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Valaris Wins Contracts, Receives $200M Arbitration Payment

Zacks Equity Research

Valaris plc VAL recently announced several new contracts and contract expansions. Moreover, the company received $200 million in cash as an arbitration proceeding from Samsung Heavy Industries, which bolstered the balance sheet.

Contract Update

The offshore drilling contractor expects the latest expansions and awards to add around $100 million to revenue backlog. Notably, the company — formerly known as EnscoRowan — had $2.3 billion in backlog at the end of third-quarter 2019.

The drillship Valaris DS-10 was awarded a one-year contract extension by Royal Dutch Shell plc RDS.A, offshore Nigeria. The deal is now expected to be completed by March 2021. Jackup rig Valaris JU-107 received a one-well contract extension from Chevron Corporation CVX for one month, offshore Australia. The rig has won a two-well contract award, with duration of 115 days, from Jadestone Energy in the region. This deal is expected to be completed by September 2020.

The company’s jack-up rig, Valaris JU-101 received a three-well contract spanning 45 days in North Sea from British energy company, Ithaca Energy. The contract is expected to start this March. Another jack-up rig, Valaris JU-75 was awarded a one-well contract by Walter Oil & Gas in the U.S. Gulf of Mexico. The deal, having a 40-day duration, started last month.

Arbitration Proceedings

The company announced that it has received a $200-million cash payment as arbitration proceeding from Samsung Heavy Industries (“SHI”). An arbitration tribunal initially awarded Valaris $180 million in damages, and the right to claim interest and costs that resulted from the dispute with SHI. It addresses the losses associated with the DS-5 drilling services agreement with Brazil’s Petroleo Brasileiro S.A. or Petrobras PBR. The $200-million cash settlement is expected to improve Valaris’ balance sheet position, which had $129.5 million in cash and cash equivalents and more than $6 billion in long-term debt, as of Sep 30, 2019.

Cost Savings

Valaris stated that it is progressing with cost-saving efforts. It expects to capture $135 million in annual expense savings by the end of 2019 and the figure can increase to around $235 million by the end of this year. The company’s cost savings can be more than $265 million by the end of the June quarter of 2021. Successful cost reduction will likely boost its cash flow from operations.

Price Performance and Zacks Rank

The stock has plunged 57.9% in the past year compared with the 7.5% decline of the industry it belongs to. Valaris currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

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