Valaris (VAL) Swings Back to Profit, but Middle East Costs Linger

Valaris (VAL) reported a profit in the second quarter of 2023, reversing a loss from the previous quarter, despite ongoing costs in the Middle East. Revenue reached $539 million, up from $67 million in the first quarter, while net income climbed to $47 million, a significant improvement from $18 million. Adjusted EBITDA also increased to $97 million from $67 million.

Two idle drillships were brought back online, and two more are expected to start operations before the end of the year. The company sold two jackups for $74 million and increased backlog in the North Sea by $160 million. However, costs in the Middle East added $30 million to adjusted EBITDA compared to the previous quarter, largely due to war-related insurance premiums and reduced revenue from vessels in shipyards.

Contract drilling expenses rose to $380 million, partly due to startup costs for new drillships and higher repair bills. Cash on hand fell to $541 million, while capital spending increased to $106 million. The pending merger with Transocean is expected to bring cost synergies and a broader combined fleet. Despite a slight decrease in hedge fund ownership and a higher short interest, Valaris is positioned for earnings recovery, with shares trading at a forward price-to-earnings ratio of 29.07.