Valaris has announced that the company continues actively working to recover or replace the blowout preventer (BOP) stack on the VALARIS DS-8 following a non-drilling incident earlier this month. On 19 March 2020, the company received a termination notice for the drilling contract for the VALARIS DS-8. The company is in discussions with the customer regarding the notice. The drilling contract represents approximately $150 million of the company’s contracted revenue backlog of $2.5 billion as of 31 December 2019. The operating day rate for the VALARIS DS-8 is approximately $620,000 per day. The company has a loss of hire insurance for $602,500 per day after the expiration of a 45-day deductible waiting period through the end of the contract in November 2020. If the contract is terminated, the company will seek to recover losses incurred in accordance with the terms of this insurance policy, which would largely offset the lost backlog noted above. There can be no assurance as to the timing or amount of insurance proceeds paid to the company.
The company has received a notice of contract termination from a customer for the VALARIS JU-109, which was scheduled to operate offshore Angola until July 2021. As a result of this termination, the rig’s contract is now expected to end in mid-April 2020 and contracted revenue backlog will be reduced by approximately $50 million. The company expects to receive additional notices of contract terminations and requests to renegotiate contract day rates and terms in light of increased market uncertainty.
Since the beginning of March, the VALARIS JU-87 was awarded a one-well contract with Cox in the US Gulf of Mexico that commenced in mid-March, with an estimated duration of 30 days that added approximately $1 million of contracted revenue backlog. Additionally, a previously announced contract for the VALARIS DS-4 with Amni offshore Ghana has been transferred to the VALARIS DS-7 and is expected to commence in April 2020, and the previously announced contract for the VALARIS JU-144 (EXL II) with ENI offshore Mexico has been transferred to the VALARIS JU-102 and is expected to commence in September 2020.
For the period between the company’s fleet status report that was filed on 13 February 2020 and the beginning of March, the company executed the following new contracts and contract extensions with associated revenue backlog of approximately $100 million:
- The VALARIS MS-1 was awarded a three-well contract with Santos offshore Australia that is expected to commence in Q1 2021, with an estimated duration of 155 days;
- The VALARIS 8505 was awarded a one-well contract with Lukoil Upstream Mexico that is expected to commence in mid-November, with an estimated duration of 80 days;
- The VALARIS JU-118 (Joe Douglas) was awarded a three-well contract with Fieldwood offshore Mexico that commenced in mid-March, with an estimated duration of 425 days; and
- The VALARIS JU-144 (EXL II) was awarded a two-well contract with Fieldwood offshore Mexico that is expected to commence in April, with an estimated duration of 200 days.
In addition, the company is withdrawing its Q1 and full year 2020 financial guidance that was provided on its 21 February 2020 conference call.