Valaris Limited Reports Q4 2025 Results: Strong Operational Performance, \$900M Backlog Added, and Pending Transocean Merger

Key Points for Investors

• Exceptional Revenue Efficiency: Achieved 98% revenue efficiency in Q4, sustaining five consecutive years at or above 96%.
• Significant Contract Backlog Growth: \$900 million in new contract backlog since Q3, raising total backlog to approximately \$4.7 billion.
• Robust Financials Driven by Tax Benefit: Q4 net income surged to \$717 million (including a one-time \$680 million tax benefit), while adjusted EBITDA was \$97 million.
• Fleet Optimization: High-graded fleet via sales for recycling, classification of a semisubmersible as held for sale, and continued focus on active utilization of drillships.
• Pending All-Stock Merger with Transocean: Announced in February 2026, this transaction is designed to deliver significant synergies and additional value for shareholders.
• Guidance for 2026: Operating revenues expected in the range of \$2,125–2,205 million, and adjusted EBITDA guidance of \$485–565 million. 97% of 2026 revenue at midpoint is already contracted.

Detailed Financial and Operational Review

Quarterly Performance

• Total Operating Revenues: \$537 million in Q4, down from \$596 million in Q3, reflecting fewer operating days for the floater fleet and sale of certain jackups.
• Net Income: \$717 million, compared to \$187 million in Q3, driven by a \$680 million deferred tax benefit.
• Adjusted EBITDA: \$97 million, compared to \$163 million in Q3, reflecting lower operating days and higher maintenance costs.
• Contract Backlog: Nearly \$900 million in new contracts since the previous quarter, with awards for major drillships (VALARIS DS-7, DS-8, DS-9). All ten active drillships are expected to be working as of 2027.
• Fleet Actions: Sale of jackups VALARIS 102 and 145 for recycling, classification of semisubmersible VALARIS DPS-1 as held for sale (triggering a \$20 million impairment charge).
• Share Repurchases: \$25 million in Q4, \$100 million for full-year 2025.

Segment Review

• Floaters: Q4 revenues (ex-reimbursables) \$255 million, down from \$293 million in Q3 due to contract completions and idle periods. Expenses rose on planned maintenance, claims accruals, and mobilization costs.
• Jackups: Q4 revenues (ex-reimbursables) \$209 million, down from \$217 million in Q3, primarily due to asset sales.
• ARO Drilling (JV): Revenues dropped to \$140 million from \$157 million in Q3 due to planned shipyard projects. Contract drilling expenses also declined.
• Other: Revenues (ex-reimbursables) decreased to \$38 million from \$46 million, mainly reflecting lower bareboat charter revenues.

Cash Flow and Balance Sheet

• Cash and Cash Equivalents: Ended Q4 at \$599 million, down from \$663 million at Q3-end due to capex and share repurchases.
• Capital Expenditures: \$106 million in Q4, up from \$70 million in Q3, reflecting shipyard projects and maintenance/upgrade spending.
• Long-term Debt: Remained stable at \$1.09 billion.
• Total Equity: Increased to \$3.17 billion from \$2.45 billion in Q3, bolstered by tax benefit and earnings.

Strategic and Price-Sensitive Developments

Pending All-Stock Merger with Transocean

In February 2026, Valaris announced an all-stock transaction with Transocean, aiming to create a leading offshore drilling company. This merger is expected to deliver substantial synergies, improve fleet utilization, and allow Valaris shareholders to participate in the combined company’s upside potential. The transaction’s completion remains subject to customary closing conditions and regulatory approvals.

This pending merger is a major, potentially price-moving event for shareholders. It may affect valuation, future earnings, and strategic direction.

Guidance for 2026

• Revenue Guidance: \$2,125–2,205 million
• Adjusted EBITDA: \$485–565 million (excluding merger costs)
• Capital Expenditures: \$425–475 million, with \$260 million on maintenance and upgrades, and the balance on contract-specific enhancements (partially offset by \$110 million in upfront customer payments).
• Contract Coverage: 97% of 2026 revenues at midpoint guidance are already contracted, providing strong visibility and reducing earnings risk.
• Drillship Utilization: Four currently idle drillships expected to return to work during 2026, driving meaningful EBITDA improvement during the year.

Operational Highlights and Risks

• Fleet Optimization: Ongoing fleet high-grading, including sales for recycling and asset reclassification, is designed to improve long-term returns and operational efficiency.
• Awards and Recognition: VALARIS 115 was awarded Shell’s 2025 Jackup Rig of the Year, highlighting operational excellence.
• Tax-Driven Net Income Surge: The Q4 net income figure was boosted by a \$680 million tax benefit related to changes in deferred tax asset valuation allowances. Investors should note this is a non-recurring item.
• Risks: The report cites numerous potential risks, including those related to the pending Transocean merger, contract cancellations, commodity price volatility, regulatory and geopolitical uncertainty, and operational challenges such as rig reactivations and maintenance.

Fleet and Contract Backlog

• Contract Backlog: \$4.7 billion as of February 2026, up from \$4.45 billion in October 2025, reflecting strong contract wins in both floaters and jackups.
• Fleet Utilization: All ten active drillships expected to be working as of 2027; utilization rates for jackups and floaters vary but show improvement with contract wins.
• Drillship Day Rates: Average daily revenue for drillships was \$434,000 in Q4 2025, up sequentially, indicating a robust pricing environment.

Other Noteworthy Items

• Shareholder Returns: Continued share repurchases (\$100 million in 2025) reflect management’s confidence in the company’s value and future prospects.
• Conference Calls Discontinued: Due to the pending merger, Valaris has cancelled future earnings conference calls and does not intend to provide further forward-looking guidance until the transaction closes.
• Non-GAAP Measures: Management emphasizes Adjusted EBITDA for performance evaluation, but notes that comparisons with other companies may not be direct due to different calculation methodologies.

Conclusion: Implications for Shareholders

The Q4 2025 results demonstrate Valaris’ continued operational excellence and strong contract momentum, driving backlog to new highs. The exceptional, one-off tax benefit delivered a substantial net income boost, but investors should focus on underlying EBITDA and contract wins for ongoing value.

The pending merger with Transocean is the most significant, price-sensitive development, with the potential to reshape the competitive landscape in offshore drilling and deliver substantial synergies and value creation for shareholders.

With strong 2026 guidance, high contract coverage, and a focus on capital allocation, Valaris is positioning itself for continued growth and resilience in a dynamic industry environment.

Disclaimer: This article is a summary and analysis of Valaris Limited’s Q4 2025 results, intended for informational purposes only. It does not constitute investment advice. Investors should conduct their own due diligence and consult with financial advisors before making investment decisions. All forward-looking statements are subject to risks and uncertainties as detailed in the company’s filings with the SEC.

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