS MOD V-A 400'/30,000' Gulf of Mexico Preservation stacked (1) VALARIS 104 Jackup 2002/2011 KFELS MOD V-B 400'/30,000' UAE Preservation stacked (1) VALARIS 106 Jackup 2005 KFELS MOD V-B 400'/30,000' Indonesia Under contract VALARIS 107 Jackup 2006 KFELS MOD V-B 400'/30,000' Australia Under contract VALARIS 108 Jackup 2007/2009 KFELS MOD V-B 400'/30,000' Saudi Arabia Under contract VALARIS 109 Jackup 2008 KFELS MOD V-Super B 350'/35,000' Namibia Preservation stacked (1) VALARIS 110 Jackup 2015 KFELS MOD V-B 400'/35,000' Qatar Under contract VALARIS 111 Jackup 2003 KFELS MOD V Enhanced B-Class 400'/36,000' Croatia Preservation stacked (1) VALARIS 115 Jackup 2013 Baker Marine Pacific Class 400 400'/30,000' Brunei Under contract VALARIS 116 Jackup 2008/2018 LT 240- C 375'/35,000' Saudi Arabia Leased to ARO drilling VALARIS 117 Jackup 2009 LT 240- C 350'/35,000' Mexico Under contract VALARIS 118 Jackup 2012 LT 240- C 350'/35,000 Trinidad Under contract VALARIS 120 Jackup 2013 KFELS Super A 400'/40,000' United Kingdom Under contract VALARIS 121 Jackup 2013 KFELS Super A 400'/40,000' United Kingdom Under contract VALARIS 122 Jackup 2013 KFELS Super A 400'/40,000' United Kingdom Under contract 41 Rig Name Rig Type Year Built/ Rebuilt Design Maximum Water Depth/ Drilling Depth Location Status Jackups (Continued) VALARIS 123 Jackup 2016 KFELS Super A 400'/40,000' Netherlands Under contract VALARIS 140 Jackup 2016 LT Super 116E 340'/30,000' Saudi Arabia Leased to ARO drilling VALARIS 141 Jackup 2016 LT Super 116E 340'/30,000' Saudi Arabia Leased to ARO drilling VALARIS 143 Jackup 2010/2018 LT EXL Super 116-E 350'/35,000' Saudi Arabia Leased to ARO drilling VALARIS 144 Jackup 2010 LT Super 116-E 350'/35,000' Gulf of Mexico Under contract VALARIS 145 Jackup 2010 LT Super 116-E 350'/35,000' Gulf of Mexico Preservation stacked (1) VALARIS 146 Jackup 2011/2018 LT EXL Super 116-E 320'/35,000' Saudi Arabia Leased to ARO drilling VALARIS 147 Jackup 2012/2019 LT Super 116-E 350'/30,000' Saudi Arabia Leased to ARO drilling VALARIS 148 Jackup 2013/2019 LT Super 116-E 350'/30,000' Saudi Arabia Leased to ARO drilling VALARIS 247 Jackup 1998 LT Super Gorilla 400'/35,000' United Kingdom Under contract VALARIS 248 Jackup 2001/2014 LT Super Gorilla 400'/35,000' United Kingdom Under contract VALARIS 249 Jackup 2001 LT Super Gorilla 400'/35,000' New Zealand Under contract VALARIS 250 Jackup 2003 LT Super Gorilla XL 550'/35,000' Saudi Arabia Leased to ARO drilling VALARIS Viking Jackup 2011 KEFLS N Class 435'/35,000' United Kingdom Preservation stacked (1) VALARIS Stavanger Jackup 2011 KEFLS N Class 400'/35,000' United Kingdom Available VALARIS Norway Jackup 2011 KEFLS N Class 400'/35,000' United Kingdom Under contract (1) Prior to stacking, upfront steps are taken to preserve the rig.
Biggest changeProperties Contract Drilling Fleet The following table provides certain information about the rigs in our drilling fleet as of February 15, 2024: Rig Name Rig Type Year Delivered Design Maximum Water Depth/ Drilling Depth Location Status Floaters VALARIS DS-4 Drillship 2010 Dynamically Positioned 12,000'/40,000' Brazil Under contract VALARIS DS-7 Drillship 2013 Dynamically Positioned 10,000'/40,000' Spain Under reactivation (2) VALARIS DS-8 Drillship 2015 Dynamically Positioned 12,000'/40,000' Brazil Under contract VALARIS DS-9 Drillship 2015 Dynamically Positioned 12,000'/40,000' Angola Under contract VALARIS DS-10 Drillship 2017 Dynamically Positioned 12,000'/40,000' Nigeria Under contract VALARIS DS-11 Drillship 2013 Dynamically Positioned 12,000'/40,000' Spain Preservation stacked (1) VALARIS DS-12 Drillship 2013 Dynamically Positioned 12,000'/40,000' Egypt Under contract VALARIS DS-13 Drillship 2023 Dynamically Positioned 12,000'/40,000' Mobilizing (3) Mobilizing (3) VALARIS DS-14 Drillship 2023 Dynamically Positioned 12,000'/40,000' Mobilizing (3) Mobilizing (3) VALARIS DS-15 Drillship 2014 Dynamically Positioned 12,000'/40,000' Brazil Under contract VALARIS DS-16 Drillship 2014 Dynamically Positioned 12,000'/40,000' Gulf of Mexico Under contract VALARIS DS-17 Drillship 2014 Dynamically Positioned 12,000'/40,000' Brazil Under contract VALARIS DS-18 Drillship 2015 Dynamically Positioned 12,000'/40,000' Gulf of Mexico Under contract VALARIS DPS-1 Semisubmersible 2012 Dynamically Positioned 10,000'/35,000' Australia Under contract VALARIS DPS-3 Semisubmersible 2010 Dynamically Positioned 8,500'/37,500' Gulf of Mexico Preservation stacked (1) VALARIS DPS-5 Semisubmersible 2012 Dynamically Positioned 8,500'/35,000' Mexico Under contract VALARIS DPS-6 Semisubmersible 2012 Dynamically Positioned 8,500'/35,000' Gulf of Mexico Preservation stacked (1) VALARIS MS-1 Semisubmersible 2011 F&G ExD Millennium, Moored 8,200'/40,000 Australia Under contract Jackups VALARIS 72 Jackup 1981 Hitachi K1025N 225'/25,000' United Kingdom Under contract VALARIS 75 Jackup 1999 MLT Super 116-C 400'/30,000' Gulf of Mexico Preservation stacked (1) VALARIS 76 Jackup 2000 MLT Super 116-C 350'/30,000' Saudi Arabia Preparing for lease contract (4) VALARIS 92 Jackup 1982 MLT 116-C 210'/25,000' United Kingdom Under contract VALARIS 102 Jackup 2002 KFELS MOD V-A 400'/30,000' Gulf of Mexico Preservation stacked (1) VALARIS 104 Jackup 2002 KFELS MOD V-B 400'/30,000' UAE Preservation stacked (1) VALARIS 106 Jackup 2005 KFELS MOD V-B 400'/30,000' Indonesia Under contract VALARIS 107 Jackup 2006 KFELS MOD V-B 400'/30,000' Australia Under contract VALARIS 108 Jackup 2007 KFELS MOD V-B 400'/30,000' Saudi Arabia Preparing for lease contract (4) VALARIS 109 Jackup 2008 KFELS MOD V-Super B 350'/35,000' Namibia Preservation stacked (1) VALARIS 110 Jackup 2015 KFELS MOD V-B 400'/35,000' Qatar Under contract VALARIS 111 Jackup 2003 KFELS MOD V Enhanced B-Class 400'/36,000' Croatia Preservation stacked (1) VALARIS 115 Jackup 2013 Baker Marine Pacific Class 400 400'/30,000' Brunei Under contract VALARIS 116 Jackup 2008 LT 240- C 375'/35,000' Saudi Arabia Leased to ARO drilling VALARIS 117 Jackup 2009 LT 240- C 350'/35,000' Mexico Under contract VALARIS 118 Jackup 2012 LT 240- C 350'/35,000 Trinidad Under contract VALARIS 120 Jackup 2013 KFELS Super A 400'/40,000' United Kingdom Under contract VALARIS 121 Jackup 2013 KFELS Super A 400'/40,000' United Kingdom Under contract VALARIS 122 Jackup 2013 KFELS Super A 400'/40,000' United Kingdom Under contract 42 Rig Name Rig Type Year Delivered Design Maximum Water Depth/ Drilling Depth Location Status Jackups (Continued) VALARIS 123 Jackup 2019 KFELS Super A 400'/40,000' United Kingdom Preparing for contract VALARIS 140 Jackup 2016 LT Super 116E 340'/30,000' Saudi Arabia Leased to ARO drilling VALARIS 141 Jackup 2016 LT Super 116E 340'/30,000' Saudi Arabia Leased to ARO drilling VALARIS 143 Jackup 2010 LT EXL Super 116-E 350'/35,000' Saudi Arabia Leased to ARO drilling VALARIS 144 Jackup 2010 LT Super 116-E 350'/35,000' Gulf of Mexico Under contract VALARIS 145 Jackup 2010 LT Super 116-E 350'/35,000' Gulf of Mexico Preservation stacked (1) VALARIS 146 Jackup 2011 LT EXL Super 116-E 320'/35,000' Saudi Arabia Leased to ARO drilling VALARIS 147 Jackup 2013 LT Super 116-E 350'/30,000' Saudi Arabia Leased to ARO drilling VALARIS 148 Jackup 2013 LT Super 116-E 350'/30,000' Saudi Arabia Leased to ARO drilling VALARIS 247 Jackup 1998 LT Super Gorilla 400'/35,000' United Kingdom Preparing for contract VALARIS 248 Jackup 2000 LT Super Gorilla 400'/35,000' United Kingdom Under contract VALARIS 249 Jackup 2001 LT Super Gorilla 400'/35,000' Trinidad Under contract VALARIS 250 Jackup 2003 LT Super Gorilla XL 550'/35,000' Saudi Arabia Leased to ARO drilling VALARIS Viking Jackup 2010 KEFLS N Class 435'/35,000' United Kingdom Preservation stacked (1) VALARIS Stavanger Jackup 2011 KEFLS N Class 400'/35,000' United Kingdom Preparing for contract VALARIS Norway Jackup 2011 KEFLS N Class 400'/35,000' United Kingdom Under contract (1) Prior to stacking, upfront steps are taken to preserve the rig.
Drillships are self-propelled and can be positioned over a drill site through the use of computer-controlled propellers or "thruster" dynamic positioning systems. Our drillships are capable of drilling in water depths of up to 12,000 feet and are suitable for deepwater drilling in remote locations because of their 42 superior mobility and large load-carrying capacity.
Drillships are self-propelled and can be positioned over a drill site through the use of computer-controlled propellers or "thruster" dynamic positioning systems. Our drillships are capable of drilling in water depths of up to 12,000 feet and are suitable for deepwater drilling in remote locations because of their superior mobility and large load-carrying capacity.
Moored semisubmersibles are most commonly used for drilling in water depths of 4,499 feet or less. However, VALARIS MS-1, which is a moored semisubmersible, is capable of deepwater drilling in water depths greater than 5,000 feet. Dynamically positioned semisubmersibles generally are outfitted for drilling in deeper water depths and are well-suited for deepwater development and exploratory well drilling.
However, VALARIS MS-1, which is a moored semisubmersible, is capable of deepwater drilling in water depths greater than 5,000 feet. Dynamically positioned semisubmersibles generally are outfitted for drilling in deeper water depths and are well-suited for deepwater development and exploratory well drilling.
The engines power a top-drive mechanism that turns the drill string and drill bit so that the hole is drilled by grinding subsurface materials, which are then returned to the rig by the drilling fluid.
The equipment on our drilling rigs includes engines, draw works, derricks, pumps to circulate drilling fluid, well control systems, drill string and related equipment. The engines power a top-drive mechanism that turns the drill string and drill bit so that the hole is drilled by grinding subsurface materials, which are then returned to the rig by the drilling fluid.
Although drillships are most often used for deepwater drilling and exploratory well drilling, drillships can also be used as a platform to carry out well maintenance or completion work such as casing and tubing installation or subsea tree installations.
Although drillships are most often used for deepwater drilling and exploratory well drilling, drillships can also be used as a platform to carry out well maintenance or completion work such as casing and tubing installation or subsea tree installations. 43 Semisubmersibles are drilling rigs with pontoons and columns that are partially submerged at the drilling location to provide added stability during drilling operations.
Semisubmersibles are drilling rigs with pontoons and columns that are partially submerged at the drilling location to provide added stability during drilling operations. Semisubmersibles are held in a fixed location over the ocean floor either by being anchored to the sea bottom with mooring chains or dynamically positioned by computer-controlled propellers or "thrusters" similar to that used by our drillships.
Semisubmersibles are held in a fixed location over the ocean floor either by being anchored to the sea bottom with mooring chains or dynamically positioned by computer-controlled propellers or "thrusters" similar to that used by our drillships. Moored semisubmersibles are most commonly used for drilling in water depths of 4,499 feet or less.
Removed
These steps are designed to reduce time and lower cost to reactivate the rig when market conditions improve.
Added
These steps are designed to reduce time and lower cost to reactivate the rig once returned to the active fleet. (2) Rig is being reactivated for a firm contract. (3) Rigs are mobilizing from South Korea to Las Palmas, Spain, where they will be stacked. (4) Rigs are under-going contract preparations for lease contracts with ARO drilling.
Removed
(2) We have construction agreements with a shipyard that provide for, among other things, an option construct whereby the Company has the right, but not the obligation, to take delivery of either or both VALARIS DS-13 AND VALARIS DS-14 rigs which were recently constructed, on or before December 31, 2023.
Added
We lease various office, warehouse and storage facilities worldwide, including our corporate offices in Houston, Texas and other offices and facilities located in various countries in North America, South America, Europe, Africa and the Asia Pacific region. We own offices and other facilities in United States (Louisiana), Angola and Brazil.
Removed
Under the amended agreements, the purchase prices for the rigs are estimated to be $119.1 million for the VALARIS DS-13 and $218.3 million for the VALARIS DS-14, assuming a December 31, 2023 delivery date. Delivery can be requested any time prior to December 31, 2023 with a downward purchase price adjustment based on predetermined terms.
Removed
If the Company elects not to purchase the rigs, the Company has no further obligations to the shipyard. (3) Rig being reactivated for a firm contract. The equipment on our drilling rigs includes engines, draw works, derricks, pumps to circulate drilling fluid, well control systems, drill string and related equipment.
Removed
We lease office space in the United States (Houston and Louisiana), United Kingdom (London and Aberdeen), Australia, Indonesia, Mexico, Brazil, Nigeria, Netherlands, United Arab Emirates (Dubai and Abu Dhabi), Saudi Arabia, Thailand, Norway, New Zealand and Trinidad. We own offices and other facilities in United States (Louisiana), Angola and Brazil.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

2 edited+0 added−0 removed3 unchanged
Biggest changeA $0.5 million liability related to these matters was included in Accrued liabilities and other on our Consolidated Balance Sheet as of December 31, 2022 (Successor) included in "Item 8.
Biggest changeA $0.4 million liability related to these matters was included in Accrued liabilities and other on our Consolidated Balance Sheet as of December 31, 2023 included in "Item 8.
Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows. 43
Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows. 44

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+2 added−4 removed3 unchanged
Biggest changeCOMPARISON OF CUMULATIVE TOTAL RETURN (1) Among Valaris Limited, the S&P MidCap 400 Index and Dow Jones US Select Oil Equipment & Services Index May 3, 2021 December 31, 2021 December 31, 2022 Valaris Limited 100.0 151.9 285.3 S&P MidCap 400 100.0 104.6 91.0 Dow Jones US Select Oil Equipment & Services Index 100.0 96.5 160.7 (1) Total return assuming reinvestment of dividends.
Biggest changeCOMPARISON OF CUMULATIVE TOTAL RETURN (1) Among Valaris Limited, the S&P MidCap 400 Index and Industry Index 47 May 3, 2021 Fiscal Year Ended December 31, Relisting 2021 2022 2023 Valaris Limited 100.0 151.9 285.3 289.3 S&P MidCap 400 100.0 104.6 91.0 105.9 Industry Index 100.0 96.5 160.7 168.4 (1) Total return assuming reinvestment of dividends.
Assumes $100 invested on May 3, 2021, which represents the first trading date after our emergence from the Chapter 11 Cases. 46
Assumes $100 invested on May 3, 2021, which represents the first trading date after our emergence from the Chapter 11 Cases.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters." 45 Issuer Repurchases of Equity Securities In September 2022, our board of directors authorized a share repurchase program under which we may purchase up to $100 million of our outstanding Common Shares.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters." Issuer Repurchases of Equity Securities In 2022, our board of directors authorized a share repurchase program under which we may purchase up to $100.0 million of our outstanding Common Shares.
Many of our shareholders hold shares electronically, all of which are owned by a nominee of the Depository Trust Company. We had 102 shareholders of record on February 1, 2023. Dividends For the Successor, we have not paid or declared any dividends on our Common Shares. Our Indenture includes provisions that limit our ability to pay dividends.
Many of our shareholders hold shares electronically, all of which are owned by a nominee of the Depository Trust Company. We had 67 shareholders of record on February 1, 2024. Dividends We have not paid or declared any dividends on our Common Shares. Our Indenture and the Credit Agreement include provisions that limit our ability to pay dividends.
Successor On April 30, 2021, pursuant to the Plan, the Company issued an aggregate of approximately 75.0 million Common Shares and 5.6 million Warrants and has listed the Common Shares and the Warrants on the NYSE under the symbols “VAL” and “VAL WS”, respectively.
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market Information On April 30, 2021, pursuant to the plan of reorganization, the Company issued an aggregate of approximately 75.0 million Common Shares and 5.6 million Warrants and has listed the Common Shares and the Warrants on the NYSE under the symbols “VAL” and “VAL WS”, respectively.
The Predecessor had not paid or declared dividends since 2019. Bermuda Tax We have been designated by the Bermuda Monetary Authority as a non-resident for Bermuda exchange control purposes.
Bermuda Tax We have been designated by the Bermuda Monetary Authority as a non-resident for Bermuda exchange control purposes.
Removed
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market Information Predecessor As a result of the Chapter 11 Cases, the Class A ordinary shares of Legacy Valaris were delisted from the New York Stock Exchange ("NYSE") effective September 14, 2020. On the Effective Date, the Class A ordinary shares were cancelled.
Added
In April 2023, the board of directors authorized an increase of this amount to $300.0 million and in February 2024, they authorized a further increase to $600.0 million.
Removed
We have obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 31, 2035, be applicable to us or to any of our operations or to our shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in Bermuda.
Added
The share repurchase program does not have a fixed expiration, may be modified, suspended or discontinued at any time and is subject to compliance with applicable covenants and restrictions under our financing agreements. 46 The following table provides a summary of our repurchases of our equity securities during the quarter ended December 31, 2023 (in millions, except average price per share): Issuer Purchases of Equity Securities Period Total Number of Securities Purchased Average Price Paid per Security Total Number of Securities Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Securities that May Yet Be Purchased Under Plans or Programs October 1 - October 31 0.3 $ 70.08 0.3 $ 132.5 November 1 - November 30 0.2 $ 68.07 0.2 $ 115.8 December 1 - December 31 0.2 $ 67.08 0.2 $ 100.0 Total 0.7 $ 68.43 0.7 $ 100.0 Cumulative Total Shareholder Return The chart below presents a comparison of the cumulative total shareholder return, assuming $100 invested on May 3, 2021 (first trading date after our emergence from the Chapter 11 Cases) for Valaris Limited, the Standard & Poor's MidCap 400 Index and Dow Jones US Select Oil Equipment & Services Index (the "Industry Index").
Removed
The share repurchase program does not have a fixed expiration, and may be modified, suspended or discontinued at any time. As of December 31, 2022 (Successor), there have been no share repurchases under this repurchase program.
Removed
Cumulative Total Shareholder Return The chart below presents a comparison of the cumulative total shareholder return, assuming $100 invested on May 3, 2021 (first trading date after our emergence from the Chapter 11 Cases) for Valaris Limited, the Standard & Poor's MidCap 400 Index and Dow Jones US Select Oil Equipment & Services Index.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

13 edited+211 added−5 removed11 unchanged
Biggest changeOn the Effective Date, we successfully completed our financial restructuring and together with the Debtors emerged from the Chapter 11 Cases. Upon emergence from the Chapter 11 Cases, we eliminated $7.1 billion of debt and obtained a $520 million capital injection by issuing the First Lien Notes.
Biggest changeUpon emergence from the Chapter 11 Cases, we eliminated $7.1 billion of debt and obtained a $520.0 million capital injection by issuing the First Lien Notes. See “ Note 8 - Debt" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on the First Lien Notes.
Our customers include many of the leading international and government-owned oil and gas companies, in addition to many independent operators. We are among the most geographically diverse offshore drilling companies with current operations spanning six continents. The markets in which we operate include the Gulf of Mexico, South America, the North Sea, the Middle East, Africa and Asia Pacific.
Our customers include many of the leading international and government-owned oil and gas companies, in addition to many independent operators. We are among the most geographically diverse offshore drilling companies with global operations. The markets in which we operate include the Gulf of Mexico, South America, the North Sea, the Middle East, Africa and Asia Pacific.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2021 , filed with the SEC on February 22, 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2022 , filed with the SEC on February 21, 2023.
During 2021 and 2022, oil prices increased due to, among other factors, rebounding demand for hydrocarbons, a measured approach to production increases by OPEC+ members, reduction in supply due to Russia’s invasion of Ukraine and the subsequent sanctions placed on Russia, and a focus on cash flow and returns by major exploration and production companies.
Since 2021, oil prices have become relatively more stable due to, among other factors, rebounding demand for hydrocarbons, a measured approach to production increases by OPEC+ members, reduction in supply due to Russia’s invasion of Ukraine and the subsequent sanctions placed on Russia, and a focus on cash flow and returns by major exploration and production companies.
Although certain of our long-term contracts contain provisions for escalating costs, we cannot predict with certainty our ability to successfully claim recoveries of higher costs from our customers under these contractual stipulations. See "
We expect that our costs will continue to rise in the near term and although certain of our long-term contracts contain provisions for escalating costs, we cannot predict with certainty our ability to successfully claim recoveries of higher costs from our customers under these contractual stipulations.
The discussion of our results of operations and liquidity in this section includes comparisons for the year ended December 31, 2022 (Successor), the eight months ended December 31, 2021 (Successor) and for the four months ended April 30, 2021 (Predecessor).
The discussion of our results of operations and liquidity in this section includes comparisons for the years ended December 31, 2023 and 2022 (Successor). For a similar discussion, including comparisons for the year ended December 31, 2022, eight months ended December 31, 2021 (Successor), and the four months ended April 30, 2021 (Predecessor), see “Part II. Item 7.
Also, former holders of Legacy Valaris' equity were issued Warrants to purchase Common Shares. See “ Note 10 - Shareholders' Equity" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on the issuance of the Common Shares and Warrants.
On the Effective Date, the Legacy Valaris Class A ordinary shares were cancelled and the Common Shares were issued. Also, former holders of Legacy Valaris' equity were issued Warrants to purchase Common Shares. See “ Note 9 - Shareholders' Equity" to our consolidated financial statements included in "Item 8.
See “ Note 8 - Debt" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional 47 information on the First Lien Notes. On the Effective Date, the Legacy Valaris Class A ordinary shares were cancelled and the Common Shares were issued.
See “ Note 8 - Debt" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information on the First Lien Notes.
Chapter 11 Proceedings, Emergence from Chapter 11 and Fresh Start Accounting On the Petition Date, the Debtors filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court.
Chapter 11 Proceedings, Emergence from Chapter 11 and Fresh Start Accounting On the Petition Date, the Debtors filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court. 48 On April 30, 2021 (the "Effective Date"), we successfully completed our financial restructuring and together with the Debtors emerged from the Chapter 11 Cases.
We currently own 52 rigs, including 11 drillships, four dynamically positioned semisubmersible rigs, one moored semisubmersible rig, 36 jackup rigs and a 50% equity interest in ARO, our 50/50 unconsolidated joint venture with Saudi Aramco, which owns an additional seven rigs. We also have options to purchase two recently constructed drillships on or before December 31, 2023.
We currently own 53 rigs, including 13 drillships, four dynamically positioned semisubmersible rigs, one moored semisubmersible rig, 35 jackup rigs and a 50% equity interest in ARO, our 50/50 unconsolidated joint venture with Saudi Aramco, which owns an additional eight rigs.
References to the financial position and results of operations of the "Successor" or "Successor Company" relate to the financial position and results of operations of the Company after the Effective Date.
Financial Statements and Supplementary Data" for additional information on the issuance of the Common Shares and Warrants. References to the financial position and results of operations of the "Successor" or "Successor Company" relate to the financial position and results of operations of the Company after the Effective Date.
Over the last several years, oil price volatility, resulting from the global COVID-19 pandemic, production disputes among major oil producing countries and various other factors, significantly impacted our business.
In recent years, oil prices have experienced significant volatility as a result of the global COVID-19 pandemic, production disputes among major oil producing countries and various other factors. This volatility meaningfully impacted both the supply of, and demand for, offshore rigs.
The more constructive oil price environment has led to an improvement in contracting and tendering activity. We are experiencing the impacts of global inflation, both in increased personnel costs as well as in the prices of goods and services required to operate our rigs or execute capital projects.
In 2023, prices have remained at levels that are supportive of offshore exploration and development activity. The more constructive oil price environment has led to an improvement in contracting and tendering activity for our industry.
Removed
For a similar discussion, including comparisons for the eight months ended December 31, 2021 (Successor), the four months ended April 30, 2021 (Predecessor) and the year ended December 31, 2020 (Predecessor), see “Part II. Item 7.
Added
Rig attrition in the industry over the last decade, particularly for floaters, has resulted in a smaller global fleet of rigs that is available to meet customer demands. In addition, demand for offshore drilling services continues to improve as evidenced by increasing global utilization and day rates for offshore drilling rigs.
Removed
In connection with the Chapter 11 Cases and the plan of reorganization, on and prior to the Effective Date, Legacy Valaris effectuated certain restructuring transactions, pursuant to which Valaris was formed and, through a series of transactions, Legacy Valaris transferred to a subsidiary of Valaris substantially all of the subsidiaries, and other assets, of Legacy Valaris.
Added
Consequently, our outlook for the offshore drilling business is positive. 49 Inflationary pressures remain elevated and have resulted in increased personnel costs as well as in the prices of goods and services required to operate our rigs or execute capital projects.
Removed
In 2020, the combined effects of the COVID-19 pandemic, the significant decline in the demand for oil and the substantial surplus in the supply of oil resulted in significantly reduced demand and day rates for offshore drilling services provided by the Company and increased uncertainty regarding long-term market conditions.
Added
Despite the inflationary trends and macroeconomic uncertainty, we continue to see recovery in our industry. Backlog Our contract drilling backlog reflects commitments, represented by signed drilling contracts, and is calculated by multiplying the contracted operating day rate by the contract period.
Removed
These events had a significant adverse impact on our liquidity position and financial runway and led to the filing of the Chapter 11 Cases.
Added
The contracted day rate excludes certain types of lump sum fees for rig mobilization, demobilization, contract preparation, as well as customer reimbursables and bonus opportunities. Our backlog excludes ARO's backlog, but includes backlog from our rigs leased to ARO at the contractual rates, which are subject to adjustment under the terms of the shareholder agreement governing the joint venture.
Removed
While we are currently unable to estimate the ultimate impact of rising prices, we do expect that our costs will continue to rise in the near term and will impact our profitability.
Added
The ARO backlog presented below is 100% of ARO's backlog and is inclusive of backlog on both ARO owned rigs and rigs leased from us.
Added
As an unconsolidated 50/50 joint venture, when ARO realizes revenue from its backlog, 50% of the earnings thereon would be reflected in our results in equity in earnings of ARO in our Consolidated Statement of Operations.
Added
The earnings from ARO backlog with respect to rigs leased from us will be net of, among other things, payments to us under bareboat charters for those rigs. See " Note 5 - Equity Method Investment in ARO" to our consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for additional information.
Added
The following table summarizes our and 100% of ARO's contract backlog of business as of February 15, 2024 and February 21, 2023 (in millions): February 15, 2024 February 21, 2023 Floaters (1) $ 2,531.7 $ 1,376.9 Jackups (2) 1,167.4 742.3 Other (3) 222.3 344.0 Total $ 3,921.4 $ 2,463.2 ARO (4) $ 2,138.1 $ 1,731.8 (1) The increase in Floaters is primarily due to long-term contracts for VALARIS DS-4 and VALARIS DS-8 offshore Brazil, VALARIS DS-7 offshore West Africa, VALARIS DS-16 in the U.S.
Added
Gulf of Mexico and a 250-day contract extension for VALARIS DS-15 offshore Brazil, which resulted in incremental aggregate backlog of approximately $1.7 billion. These increases were partially offset by revenues realized.
Added
(2) The increase in Jackups is primarily due to contract awards and extensions for VALARIS 120, VALARIS 72, VALARIS 92, VALARIS 121, VALARIS 107, VALARIS 118, VALARIS 249 and VALARIS Stavanger which resulted in incremental aggregate backlog of approximately $620.0 million. These increases were partially offset by revenues realized.
Added
(3) Other includes the bareboat charter backlog for the jackup rigs leased to ARO to fulfill contracts between ARO and Saudi Aramco in addition to backlog for our managed rig services. Substantially all the operating costs for jackups leased to ARO through the bareboat charter agreements will be borne by ARO.
Added
(4) The increase in ARO backlog is primarily due to an eight-year contract for each of the two newbuild rigs, the first of which was delivered in October 2023 and the second is expected to be delivered in the first half of 2024.
Added
These two contracts resulted in incremental aggregate backlog of approximately $924.0 million, which was partially offset by revenues realized. 50 The following table summarizes our and 100% of ARO's contract backlog of business as of February 15, 2024 and the periods in which revenues are expected to be realized (in millions): 2024 2025 2026 and beyond Total Floaters $ 1,072.7 $ 830.8 $ 628.2 $ 2,531.7 Jackups 548.2 352.6 266.6 1,167.4 Other 100.1 55.8 66.4 222.3 Total $ 1,721.0 $ 1,239.2 $ 961.2 $ 3,921.4 ARO $ 603.3 $ 536.9 $ 997.9 $ 2,138.1 The amount of actual revenues earned and the actual periods during which revenues are earned will be different from amounts disclosed in our backlog calculations due to a lack of predictability of various factors, including unscheduled repairs, maintenance requirements, weather delays, contract terminations or renegotiations and other factors.
Added
Our drilling contracts generally contain provisions permitting early termination of the contract if the rig is lost or destroyed or by the customer if operations are suspended for a specified period of time due to breakdown of major rig equipment, unsatisfactory performance, "force majeure" events beyond the control of either party or other specified conditions.
Added
In addition, our drilling contracts generally permit early termination of the contract by the customer for convenience (without cause), exercisable upon advance notice to us, and in certain cases without making an early termination payment to us. There can be no assurances that our customers will be able to or willing to fulfill their contractual commitments to us.
Added
BUSINESS ENVIRONMENT Floaters In recent years, the more constructive oil price environment has led to an improvement in contracting and tendering activity for floaters.
Added
The number of contracted benign environment floaters has increased to 123 at December 31, 2023 from a low of 101 in early 2021, contributing to a 12% increase in global utilization, from 73% to 85%, for the industry's active fleet over the same period.
Added
This increase in activity is particularly evident for 6th and 7th generation drillships, such as those included in our floater fleet. Utilization for the global active 6th and 7th generation drillship fleet is currently at 92% and has, on average, exceeded 90% for more than twelve months, resulting in a meaningful improvement in day rates for this class of assets.
Added
In 2022, we completed the reactivation of three stacked drillships and one stacked semisubmersible which have commenced long-term contracts.
Added
In 2023, we completed the reactivation of another two previously stacked drillships, VALARIS DS-8 and VALARIS DS-17, for contracts which commenced in the second half of 2023 for work offshore Brazil, and we are currently reactivating another stacked drillship VALARIS DS-7, for a long-term contract offshore West Africa expected to commence in mid-2024.
Added
From a supply perspective, as of December 31, 2023, the number of benign environment floaters including stacked rigs declined by 42% to 164 from a peak of 281 in late 2014.
Added
Across the stacked drillship fleet and newbuild drillships remaining at South Korean shipyards, we believe there are only ten uncontracted drillships remaining that are likely reactivation candidates over the next few years, including VALARIS DS-11 and the Newbuild Drillships. We anticipate that continued floater demand growth will further reduce available drillship capacity.
Added
Also, given the expected high construction cost and lack of shipyard capacity, we do not believe that market conditions are supportive of newbuild construction for the foreseeable future. 51 Jackups Contracting and tendering activity for jackups has improved in recent years as a result of the more constructive oil price environment and we have seen a corresponding increase in utilization.
Added
The number of contracted jackups has increased to 409 at December 31, 2023 from a low of 341 in early 2021, contributing to a 16% increase in global utilization, from 78% to 94%, for the industry's active fleet over the same period, which has led to a meaningful increase in day rates for jackups.
Added
In early 2024, Saudi Arabia announced that they plan to maintain maximum sustainable capacity at 12 million barrels per day rather than pursuing their previously stated aim of increasing capacity to 13 million barrels per day.
Added
At this early stage, we are unable to predict what, if any, impact this announcement will have on the jackup market or the operations of ARO. From a supply perspective, as of December 31, 2023, the number of jackups declined by 8% to 498 from a peak of 542 in early 2015.
Added
While the number of jackups has decreased less than floaters on a relative basis, 33% of the current jackup fleet is more than 30 years of age with limited useful lives remaining. Further, we believe that some of the jackups that are currently idle are not competitive, either due to their age or length of time stacked.
Added
Expenditures required to recertify some of these rigs may prove cost prohibitive and drilling contractors may instead elect to scrap a portion of these rigs. Excluding ARO's newbuild program, there are only 17 newbuild jackups remaining at shipyards, of which 12 are at Chinese shipyards, many of which are expected to be used for the local supply in China.
Added
RESULTS OF OPERATIONS The following table summarizes our Consolidated Results of Operations for the year ended December 31, 2023 and 2022 (in millions, except percentages): Year Ended December 31, Change % Change 2023 2022 Revenues $ 1,784.2 $ 1,602.5 $ 181.7 11 % Operating expenses Contract drilling (exclusive of depreciation) 1,543.6 1,383.2 160.4 12 % Loss on impairment — 34.5 (34.5) (100) % Depreciation 101.1 91.2 9.9 11 % General and administrative 99.3 80.9 18.4 23 % Total operating expenses 1,744.0 1,589.8 154.2 10 % Equity in earnings of ARO 13.3 24.5 (11.2) (46) % Operating income 53.5 37.2 16.3 44 % Other income, net 30.7 187.7 (157.0) (84) % Provision (benefit) for income taxes (782.6) 43.1 (825.7) nm Net income 866.8 181.8 685.0 377 % Net income attributable to noncontrolling interests (1.4) (5.3) 3.9 (74) % Net income attributable to Valaris $ 865.4 $ 176.5 $ 688.9 390 % Overview Revenues increased in 2023, compared to 2022, primarily due to an increase in average daily revenue earned of $177.6 million primarily attributable to certain rigs that commenced new contracts during 2023 at a higher average daily revenue, $47.7 million from an increase in operating days primarily attributable to floaters that have commenced contracts following reactivation and $12.5 million of higher revenues earned from lease agreements with ARO primarily from higher lease rates for certain rigs.
Added
These increases were partially offset by a $51.0 million fee recognized for the early termination of the VALARIS DS-11 contract in 2022. 52 Contract drilling expense increased in 2023, compared to 2022, primarily due to $123.0 million attributable to rigs that have commenced contracts following reactivation, a $43.1 million increase in repair costs for certain rigs and a $36.2 million increase in reactivation costs.
Added
These increases were partially offset by a $35.9 million decrease in the costs for certain claims and a $16.1 million decrease in operating costs for VALARIS 140 and VALARIS 141, which we started leasing to ARO at the end of the first quarter and the third quarter of 2022, respectively.
Added
During 2022, we recorded non-cash losses on impairment totaling $34.5 million with respect to customer-specific capital upgrades for VALARIS DS-11 made pursuant to the terms of the drilling contract that was terminated during the second quarter of 2022. See " Note 7 - Property and Equipment" to our consolidated financial statements included in "Item 8.
Added
Financial Statements and Supplementary Data" for additional information. Depreciation expense increased in 2023, compared to 2022, primarily due to new assets placed in service for certain rigs that underwent reactivation projects and capital upgrades. General and administrative expenses increased primarily due to higher compensation related to our long-term incentive plans and higher professional fees.
Added
Other income, net, decreased in 2023, compared to 2022, primarily due to a $112.6 million lower gain on the sale of assets, a $23.6 million increase in interest expense, a $15.7 million decrease in foreign currency gains, and a $15.5 million decrease in net periodic pension and retiree medical income.
Added
The decrease is further attributable to a $29.2 million loss on the extinguishment of our First Lien Notes recognized in 2023. These decreases were partially offset by a $35.9 million increase in interest income.
Added
Rig Counts, Utilization and Average Daily Revenue The following table summarizes our and ARO's offshore drilling rigs as of December 31, 2023 and 2022: 2023 2022 Floaters (1) 18 16 Jackups (2) 27 28 Other (3) 8 8 Total Valaris 53 52 ARO (4) 8 7 (1) During the fourth quarter of 2023, we took delivery of the Newbuild Drillships.
Added
(2) During the second quarter of 2023, we sold VALARIS 54. (3) This represents the jackup rigs leased to ARO through bareboat charter agreements whereby substantially all operating costs are incurred by ARO. Rigs leased to ARO operate under contracts with Saudi Aramco.
Added
(4) This represents the eight jackup rigs owned by ARO which are operating under long-term contracts with Saudi Aramco, including Kingdom 1, a jackup rig which was delivered in the fourth quarter of 2023. We provide management services in the U.S. Gulf of Mexico on two rigs owned by a third-party not included in the table above.
Added
Additionally, ARO has ordered a newbuild jackup which is under construction in the Middle East and expected to be delivered in the first half of 2024.
Added
This rig is not included in the table above. 53 The following table summarizes our and ARO's rig utilization and average daily revenue by reportable segment: Year Ended December 31, 2023 2022 Rig Utilization - Total Fleet (1) Floaters 58% 45% Jackups 59% 66% Other (2) 100% 100% Total Valaris 66% 66% ARO 93% 92% Rig Utilization - Active Fleet (1) Floaters 75% 67% Jackups 79% 86% Other (2) 100% 100% Total Valaris 83% 85% ARO 93% 92% Average Daily Revenue (3) Floaters $ 265,000 $ 229,000 Jackups 106,000 100,000 Other (2) 42,000 39,000 Total Valaris $ 130,000 $ 109,000 ARO $ 96,000 $ 94,000 (1) Rig utilization for the total fleet and active fleet are derived by dividing the operating days by the number of days in the period for the total fleet and active fleet, respectively.
Added
Active fleet represents rigs that are not preservation stacked and includes rigs that are in the process of being reactivated. Operating days equals the total number of days that rigs have earned and recognized day rate revenue, including days associated with early contract terminations, compensated downtime and mobilizations and excluding suspension periods.
Added
When revenue is deferred and amortized over a future period, for example, when we receive fees while mobilizing to commence a new contract or while being upgraded in a shipyard, the related days are excluded from operating days. (2) Includes our two management services contracts and our rigs leased to ARO under bareboat charter contracts.
Added
(3) Average daily revenue is derived by dividing contract drilling revenues, adjusted to exclude certain types of non-recurring reimbursable revenues, revenues earned during suspension periods and revenues attributable to amortization of drilling contract intangibles, by the aggregate number of operating days.
Added
Beginning in 2023, we began presenting average daily revenue instead of the previously reported average day rate metric, which further excluded lump-sum revenues and amortization thereof. Average daily revenue is a more comprehensive measurement of our revenue-earning performance and more closely aligns with the calculation methodology used by our closest offshore drilling peers.
Added
The prior period has been adjusted to conform with the current period presentation. 54 Operating Income by Segment Our business consists of four operating segments: (1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups, (3) ARO and (4) Other, which consists of management services on rigs owned by third parties and the activities associated with our arrangements with ARO under the bareboat charter arrangements (the "Lease Agreements").
Added
Floaters, Jackups and ARO are also reportable segments.
Added
Our onshore support costs included within Contract drilling expenses are not allocated to our operating segments for purposes of measuring segment operating income (loss) and as such, those costs are included in “Reconciling Items." Further, general and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income (loss) and are included in "Reconciling Items".
Added
Because ARO is a 50/50 unconsolidated joint venture, its full operating results included below are not included within our consolidated results and thus are deducted under "Reconciling Items" and replaced with our equity in earnings of ARO. Segment information for the year ended December 31, 2023 and 2022 is as follows (in millions).
Added
Year Ended December 31, 2023 Floaters Jackups ARO Other Reconciling Items Consolidated Total Revenues $ 948.7 $ 659.6 $ 496.6 $ 175.9 $ (496.6) $ 1,784.2 Operating expenses Contract drilling (exclusive of depreciation) 812.0 517.4 365.9 75.2 (226.9) 1,543.6 Depreciation 55.8 40.0 65.9 5.0 (65.6) 101.1 General and administrative — — 22.2 — 77.1 99.3 Equity in earnings of ARO — — — — 13.3 13.3 Operating income $ 80.9 $ 102.2 $ 42.6 $ 95.7 $ (267.9) $ 53.5 Year Ended December 31, 2022 Floaters Jackups ARO Other Reconciling Items Consolidated Total Revenues $ 700.5 $ 744.2 $ 459.5 $ 157.8 $ (459.5) $ 1,602.5 Operating expenses Contract drilling (exclusive of depreciation) 646.0 538.9 341.8 76.4 (219.9) 1,383.2 Loss on impairment 34.5 — — — — 34.5 Depreciation 50.0 36.1 63.4 4.6 (62.9) 91.2 General and administrative — — 18.7 — 62.2 80.9 Equity in earnings of ARO — — — — 24.5 24.5 Operating income (loss) $ (30.0) $ 169.2 $ 35.6 $ 76.8 $ (214.4) $ 37.2 55 Floaters Floater revenue increased $248.2 million, or 35%, in 2023 as compared to 2022, primarily due to $210.3 million from increased operating days primarily attributable to rigs that have commenced contracts following reactivation or returned to work upon completion of special periodic surveys and $96.7 million from higher average daily revenue earned primarily due to VALARIS DS-12 and VALARIS DPS-5 working under higher day rate contracts in 2023 as compared to the prior year.
Added
These increases were partially offset by $51.0 million of revenue recognized in 2022 attributable to a termination fee for the VALARIS DS-11 contract.
Added
Floater contract drilling expense increased $166.0 million, or 26%, in 2023 as compared to 2022, primarily due to $167.8 million attributable to rigs that have returned to work upon completion of reactivation projects and an $36.2 million increase in reactivation costs. These increases were partially offset by a $28.4 million decrease in costs for certain claims.
Added
During 2022, we recorded non-cash losses on impairment totaling $34.5 million, with respect to customer-specific capital upgrades for VALARIS DS-11 made pursuant to the terms of the drilling contract that was terminated during the second quarter of 2022. See " Note 7 -Property and Equipment" to our consolidated financial statements included in "Item 8.
Added
Financial Statements and Supplementary Data" for additional information. Floater depreciation expense increased $5.8 million, or 12%, in 2023 as compared to 2022, primarily due to new assets placed in service for certain rigs that underwent reactivation projects and capital upgrades.
Added
Jackups Jackup revenues declined $84.6 million, or 11%, in 2023 as compared to 2022, primarily due to $162.6 million from decreased operating days primarily due to rigs that completed contracts in the North Sea during the first half of 2023 due to lower activity in the region, certain rigs that were mobilizing or idle between contracts during 2023, and the sale of VALARIS 54 which operated in 2022.
Added
These decreases were partially offset by a $75.2 million increase due to higher average daily revenue earned.
Added
Jackup contract drilling expense declined $21.5 million, or 4%, in 2023 as compared to 2022, primarily due to $49.2 million of lower costs for rigs that were idle or between contracts in 2023, and a $16.1 million decrease in operating costs for VALARIS 140 and VALARIS 141, which we started leasing to ARO in 2022.
Added
These decreases were partially offset by a $42.1 million increase in repair costs in 2023 primarily associated with maintenance performed during special periodic surveys.
Added
Jackup depreciation expense increased $3.9 million, or 11%, in 2023 as compared to 2022, due to new assets placed in service for certain rigs that underwent capital upgrades, partially offset by VALARIS 54, which was sold in the second quarter of 2023.
Added
ARO The operating revenues of ARO reflect revenues earned under drilling contracts with Saudi Aramco for the ARO-owned jackup rigs and the rigs leased from us. Contract drilling expenses are inclusive of the bareboat charter fees for the rigs leased from us.
Added
See " Note 5 - Equity Method Investment in ARO" to our consolidated financial statements included in "Item 8.
Added
Financial Statements and Supplementary Data" for additional information on ARO and related arrangements. 56 Revenue increased $37.1 million, or 8%, in 2023 as compared to 2022, primarily due to a $29.2 million increase from VALARIS 140 and VALARIS 141, which were leased to ARO starting in 2022, and from Kingdom 1, a newbuild jackup rig, which commenced operations in the fourth quarter of 2023.
Added
Furthermore, there was a $24.3 million increase from higher average daily revenue earned by certain rigs. These increases were partially offset by $9.0 million decrease due to VALARIS 36 which operated in the prior year until the rig was sold in May 2022 and $7.8 million for certain rigs undergoing maintenance projects in 2023.

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