Valaris Plc: My Opinion About The Company's Recent News by Fun Trading


  • Valaris indicated that the company had secured about $100 million in new contract awards since November 25, 2019. Also, Premier Oil awarded a one-well contract to the DS-9 Drillship at $190k/d.
  • More importantly, the company received $200 million in cash from Samsung Heavy Industries.
  • It is not the time to invest long term in Valaris, but oil volatility makes the stock an excellent tool for trading.

Source: Valaris Drillship DS-9 from Valaris.


Valaris Plc (VAL) is one of the leading offshore drillers in the world and represents a possible "risky bet" in this very challenging sector, which has been struggling for survival for years.

Valaris could eventually be classified as the number one player in the offshore drilling sector. It covers the entire spectrum of the offshore drilling industry, from shallow water (jack-ups) to ultra-deepwater (floaters), unlike Transocean (NYSE:RIG), which is principally concentrated in the floaters' part since it sold its entire jack-ups' fleet to Borr Drilling.

A few die-hard shareholders strongly believe that VAL has now potentially reached rock-bottom, but that is not entirely what I think is happening yet. I will talk about this ahead in the article.

The recent uptick in the stock price restored belief that the market is shifting direction again, for the better this time. The problem is that it was triggered by factors mainly outside the industry's fundamental issues of slow contracting in the deepwater and ultra-deepwater regions, at day rates and durations that are not sufficient to allow these companies adequate positive cash flow.

It is a sliding concern that is turning delicate, even more, especially for the shrinking offshore drillers' group that has not been forced to restructure under Chapter 11.

However, despite what has been said, the market is still challenging and unimpressive. The backlog continues its natural erosion, and day rates look unimpressive, often struggling to make it above $230k per day with even a considerable number of rigs idle or stacked.

The main reason is that the business model is persistently unbalanced. The balance sheet of most of the offshore drillers presents an excess in debt load that contrasts with the cash flow generated by their fleet. A quick look at historical free cash flow for VAL is a necessary reminder:

Hence, the "risky bet" that I have recommended earlier is still totally valid. Correct only if we assume that the industry will experience a weak recovery starting in the second half of 2020 and despite a lack of conviction on my part. When I use the word "recovery," I am speaking about a global recovery in the offshore drilling industry, including jack-ups and floaters. A recent study by Westwood is not indicating a surge in 2020 so far compared to 2019. I recommend reading the article linked above.

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Comments 1

If price can close above $8 on the weekly chart, price has a chance of going higher. Price has also formed a double bottom, which works in its favor as well.

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14.01.2020 05:53