Valaris Limited (VAL): Business Model Canvas [10-2024 Updated]

In the dynamic world of offshore drilling, Valaris Limited (VAL) stands out with a robust business model that leverages strategic partnerships and cutting-edge technology. This post delves into the Business Model Canvas of Valaris, revealing how the company navigates the complexities of the oil and gas industry. Discover the key components that drive their success, including their extensive fleet, valued customer relationships, and diverse revenue streams.

Valaris Limited (VAL) - Business Model: Key Partnerships

Joint ventures with Saudi Aramco (ARO)

Valaris Limited has established a significant joint venture with Saudi Aramco, known as ARO Drilling. As of September 30, 2024, ARO operates a fleet of 9 jackup rigs, all contracted for drilling services with Saudi Aramco. The revenues from ARO for the nine months ended September 30, 2024, totaled approximately $376.2 million, reflecting a 4% increase compared to the prior year period, driven by new rigs commencing operations.

In terms of operational metrics, ARO's contract drilling expenses for the same period amounted to $286.2 million, which is a 3% increase year-over-year. This increase was primarily due to higher operating costs associated with the new rigs.

Furthermore, ARO recorded a loss on impairment of $28.4 million due to contract suspensions and terminations related to VALARIS 143, VALARIS 147, and VALARIS 148.

Collaborations with oil and gas companies

Valaris has engaged in various collaborations with major oil and gas companies to enhance its operational capabilities and market reach. The company has seen a revenue increase from its floater segment, which generated $1,097.3 million in revenues for the nine months ended September 30, 2024, a 60% increase compared to the previous year. This growth is attributed to new contracts for rigs such as VALARIS DS-17, VALARIS DS-8, and VALARIS DS-7, which commenced operations in 2023 following reactivations.

The average daily revenue for floaters increased to $359,000 in September 2024, compared to $338,000 in the prior year. Such collaborations have allowed Valaris to secure higher day rates and long-term contracts, significantly enhancing its competitive positioning in the offshore drilling market.

Partnerships with suppliers for equipment and services

Valaris relies heavily on strategic partnerships with suppliers for equipment and services necessary for its drilling operations. As of September 30, 2024, the company reported an increase in contract drilling expenses of $1,345.6 million, which includes costs for equipment and services. The company has made significant investments in upgrading its fleet, with capital expenditures totaling $596.3 million for work-in-progress and $1,548.3 million for drilling rigs and equipment.

Additionally, Valaris has increased its general and administrative expenses to $89.6 million, reflecting higher professional fees and compensation costs, which are essential for maintaining operational efficiency and supplier relationships.

Partnership Type	Partnerships	Revenue (in millions)	Operating Expenses (in millions)	Average Daily Revenue
Joint Ventures	Saudi Aramco (ARO)	$376.2	$286.2	N/A
Collaborations	Various Oil and Gas Companies	$1,097.3	N/A	$359,000
Suppliers	Equipment and Services Suppliers	N/A	$1,345.6	N/A

Valaris Limited (VAL) - Business Model: Key Activities

Offshore drilling operations

Valaris Limited engages in offshore drilling operations primarily through its fleet of drilling rigs. As of September 30, 2024, Valaris operated a total fleet of 53 drilling rigs, comprising 18 floaters and 26 jackups. During the nine months ended September 30, 2024, Valaris reported revenues of $1,778.2 million, which included significant contributions from both floaters and jackups. The revenues from floaters amounted to $1,097.3 million, while jackup revenues reached $551.8 million. The overall operating income for the period was $233.1 million, highlighting the profitability of its drilling operations.

Fleet management and maintenance

Effective fleet management and maintenance are crucial for Valaris, ensuring optimal operational efficiency and safety standards. The company reported an increase in contract drilling expenses, which rose by $204.0 million or 18% for the nine months ended September 30, 2024, compared to the prior year. This increase was primarily driven by incremental costs of $94.8 million incurred for newly activated rigs VALARIS DS-17, VALARIS DS-8, and VALARIS DS-7. Additionally, the company recorded a depreciation expense of $88.2 million, reflecting the ongoing maintenance and capital upgrades of its assets. The average daily revenue from floaters increased due to higher day rate contracts, contributing to the overall revenue growth.

Contract negotiations and bidding

Valaris is actively involved in contract negotiations and bidding processes to secure new drilling contracts. As of October 30, 2024, the contract backlog for Valaris amounted to $4,104.8 million, with floaters accounting for $2,395.7 million and jackups for $1,398.7 million. The company secured several contract extensions and new awards, contributing to the backlog growth. For instance, a three-year contract extension for VALARIS 118 resulted in incremental aggregate backlog of approximately $168.0 million. This focus on contract negotiations is critical as it ensures sustained revenue streams and operational continuity in a competitive market.

Key Metrics	Floaters	Jackups	Total
Revenues (9 months ended Sep 30, 2024, in millions)	$1,097.3	$551.8	$1,778.2
Operating Income (9 months ended Sep 30, 2024, in millions)	$296.7	$105.3	$233.1
Contract Backlog (as of October 30, 2024, in millions)	$2,395.7	$1,398.7	$4,104.8
Average Daily Revenue Increase (Floaters)	Higher day rate contracts

Valaris Limited (VAL) - Business Model: Key Resources

Largest offshore drilling rig fleet

Valaris Limited operates a total fleet of 53 offshore drilling rigs as of September 30, 2024. This includes:

Type	Total Fleet	Active Fleet
Floaters	18	13
Jackups	26	18
Other	9	9
Total	53	40

The fleet consists of both owned and managed rigs, with a focus on high-specification units capable of operating in challenging environments. The utilization rate for the total fleet was 67% for the nine months ended September 30, 2024, showing steady demand for Valaris' services.

Skilled workforce and technical expertise

Valaris boasts a highly skilled workforce of approximately 3,000 employees globally, including engineers, technicians, and operational staff specialized in offshore drilling. The company emphasizes training and development, ensuring that its personnel are equipped with the latest technical knowledge and safety protocols. This skilled workforce is critical in maintaining operational efficiency and safety standards across all rigs.

Financial resources and credit facilities

As of September 30, 2024, Valaris reported cash and cash equivalents totaling $379.3 million. The company has access to a $375 million senior secured revolving credit facility, which includes a sub-limit of $150 million for letters of credit. The company also issued $1.1 billion in Second Lien Notes, which mature in 2030 and bear an interest rate of 8.375%. This financial structure supports Valaris' operational needs and capital expenditures, which are projected to be approximately $465 million to $475 million for 2024.

Valaris Limited (VAL) - Business Model: Value Propositions

Reliable and efficient drilling services

Valaris Limited offers reliable and efficient drilling services that cater to the needs of the offshore oil and gas industry. In the nine months ended September 30, 2024, Valaris reported total revenues of $1,778.2 million, a significant increase of 37% compared to the same period in 2023, which generated $1,300.4 million.

The operational efficiency is reflected in the utilization rates of the fleet. As of September 30, 2024, the total fleet utilization stood at 69%, with floaters at 63% and jackups at 60%.

Extensive experience in offshore markets

Valaris has built a strong reputation through its extensive experience in offshore markets. The company operates a diverse fleet of 53 rigs, including 18 floaters and 26 jackups, ensuring a broad presence across various geographical locations.

In the nine months ended September 30, 2024, Valaris achieved an operating income of $233.1 million, a remarkable improvement from the $15.2 million reported in the same period of 2023. This growth underlines the company's ability to leverage its extensive experience to secure contracts and navigate complex market dynamics.

Advanced technology and modern fleet

Valaris maintains a modern fleet equipped with advanced technology, which enhances operational capabilities and safety standards. For instance, the average daily revenue for floaters reached $359,000 in September 2024, up from $259,000 in September 2023.

The company's investment in reactivating and upgrading its fleet reflects its commitment to technological advancement. For the nine months ending September 30, 2024, Valaris incurred $465.0 million to $475.0 million in capital expenditures for maintenance and upgrades.

Metric	2024	2023	Change (%)
Total Revenues (in millions)	$1,778.2	$1,300.4	37%
Operating Income (in millions)	$233.1	$15.2	NM
Average Daily Revenue - Floaters	$359,000	$259,000	39%
Utilization Rate - Total Fleet (%)	69%	66%	3%

Valaris Limited (VAL) - Business Model: Customer Relationships

Long-term contracts with major oil companies

Valaris Limited has established significant long-term contracts primarily with major oil companies, notably Saudi Aramco. As of September 30, 2024, the company reported a total contract backlog of $4.1 billion, with $1.58 billion attributed to ARO, which operates under long-term agreements with Saudi Aramco for jackup rigs. This strategic alignment ensures a steady revenue stream and reinforces Valaris’s market position in the offshore drilling sector.

Dedicated account management teams

Valaris employs dedicated account management teams to foster strong relationships with its clients. These teams focus on enhancing customer satisfaction and ensuring that the services provided align with the clients’ operational needs. The company reported that its average daily revenue from floaters increased by $123.3 million during the nine months ended September 30, 2024, reflecting the effectiveness of these dedicated teams in securing higher-value contracts. In total, dedicated account management has been pivotal in managing a fleet of 53 rigs, which includes 18 floaters and 26 jackups.

Focus on customer satisfaction and feedback

Valaris places a strong emphasis on customer satisfaction and feedback mechanisms. The company’s proactive approach in addressing client feedback has resulted in increased revenues from customer-reimbursable expenses, which amounted to $24.4 million in the nine months ended September 30, 2024. The ongoing engagement with clients is evident through the company’s investment in operational improvements and responsiveness to client needs, which has contributed to a 37% increase in total revenues year-over-year.

Contract Type	Backlog Amount ($ Million)	Average Daily Revenue Increase ($ Million)	Customer-Reimbursable Revenue ($ Million)
Long-term with Saudi Aramco	1,580	123.3	24.4
Other Major Oil Companies	2,524	Not Disclosed	Not Disclosed
Total Backlog	4,104.8	Not Applicable	Not Applicable

Valaris Limited (VAL) - Business Model: Channels

Direct sales to oil and gas companies

Valaris Limited primarily generates revenue through direct sales to major oil and gas companies. For the nine months ended September 30, 2024, Valaris reported revenues of $1,097.3 million from floaters, $551.8 million from jackups, and $376.2 million from ARO, contributing to a consolidated total revenue of $1,778.2 million. This direct engagement allows Valaris to establish long-term relationships with clients, ensuring stability and predictability in revenue streams.

Online platforms for contract bids

Valaris utilizes online platforms to facilitate contract bids, allowing for a wider reach and competitive pricing. This strategy has been essential in securing new contracts, particularly in a market characterized by fluctuating demand and pricing pressures. For instance, during the nine months ended September 30, 2024, the company saw a significant increase in average day rates, attributed to successful bidding on contracts using these platforms, resulting in a 60% increase in floater revenue compared to the previous year.

Industry conferences and trade shows

Participation in industry conferences and trade shows is a critical channel for Valaris, enabling networking and showcasing their capabilities to potential clients. Valaris has been active in major industry events, which have contributed to securing contracts worth hundreds of millions. For example, the company reported an increase in revenues from mobilization fees amounting to $16.9 million during the third quarter of 2024, largely driven by contracts secured through these networking opportunities.

Channel Type	Revenue Impact (in millions)	Key Metrics
Direct Sales	$1,778.2	Long-term client relationships
Online Bidding Platforms	60% increase in floater revenue	Competitive contract acquisition
Industry Conferences	$16.9 (in mobilization fees)	Networking and contract acquisition

Valaris Limited (VAL) - Business Model: Customer Segments

Major Oil and Gas Corporations

Valaris Limited serves several major oil and gas corporations, which are critical customers in the offshore drilling sector. These corporations include globally recognized names such as ExxonMobil, Chevron, and Shell. Valaris has leveraged its extensive fleet to secure contracts with these companies, contributing significantly to its revenue stream. For instance, during the nine months ended September 30, 2024, Valaris reported a total revenue of $1.778 billion, with major oil companies accounting for a substantial portion of this revenue.

National Oil Companies

National oil companies (NOCs) play an essential role in Valaris' customer segments. These entities, which are owned and operated by their respective governments, often require specialized drilling services for their offshore projects. Valaris has established contracts with NOCs such as Saudi Aramco, which has been a significant contributor to Valaris' operations. The joint venture ARO Drilling, partially owned by Valaris and focused on the Saudi market, generated $376.2 million in revenue for the nine months ended September 30, 2024, reflecting the importance of NOCs in Valaris' business model.

Independent Exploration and Production Companies

Independent exploration and production (E&P) companies also constitute a vital customer segment for Valaris Limited. These companies often seek Valaris’ drilling services for exploratory and production drilling in various regions. The flexibility and adaptability of Valaris’ drilling rigs make them attractive to independent E&P companies, particularly as these firms look to capitalize on fluctuating oil prices. In the same nine-month period, Valaris reported impressive operational metrics, with average daily revenue for floaters reaching $359,000, showcasing the value provided to independent operators.

Customer Segment	Key Clients	Revenue Contribution (9M 2024)	Average Daily Revenue (ADR)
Major Oil and Gas Corporations	ExxonMobil, Chevron, Shell	$1.778 billion	$359,000 (Floaters)
National Oil Companies	Saudi Aramco	$376.2 million (ARO)	$133,000 (Jackups)
Independent E&P Companies	Various	Part of total revenue	$359,000 (Floaters)

Valaris Limited (VAL) - Business Model: Cost Structure

High operational costs for rig maintenance

Valaris Limited incurs significant operational costs, particularly in the maintenance of its drilling rigs. For the nine months ended September 30, 2024, the total operating expenses related to contract drilling (exclusive of depreciation) amounted to $1,345.6 million, reflecting an increase of 18% compared to $1,141.6 million in the same period of the previous year. This rise is largely attributed to increased personnel-related costs, which saw an uptick of $33.8 million, driven by wage increases and incentive compensation.

Type of Expense	Amount (in millions)	Change (%)
Contract Drilling Expenses	$1,345.6	18%
Personnel-Related Costs Increase	$33.8	N/A
Total Operating Expenses (9 months)	$1,523.4	18%

Labor and personnel expenses

The labor and personnel expenses are a crucial component of Valaris's cost structure. The company reported a total of $89.6 million in general and administrative expenses for the nine months ended September 30, 2024, marking a 19% increase from $75.0 million in the same period in 2023. This increase reflects higher professional fees and compensation costs associated with the workforce required to support operational activities.

Depreciation of drilling equipment

Depreciation is another significant cost for Valaris Limited, reflecting the aging and usage of its drilling assets. For the nine months ended September 30, 2024, the depreciation expense amounted to $88.2 million, up from $73.6 million in the prior year, representing a 20% increase. This growth in depreciation expense is primarily due to the addition of new assets and the continued reactivation of certain rigs.

Type of Depreciation Expense	Amount (in millions)	Change (%)
Total Depreciation Expense	$88.2	20%
Previous Year Depreciation Expense	$73.6	N/A

Valaris Limited (VAL) - Business Model: Revenue Streams

Contract drilling revenues

Valaris Limited generates significant revenue through contract drilling, which amounted to $1,778.2 million for the nine months ended September 30, 2024. This represents a considerable increase compared to $1,300.4 million during the same period in 2023. The breakdown of revenues for the different rig types is as follows:

Rig Type	2024 Revenues (in million USD)	2023 Revenues (in million USD)
Floaters	1,097.3	685.5
Jackups	551.8	480.3
Aro	376.2	362.9
Other	129.1	134.6
Total	1,778.2	1,300.4

In particular, floater revenue increased by $411.8 million, or 60%, primarily driven by new contracts for VALARIS DS-17, VALARIS DS-8, and VALARIS DS-7, which commenced operations after reactivation.

Mobilization fees for rig deployment

Mobilization fees contribute to Valaris's revenue streams, particularly as rigs are deployed for new contracts. For the nine months ended September 30, 2024, Valaris reported a $16.9 million increase in mobilization revenue. This revenue is primarily associated with the amortization of lump-sum mobilization fees for rigs such as VALARIS 247, which were mobilized from the United Kingdom to Australia.

Customer reimbursable expenses and bonuses

Customer reimbursable expenses also form a key component of Valaris's revenue. For the nine months ended September 30, 2024, customer reimbursable expenses increased by $24.1 million compared to the prior year. This increase is attributed to higher operational costs that are passed on to clients. In addition, bonuses related to operational performance are part of the revenue stream, although specific figures for bonuses were not detailed in the available financial data.

Overall, the revenue breakdown for customer reimbursable expenses is summarized below:

Category	2024 Amount (in million USD)	2023 Amount (in million USD)
Customer Reimbursable Expenses	22.7	—
Total Revenue from Customer Reimbursable Expenses	24.1	—

These revenue streams reflect Valaris’s strategy to optimize rig utilization and meet customer demands while capitalizing on the recovering offshore drilling market.

Article updated on 8 Nov 2024

Resources:

1. Valaris Limited (VAL) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Valaris Limited (VAL)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Valaris Limited (VAL)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.