What changed in this filing

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Item 1. Business

2023-02-21 compared with 2022-02-22 · 184 added, 137 removed, 162 unchanged (66% of the section changed)

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Unless the context requires otherwise, the terms "Valaris," "Company," "we," "us" and "our" refer to Valaris Limited together with all its subsidiaries and predecessors.

We are a leading provider of offshore contract drilling services to the international oil and gas industry.

We currently own an offshore drilling rig fleet of 56 rigs, with drilling operations in almost every major offshore market across six continents.

Our rig fleet includes 11 drillships, four dynamically positioned semisubmersible rigs, one moored semisubmersible rig, 40 jackup rigs and a 50% equity interest in Saudi Aramco Rowan Offshore Drilling Company ("ARO"), our 50/50 joint venture with Saudi Aramco, which owns an additional seven rigs.

We operate the world's largest fleet amongst competitive rigs, including one of the newest ultra-deepwater fleets in the industry and a leading premium jackup fleet.

Our customers include many of the leading national and international oil companies, in addition to many independent operators.

We are among the most geographically diverse offshore drilling companies, with current operations spanning 14 countries.

The markets in which we operate include the Gulf of Mexico, the North Sea, the Middle East, West Africa, Australia and Southeast Asia.

We are a leading provider of offshore contract drilling services to the international oil and gas industry with operations in almost every major offshore market across six continents.

We own the world's largest offshore drilling rig fleet, including one of the newest ultra-deepwater fleets in the industry and a leading premium jackup fleet.

We currently own 52 rigs, including 11 drillships, four dynamically positioned semisubmersible rigs, one moored semisubmersible rig, 36 jackup rigs and a 50% equity interest in Saudi Aramco Rowan Offshore Drilling Company ("ARO"), our 50/50 unconsolidated joint venture with Saudi Aramco, which owns an additional seven rigs.

We also have options to purchase two recently constructed drillships on or before December 31, 2023.

Our customers include many of the leading international and government-owned oil and gas companies, in addition to many independent operators.

We are among the most geographically diverse offshore drilling companies with current operations spanning six continents.

The markets in which we operate include the Gulf of Mexico, South America, the North Sea, the Middle East, Africa and Asia Pacific.

We provide drilling services on a day rate contract basis.

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Our customers bear substantially all of the costs of constructing the well and supporting drilling operations as well as the economic risk relative to the success of the well.

As we entered 2020, we expected the volatility that began with the oil price decline in 2014 to continue over the near-term with the expectation that long-term oil prices would remain at levels sufficient to support a continued gradual recovery in the demand for offshore drilling services.

We were focused on opportunities to put our rigs to work, manage liquidity, extend our financial runway, and reduce debt as we sought to navigate the extended market downturn and improve our balance sheet.

Recognizing our ability to maintain a sufficient level of liquidity to meet our financial obligations depended upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control, we had significant financial flexibility within our capital structure to support our liability management efforts.

However, starting in early 2020, the COVID-19 pandemic and the response thereto negatively impacted the macro-economic environment and global economy.

Global oil demand fell sharply at the same time global oil supply increased as a result of certain oil producers competing for market share, leading to a supply glut.

As a consequence, the price of Brent crude oil fell from around $60 per barrel at year-end 2019 to around $20 per barrel in mid-April 2020.

In response to dramatically reduced oil price expectations, our customers reviewed, and in most cases lowered significantly, their capital expenditure plans in light of revised pricing expectations.

This caused our customers, primarily in the second and third quarters of 2020, to cancel or shorten the duration of many of our drilling contracts, cancel future drilling programs and seek pricing and other contract concessions which led to material operating losses and liquidity constraints for us.

In 2020, the combined effects of the global COVID-19 pandemic, the significant decline in the demand for oil and the substantial surplus in the supply of oil resulted in significantly reduced demand and day rates for offshore drilling provided by the Company and increased uncertainty regarding long-term market conditions.

These events had a significant adverse impact on our current and expected liquidity position and financial runway and led to the filing of the Chapter 11 Cases (as defined herein).

In 2021, Brent crude oil prices increased from approximately $50 per barrel at the beginning of 2021 to nearly $80 per barrel by the end of the year and have subsequently increased to over $90 per barrel in early 2022.

Increased oil prices are due to, among other factors, rebounding demand for hydrocarbons, a measured approach to production increases by OPEC+ members and a focus on cash flow and returns by major exploration and production companies.

These events had a significant adverse impact on our expected liquidity position and financial runway and led to the filing of the Chapter 11 Cases (as defined herein).

In 2021, Brent crude oil prices increased from approximately $50 per barrel at the beginning of the year to nearly $80 per barrel by the end of the year.

Increased oil prices were due to, among other factors, rebounding demand for hydrocarbons, a measured approach to production increases by OPEC+ members and a focus on cash flow and returns by major exploration and production companies.

The constructive oil price environment led to an improvement in contracting and tendering activity in 2021 as compared to 2020.

Benign floater rig years awarded in 2021 were more than double the amount awarded in 2020.

This increase in activity is particularly evident for drillships with several multi-year contracts awarded and a meaningful improvement in day rates for this class of assets.

Jackup contracting activity also increased in 2021, but at a more modest pace than for floaters;

however, demand for jackups did not decline as significantly in 2020 as it did for floaters.

While the near-term outlook for the offshore drilling industry has improved, particularly for floaters, since the beginning of 2021, the global recovery from the COVID-19 pandemic remains uneven, and there is still uncertainty around the sustainability of the improvement in oil prices and the recovery in demand for offshore drilling services.

Additionally, the full impact that the pandemic and the volatility of oil prices will have on our results of operations, financial condition, liquidity and cash flows is uncertain due to numerous factors, including the duration and severity of the pandemic, the continued effectiveness of the ongoing vaccine rollout, the general resumption of global economic activity along with the injection of substantial government monetary and fiscal stimulus and the sustainability of the improvements in oil prices and demand in the face of market volatility.

To date, the COVID-19 pandemic has resulted in limited operational downtime.

Our rigs have had to shut down operations while crews are tested and incremental sanitation protocols are implemented and while crew changes have been restricted as replacement crews are quarantined.

We continue to incur additional personnel, housing and logistics costs in order to mitigate the potential impacts of COVID-19 to our operations.

In limited instances, we have been reimbursed for these costs by our customers.

Our operations and business may be subject to further economic disruptions as a result of the spread of COVID-19 among our workforce, the extension or imposition of further public health measures affecting supply chain and logistics, and the impact of the pandemic on key customers, suppliers, and other counterparties.

There can be no assurance that these, or other issues caused by the COVID-19 pandemic, will not materially affect our ability to operate our rigs in the future.

Oil prices remained volatile through 2022.

In the first half of 2022, Brent crude oil prices and volatility increased dramatically, in large part due to Russia’s invasion of Ukraine, which led to sanctions being placed on Russia, including its ability to export crude oil and other petroleum products.

The anticipated impact on supply drove Brent crude oil prices above $130 per barrel in early March 2022.

By the end of December 2022, the Brent crude price had declined to approximately $83 per barrel due in part to high inflation rates and fears of a global recession that could negatively impact oil demand.

Despite the high volatility in spot oil prices described above, our customers tend to be more focused on medium-term and long-term commodity prices when making investment decisions due to the longer lead times for offshore projects.

These forward prices experienced far less volatility in 2022 and have maintained levels which are highly constructive for offshore project demand.

The outlook for the offshore drilling industry has improved since the beginning of 2021, as evidenced by increasing global utilization and day rates for offshore drilling rigs, most notably for drillships.

However, heightened geopolitical tensions have increased volatility, inflation is increasing costs of operations and the impacts from the COVID-19 pandemic remains uncertain.

More recently, the combination of global inflation and a tightening of monetary policy has led to increasing fears of a global economic recession that may have a negative impact on demand for hydrocarbons.

As a result, there is still uncertainty around the sustainability of the improvement in oil prices and the recovery in demand for, and profitability of, offshore drilling services.

Chapter 11 Proceedings and Emergence from Chapter 11

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Our business consists of four operating segments:

(1) Floaters, which included our drillships and semisubmersible rigs, (2) Jackups, (3) ARO and (4) Other, which consists of management services on rigs owned by third-parties and the activities associated with our arrangements with ARO.

(1) Floaters, which includes our drillships and semisubmersible rigs, (2) Jackups, (3) ARO and (4) Other, which consists of management services on rigs owned by third-parties and the activities associated with our lease arrangements with ARO.

Floaters, Jackups and ARO are also reportable segments.

We own and operate 56 rigs, 26 are located in the Middle East, Africa and Asia Pacific, 12 are located in North and South America and 18 are located in Europe as of December 31, 2021.

We own and operate 52 rigs, of which 17 are located in the Middle East and Africa, 16 are located in Europe and the Mediterranean, 13 are located in North and South America and six are located in Asia and Pacific Rim as of December 31, 2022.

Our drilling rigs drill and complete oil and natural gas wells.

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See “Item 1A.

Risk Factors - The success of our business largely depends on the level of activity in the oil and gas industry, which can be significantly affected by volatile oil and natural gas prices.”

Our drilling contracts are the result of negotiations with our customers, and most contracts are awarded upon competitive bidding.

The terms of our drilling contracts can vary significantly, but generally contain the following commercial terms:

Risk Factors - The success of our business depends on the level of activity in offshore oil and natural gas exploration, which can be significantly affected by volatile oil and natural gas prices.”

Our drilling contracts are negotiated with our customers, and most contracts are awarded following competitive bidding.

The terms of our drilling contracts vary, but generally contain the following commercial terms:

• contract duration or term for a specific period of time or a period necessary to drill one or more wells,

• term extension options, exercisable by our customers, upon advance notice to us, at mutually agreed, indexed, fixed rates or current rate at the date of extension,

• provisions permitting early termination of the contract (1) if the rig is lost or destroyed, (2) if operations are suspended for a specified period of time due to various events, including damage or breakdown of major rig equipment, unsatisfactory performance, or "force majeure" events (3) failure of the customer to receive final investment decision (FID) with respect to projects for which the drilling rig was contracted;

or (4) at the convenience (without cause) of the customer, exercisable upon advance notice to us, and in in certain cases without making an early termination payment to us,

• provisions permitting early termination of the contract, which may include (1) if the rig is lost or destroyed, (2) if operations are suspended for a specified period of time due to various events, including damage or breakdown of major rig equipment, unsatisfactory performance, or "force majeure" events, (3) failure of the customer to receive final investment decision (FID) approval with respect to projects for which the drilling rig was contracted or (4) at the convenience (without cause) of the customer, exercisable upon advance notice to us, and in certain cases without making an early termination payment to us,

• payment of compensation to us is (generally in U.S.

dollars although some contracts require a portion of the compensation to be paid in local currency) on a day rate basis such that we receive a fixed amount for each day that the drilling rig is under contract (lower day rates generally apply for limited periods when operations are suspended due to various events, including during delays that are beyond our reasonable control, during repair of equipment damage or breakdown and during periods of re-drilling damaged portions of the well, and no day rate, or zero rate, generally applies when these limited periods are exceeded until the event is remediated, and during periods to remediate unsatisfactory performance or other specified conditions),

dollars although some contracts require a portion of the compensation to be paid in local currency) on a day rate basis such that we receive a fixed amount for each day that the drilling rig is under contract (lower day rates generally apply for periods when operations are suspended due to various events, including during delays that are beyond our reasonable control, during repair of equipment damage or breakdown and during periods of re-drilling damaged portions of the well, and no day rate, or zero rate, generally applies when these limited periods are exceeded until the event is remediated, and during periods to remediate unsatisfactory performance or other specified conditions),

• payment by us of the operating expenses of the drilling rig, including crew labor and incidental rig supply and maintenance costs,

• mobilization and demobilization requirements of us to move the drilling rig to and from the planned drilling site, and may include reimbursement of all or a portion of these moving costs by the customer in the form of an up-front payment, additional day rate over the contract term or direct reimbursement, and

• provisions allowing us to recover certain labor and other operating cost increases, including certain cost increases due to changes in applicable law, from our customers through day rate adjustment or direct reimbursement.

In general, in a downturn in offshore drilling demand, contract awards are subject to an extremely competitive bidding process.

The intense pressure on operating day rates could result in lower margin contracts that also contain less favorable contractual and commercial terms, including reduced or no mobilization and/or demobilization fees;

reduced day rates or zero day rates during downtime due to damage or failure of our equipment;

• provisions allowing us to recover certain labor and other operating cost increases from our customers through day rate adjustment or direct reimbursement for certain cost increases due to changes in applicable law or rising operational expenses.

While contracting and tendering activity has increased, contract awards remain subject to a highly competitive bidding process, which could result in lower margin contracts that also contain less favorable contractual and commercial terms, including reduced or no mobilization and/or demobilization fees;

reduced day rates or zero day rates during downtime;

reduced standby, redrill and moving rates and reduced periods in which such rates are payable;

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Backlog Information

Management's Discussion and Analysis of Financial Condition and Results of Operations " for discussion on backlog information.

Drilling Contracts and Insurance Program

Our drilling contracts provide for varying levels of allocation of responsibility for liability between our customer and us for loss or damage to each party's property and third-party property, personal injuries and other claims arising out of our drilling operations.

We also maintain insurance for these exposures to personal injuries, damage to or loss of property and certain business risks.

Management's Discussion and Analysis of Financial Condition and Results of Operations " for backlog information.

Insurance and Indemnification Matters

Our insurance program provides coverage, subject to the policies' terms and conditions and to the extent not otherwise assumed by the customer under the indemnification provisions of the drilling contract, for third-party liability claims arising from our operations.

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Well-control events generally include an unintended release from a well that cannot be contained by using equipment on site, such as a blowout preventer, by increasing the weight of drilling fluid or by diverting the fluids safely into production facilities.

Our customers typically indemnify us for well-control events.

Our customers typically indemnify us for most well-control events.

Our insurance program also provides hull and machinery coverage to us for physical damage (including total loss) to our rigs, cargo and equipment, excluding damage arising from a named windstorm in the U.S.

Gulf of Mexico.

Accordingly, we retain the risk for windstorm damage to our drilling in the U.S.

We separately purchase a small limit of named windstorm insurance for our floater rigs in the U.S.

Gulf of Mexico.

We do not currently carry insurance for loss of hire.

Any such lack of reimbursement may cause us to incur substantial costs.

Any such lack of reimbursement from the loss of day rate revenues may cause us to incur substantial costs.

Our drilling contracts customarily provide that each party is responsible for injuries or death to their respective personnel and loss or damage to their respective property (including the personnel and property of each parties’ contractors and subcontractors) regardless of the cause of the loss or damage.

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In addition, our drilling contracts typically provide for our customers to indemnify us, generally based on replacement cost minus some level of depreciation, for loss or damage to our down-hole equipment, and in some cases for a limited amount of the repair of or replacement cost of our subsea equipment, unless the damage is caused by our negligence, normal wear and tear or defects in our equipment.

We also maintain insurance for exposures to personal injuries, damage to or loss of property and certain business risks.

Subject to the exceptions noted below, our customers typically assume most of the responsibility for and indemnify us from any loss, damage or other liability resulting from pollution or contamination arising from operations, including as a result of blowouts, cratering and seepage, when the source of the pollution originates from the well or reservoir, including costs for clean-up and removal of pollution and third-party damages.

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Most of our drilling contracts incorporate a broad exclusion that limits the operator's indemnity for damages and losses resulting from our gross negligence and willful misconduct and for fines and penalties and punitive damages levied or assessed directly against us.

This exclusion overrides other provisions in the contract that would otherwise limit our liability for ordinary negligence.

In most of these cases, we are still able to negotiate a liability cap (although these caps are significantly higher than the caps we are able to negotiate for ordinary negligence) on our exposure for losses or damages resulting from our gross negligence.

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Notwithstanding our negotiation of express limitations in our drilling contracts for losses or damages resulting from our ordinary negligence and any express limitations (albeit usually much higher) for losses or damages in the event of our gross negligence, under the applicable laws that govern certain of our drilling contracts, the courts will not enforce any indemnity for losses and damages that result from our gross negligence or willful misconduct.

As a result, under the laws of such jurisdictions, the indemnification provisions of our drilling contracts that would otherwise limit our liability in the event of our gross negligence or willful misconduct are deemed to be unenforceable as being contrary to public policy, and we are exposed to unlimited liability for losses and damages that result from our gross negligence or willful misconduct, regardless of any express limitation of our liability in the relevant drilling contracts.

Accordingly, in such jurisdictions we are exposed to unlimited liability for losses and damages that result from our gross negligence or willful misconduct, regardless of any express limitation of our liability in the relevant drilling contracts.

Under the laws of certain jurisdictions, an indemnity from an operator for losses or damages of third-parties resulting from our gross negligence is enforceable, but an indemnity for losses or damages of the operator is not enforceable.

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Typically, in the case of original equipment manufacturers, the cap is a negotiated amount based on mutual agreement of the parties considering the risk profiles and thresholds of each party.

However, for smaller vendors, the liability is usually limited to the value, or double the value, of the contract.

However, for smaller vendors, the liability is usually limited to the value, or double the value, of the contract for the purchase of such equipment or services.

We generally indemnify the customer for legal and financial consequences of spills of waste oil, fuels, lubricants, motor oils, pipe dope, paint, solvents, ballast, bilge, garbage, debris, sewage, hazardous waste and other liquids, the discharge of which originates from our rigs or equipment above the surface of the water and in some cases from our subsea equipment.

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We provide our contract drilling services to major international, government-owned and independent oil and gas companies.

During the eight months ended December 31, 2021 (Successor), our five largest customers accounted for 42% of consolidated revenues.

BP, our only customer who accounts for 10% or more of consolidated revenues, accounted for 11% of consolidated revenues.

During the four months ended April 30, 2021 (Predecessor), our five largest customers accounted for 45% of consolidated revenues.

BP, our only customer who accounts for 10% or more of consolidated revenues, accounted for 14% of consolidated revenues.

During the year ended December 31, 2022, our five largest customers accounted for 43% of consolidated revenues.

BP plc, our only customer who accounts for 10% or more of consolidated revenues, accounted for 15% of consolidated revenues.

The offshore contract drilling industry is highly competitive.

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Price is often the primary factor in determining which contractor is awarded a contract, although quality of service, operational and safety performance, equipment suitability and availability, location of equipment, reputation and technical expertise also are factors.

There are numerous competitors with significant resources in the offshore contract drilling industry.

Human Capital

We believe our people are one of the most important elements of our success, and we benefit from a motivated, engaged, and diverse workforce.

Our approach to attracting, developing, and retaining a diverse workforce of high-performing talent is anchored in a long-term employment model that seeks to foster personal growth and engagement.

Purpose and Culture

At Valaris, our purpose is to provide responsible solutions that deliver energy to the world.

Our values are designed to guide us in support of our purpose:

• Integrity – Doing the right thing;

whether or not anyone is watching;

• Safety – Causing no harm is always a priority;

• Excellence – Delivering value to our customers while consistently raising the bar on performance;

• Respect – Treating others the way we would like to be treated;

• Ingenuity – Solving problems creatively;

• Stewardship – Safeguarding where we work for the next generation

Our Ethics and Compliance Policy and our Code of Conduct (the “Code”) form the foundation of our compliance and ethics program, which provides guidance on how to uphold our values.

We have translated the Code into nine different languages, making it widely accessible to our employees across the globe.

We maintain an Ethics Hotline that is available to all employees, either online or by phone, to confidentially seek guidance or raise a concern.

The Code is reviewed on a periodic basis and approved by our board of directors.

To further support our values of respect and integrity, we have policies prohibiting corruption, bribery (including facilitation payments), money laundering, retaliation, and reprisals for raising concerns, including those related to worker rights, working conditions, mistreatment, fraud, and misconduct.

In addition, we have adopted a policy against modern slavery and human trafficking in our business and our supply chains.

We employed approximately 5,450 personnel worldwide including contract employees, and approximately 3,933 personnel excluding contract employees, as of December 31, 2022.

Our employees represented 71 nationalities spread across 26 locations.

The majority of our personnel work on our offshore installations and are compensated on an hourly basis.

A portion of our employees and contractors working outside of the U.S.

are represented by collective bargaining or similar agreements, which are subject to periodic salary negotiation.

As of December 31, 2022, women comprised 29% of our onshore employees and 1% of our offshore employees.

Employee Wellbeing and Engagement

We believe that one of the best ways to serve our customers is through creating a healthy, safe and engaging working and learning environment, where our employees are confident and comfortable to put their best work forward.

We seek to promote a healthy environment by prioritizing the mental and physical health and needs of our employees while recognizing them for their achievements and accomplishments.

For example, in most countries where we work, we offer an employee assistance program (“EAP”) to employees and their families.

Our EAP provides access to counselors and other mental health professionals as well as discounts to fitness centers, financial guidance and other benefits in support of our overall commitment to maintain a healthy workforce.

Feedback from our employees plays a key role in creating an agile, collaborative and trustworthy culture.

We use surveys to measure employee engagement as well as our ability to align and execute around a common vision and foster innovation and creativity.

These surveys help our leaders analyze the impact of company practices and culture on performance and have created a roadmap for improvement.

Training and Competency

We are focused on developing talent and leadership among both our onshore and offshore employees.

In 2021, we launched the Building Organizational Leadership (BOLD) training program.

This program is designed to engage, support and provide leadership tools for our offshore supervisors, helping them assess and develop their team’s understanding and use of our safety processes and policies.

Approximately 650 personnel attended the program in 2022.

In addition to the BOLD offshore program, we designed and piloted an onshore leadership program in 2022 which we expect to implement for our senior onshore leaders commencing in 2023.

We provide regular training in health, safety, environmental and emergency response to our employees, as relevant to their roles, and we mandate that our employees complete training related to the Code, covering topics such as anti-corruption, workplace behavior and conflicts of interest.

In addition, in 2022, all employees were assigned human trafficking prevention training, including procedures for reporting concerns.

Certain employees must also complete training on topics ranging from trade compliance to antitrust matters.

Our policies set the expectation that causing no harm is a priority while conducting our operations.

We seek to control major operational hazards with effective safeguards and to implement our management systems to protect the health and safety of our personnel.

Our Safe Systems of Work are designed with the aim of completing each job safely and efficiently:

• Work Instruction – Step-by-step description of how to complete specific work activities, including mandatory precautions to be implemented;

• Permit to Work – Formal authorization and control process for the safe execution of potentially hazardous work that may present risk to people, environment or assets;

• Energy Isolation – Formal isolation of all energy sources before performing work on equipment;

• Job Safety Analysis – Identification and control of job hazards before starting work;

• Stop Work Authority – Empowerment to stop work if a risk to people, environment or assets is perceived to exist.

Sustainability

Consistent with our purpose of providing responsible solutions that deliver energy to the world, we have increased our focus on sustainability-related matters.

Our board of directors' ESG Committee, formed in 2021, regularly meets to address sustainability topics and is responsible for overseeing the Company’s policies, programs and practices related to ESG responsibilities and the Company’s management of risks in such areas.

In 2022, we created a new business function and management position focused on sustainability and new energy opportunities and have an employee-led cross-functional working group to identify and evaluate opportunities and promote sustainable business practices.

We publish an annual sustainability report aligned with Sustainability Accounting Standards Board (SASB) standards and report scope 1, 2 and 3 greenhouse gas (GHG) emissions.

We also utilize technology that enables us to monitor fuel consumption and GHG emissions across our rig fleet.

For further discussion of ESG risks and considerations see “Risk Factors” in Item 1A and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K.

We encourage you to review our latest Sustainability Report, located on our website (www.valaris.com), for more detailed information regarding our sustainability and human capital programs and initiatives.

Nothing on our website, including our Sustainability Report or sections thereof, shall be deemed incorporated by reference into this report or other filings that we make with the SEC.

Governmental Regulation and Environmental Matters

Our operations are affected by political initiatives and by laws and regulations that relate to the oil and gas industry, including laws and regulations that have or may impose increased financial responsibility and oil spill abatement contingency plan capability requirements.

Accordingly, we will be directly affected by the approval and adoption of laws and regulations curtailing exploration and development drilling for oil and natural gas for economic, environmental, safety or other policy reasons.

It is also possible that these laws and regulations and political initiatives could adversely affect our operations in the future by significantly increasing our operating costs or restricting areas open for drilling activity.

Our operations are affected by laws, regulations and political initiatives that relate to the oil and natural gas industry, including laws and regulations that have or may impose increased oil-spill related and financial responsibility requirements.

Laws and regulations curtailing exploration and development drilling for oil and natural gas will directly affect us for economic, environmental, safety or other policy reasons.

It is also possible that these laws, regulations and political initiatives could adversely affect our operations in the future by significantly increasing our operating costs or restricting areas open for drilling activity.

See "Item 1A.

Risk Factors - Increasing regulatory complexity could adversely impact the costs associated with our offshore drilling operations."

Risk Factors - Increasing regulatory complexity could adversely impact our offshore drilling operations and reduce demand."

Our operations are subject to laws and regulations controlling the discharge of materials into the environment, pollution, contamination and hazardous waste disposal or otherwise relating to the protection of the environment.

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• restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling;

• restrict the production rate of natural resources below the rate that would otherwise be possible.

Environmental laws and regulations specifically applicable to our business activities could impose significant liability on us for damages, clean-up costs, fines and penalties in the event of oil spills or similar discharges of pollutants or contaminants into the environment or improper disposal of hazardous waste generated in the course of our operations, which may not be covered by contractual indemnification or insurance or for which indemnity is prohibited by applicable law and could have a material adverse effect on our financial position, operating results and cash flows.

• restrict the production rate of oil and natural gas below the rate that would otherwise be possible.

Failure to comply with environmental laws and regulations applicable to our operations could impose significant liability on us for damages, clean-up costs, fines and penalties in the event of oil spills or similar discharges of pollutants or contaminants into the environment or improper disposal of hazardous waste generated in the course of our operations, which may not be indemnifiable or covered by insurance and could have a material adverse effect on our financial position, operating results and cash flows.

To date, such laws and regulations have not had a material adverse effect on our operating results.

However, the legislative, judicial and regulatory response to any well-control incidents could substantially increase our customers' liabilities in respect of oil spills and also could increase our liabilities.

In addition to potential increased liabilities, such legislative, judicial or regulatory action could impose increased financial, insurance or other requirements that may adversely impact the entire offshore drilling industry.

However, the legislative, judicial and regulatory response to any environmental incident could substantially increase our customers' liabilities in respect of oil spills and also could increase our liabilities.

Additionally, environmental laws and regulations are revised frequently, and any changes, including changes in implementation or interpretation of existing laws/regulations, that result in more stringent and costly waste handling, disposal and cleanup requirements for our industry could have a significant impact on our operating costs.

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Merchant Shipping Act 1995, Marpol 73/78 (the International Convention for the Prevention of Pollution from Ships), the U.K.

Merchant Shipping (Oil Pollution Preparedness, Response and Co-operation Convention) Regulations 1998, as amended, and other related legislation and regulations and the Oil Pollution Act of 1990 ("OPA 90"), as amended, the Clean Water Act and other U.S.

Merchant Shipping (Oil Pollution Preparedness, Response and Co-operation Convention) Regulations 1998, as amended, the Oil Pollution Act of 1990 ("OPA 90"), as amended, the Clean Water Act and other U.S.

federal statutes applicable to us and our operations, as well as similar statutes in Texas, Louisiana, other coastal states and other non-U.S.

jurisdictions, address oil spill prevention, reporting and control and have significantly expanded potential liability, fine and penalty exposure across many segments of the oil and gas industry.

jurisdictions, address oil spill prevention, reporting and control and have significantly expanded potential liability, fine and penalty exposure across many segments of the oil and natural gas industry.

Such statutes and related regulations impose a variety of obligations on us related to the prevention of oil spills, disposal of waste and liability for resulting damages.

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Gulf of Mexico that have and may further impact our operations.

As a result of the 2010 Macondo well incident, the United States Bureau of Safety and Environmental Enforcement ("BSEE") issued a drilling safety rule in 2012 that included requirements for the cementing of wells, well-control barriers, blowout preventers, well-control fluids, well completions, workovers and decommissioning operations.

BSEE also issued regulations requiring operators to have safety and environmental management

systems ("SEMS") prior to conducting operations and requiring operators and contractors to agree on how the contractors will assist the operators in complying with the SEMS.

In addition, in August 2012, BSEE issued an Interim Policy Document ("IPD") stating that it would begin issuing Incidents of Non-Compliance to contractors as well as operators for serious violations of BSEE regulations.

Following federal court decisions successfully challenging the scope of BSEE’s jurisdiction over offshore contractors, this IPD has been removed from the list of IPDs on the BSEE website.

If this judicial precedent stands, it may reduce regulatory and civil litigation liability exposures.

On July 28, 2016, BSEE adopted the 2016 Well Control Rule.

On July 28, 2016, the Bureau of Safety and Environmental Enforcement ("BSEE") adopted the 2016 Well Control Rule.

This rule included more stringent design requirements for well-control equipment used in offshore drilling operations.

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The rule revised existing regulations impacting offshore oil and gas drilling, completions, workovers and decommissioning activities.

Specifically, the 2019 Well Control Rule addresses six areas of offshore operations:

well design, well control, casing, cementing, real-time monitoring and subsea containment.

The revisions were targeted to ensure safety and environmental protection while correcting errors in the 2016 rule and reducing unnecessary regulatory burden.

We have not incurred significant costs to comply with the 2016 Well Control Rule or 2019 Well Control Rule.

The continuing and evolving threat of cyber attacks will likely require increased expenditures to strengthen cyber risk management systems for drilling rigs and onshore facilities.

For example, on May 11, 2017, an executive order was issued entitled Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure, which is intended to improve the nation's ability to defend against increasing and evolving cyber attacks, and in July 2017 the USCG issued proposed cybersecurity guidelines for port facilities and offshore facilities, including drilling rigs, that could be impacted by cyber attacks.

For example, on May 11, 2017, an executive order was issued entitled Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure, which is intended to improve the nation's ability to defend against increasing and evolving cyber attacks, and in March 2020 the United States Coast Guard issued cybersecurity guidelines for port facilities and offshore facilities, including drilling rigs, that could be impacted by cyber attacks.

We cannot currently estimate the future expenditures associated with increased regulatory requirements, which may be material, and we continue to monitor regulatory changes as they occur.

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Globally, there are a number of legislative and regulatory proposals at various levels of government to address the greenhouse gas emissions that contribute to climate change, such as laws or regulations incentivizing or mandating the use of alternative energy sources such as wind power and solar energy and programs to mandate or incentivize the conversion from internal combustion engine powered vehicles to electric-powered vehicles.

Although it is not possible at this time to predict how legislation or new regulations that may be adopted to address greenhouse gas emissions would impact our business, any such future laws and regulations could require us or our customers to incur increased operating costs.

Any such legislation or regulatory programs could also increase the cost of consuming oil, and thereby reduce demand for oil, which could reduce our customers’ demand for our services.

Any such legislation or regulatory programs could also increase the cost of consuming oil and natural gas, and thereby reduce demand for oil and natural gas, which could reduce our customers’ demand for our services.

Consequently, legislation and regulatory programs to reduce greenhouse gas emissions could have an adverse effect on our financial position, operating results and cash flows.

Although the United States had withdrawn from the Paris Agreement in November 2020, the United States officially reentered the agreement in February 2021.

Further, in November 2021, the Unites States and other countries entered into the Glasgow Climate Pact, which includes a range of measures designed to address climate change, including but not limited to the phase-out of fossil fuel subsidies, reducing methane emissions 30% by 2030, and cooperating toward the advancement of the development of clean energy.

It is likely that new executive orders, regulatory action, and/or legislation targeting greenhouse gas emissions, or prohibiting, restricting, or delaying oil and gas development activities in certain areas, will be proposed and/or promulgated.

For example, multiple executive orders pertaining to environmental regulations and climate change have recently been issued, including the (1) Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis and (2) Executive Order on Tackling the Climate Crisis at Home and Abroad.

The latter executive order announced a moratorium on new oil and gas leasing on federal lands and offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices, established climate change as a primary foreign policy and national security consideration and affirmed that achieving net-zero greenhouse gas emissions by or before mid-century is a critical priority.

In June 2021, a federal judge for the U.S.

District Court of the Western District of Louisiana issued a nationwide preliminary injunction

against the pause of oil and natural gas leasing on public lands or in offshore waters while litigation challenging that aspect of the executive order is ongoing.

On January 27, 2022, the United States District Court for the District of Columbia found that the Bureau of Ocean Energy Management’s failure to calculate the potential emissions from foreign oil consumption violated the agency’s approval of oil and gas leases in the Gulf of Mexico under the National Environmental Policy Act.

The full impact of these federal actions, or any other future restrictions or prohibitions, remains unclear.

The United States reentered the Paris Agreement in February 2021.

Further, in November 2021, the United States and other countries entered into the Glasgow Climate Pact, which includes a range of measures designed to address climate change, including but not limited to the phase-out of fossil fuel subsidies, reducing methane emissions 30% by 2030, and cooperating toward the advancement of the development of clean energy.

It is expected that new executive orders, regulatory action, and/or legislation targeting greenhouse gas emissions, or prohibiting, restricting, or delaying oil and gas development activities in certain areas, will be proposed and/or promulgated.

For example, multiple executive orders pertaining to environmental regulations and climate change have recently been issued, including the (1) Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis ("EO 13990") and (2) Executive Order on Tackling the Climate Crisis at Home and Abroad ("EO 14008").

EO 13990 established an interagency working group to recommend methods for agencies to incorporate the “social cost of carbon” into regulatory analyses and directed the United States Environmental Protection Agency (the "EPA") to review various environmental regulations for consistency with the policies and goals set forth in EO 13990.

EO 14008 announced a moratorium on new oil and gas leasing on federal lands and offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices, established climate change as a primary foreign policy and national security consideration and affirmed that achieving net-zero greenhouse gas emissions by or before mid-century is a critical priority.

Ongoing legal challenges have slowed or halted the implementation of some of these directives, making it difficult to predict the full timing and extent to which federal agencies will implement them.

The full impact of these federal actions, or any other future restrictions or prohibitions, remains unclear, but if such policies are implemented permanently (in part or in whole), these actions could have a material and negative financial impact on our business by reducing the areas in which we could operate.

If new laws are enacted or other government actions are taken that restrict or prohibit offshore drilling in our principal areas of operation, impose additional regulatory (including environmental protection) requirements that materially increase the liabilities, financial requirements or operating or equipment costs associated with offshore drilling, exploration, development or production of oil and natural gas, or promote other sources of clean energy, our financial position, operating results and cash flows could be materially adversely affected.

See "Item 1A.

Risk Factors - Compliance with or breach of environmental laws can be costly and could limit our operations."

Risk Factors - Compliance with or breach of environmental laws could be costly and limit our operations."

Revenues from non-U.S.

operations were 87%, 81%, 83% and 85% of our total consolidated revenues during eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor), year-ended December 31, 2020 and 2019 (Predecessor), respectively.

operations were 78%, 87%, 81% and 83% of our total consolidated revenues during the year ended December 31, 2022 (Successor), the eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor) and the year ended December 31, 2020 (Predecessor), respectively.

See "Item 1A.

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Anton Dibowitz 51 President and Chief Executive Officer

Darin Gibbins 40 Interim Chief Financial Officer and Vice President, Investor Relations and Treasurer

Gilles Luca 50 Senior Vice President - Chief Operating Officer

Christopher Weber 50 Senior Vice President and Chief Financial Officer

Gilles Luca 51 Senior Vice President and Chief Operating Officer

Matthew Lyne 48 Senior Vice President and Chief Commercial Officer

Davor Vukadin 49 Senior Vice President and General Counsel

Set forth below is certain additional information on our executive officers, including the business experience of each executive officer for at least the last five years:

Anton Dibowitz became the President and Chief Executive Officer of Valaris in December 2021, following his service as the Company’s interim President and Chief Executive Officer since September 2021.

Previously, he served as an advisor of Seadrill Ltd.

from November 2020 until March 2021.

Dibowitz joined the Valaris board of directors in July 2021.

Prior to joining the Valaris board of directors, he served as an advisor of Seadrill Ltd., a global offshore drilling contractor, from November 2020 until March 2021.

He served as Chief Executive Officer of Seadrill Ltd.

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He is a Certified Public Accountant and a graduate of the University of Texas at Austin where he received a Bachelor's degree in Business Administration, and Master's degrees in Professional Accounting (MPA) and Business Administration (MBA).

Darin Gibbins became the Interim Chief Financial Officer and Vice President, Investor Relations and Treasurer of Valaris in September 2021.

Previously, he served as Vice President, Investor Relations and Treasurer of the Company since June 2020 and has also served as Vice President, Treasurer of the Company from April 2019 through June 2020.

Prior to joining the Company, he spent over thirteen years at Rowan Companies plc, beginning in November 2006.

At Rowan Companies plc, he most recently served as Vice President, FP&A and Treasurer from February 2017 to April 2019 and Treasurer & Director, Financial Planning from March 2016 through February 2017.

Gibbins also worked as a Senior Consultant at Protiviti Inc.

from August 2004 through November 2006.

Gibbins is a graduate of the University of Texas at Austin, where he earned his Bachelor of Business Administration (BBA) in Finance with a minor in Accounting.

Gilles Luca joined Valaris in 1997 and was appointed to his current position of Senior Vice President - Chief Operating Officer in November 2019.

Prior to his current position, Mr.

Luca served as Senior Vice President - Western Hemisphere, Vice President - Business Development and Strategic Planning, Vice President - Brazil Business Unit and General Manager - Europe and Africa.

He holds a Master's Degree in Petroleum Engineering from the French Petroleum Institute and a Bachelor in Civil Engineering from ESTP, Paris.

We employed approximately 4,900 personnel worldwide including contract employees, and approximately 3,400 personnel excluding contract employees, as of December 31, 2021.

The majority of our personnel work on rig crews and are compensated on an hourly basis.

Christopher Weber became the Senior Vice President and Chief Financial Officer of Valaris in August 2022.

Previously, he served as Chief Financial Officer of LUFKIN Industries, a leading global provider of rod lift optimization solutions, products, technologies and services to the oil and gas industry, from February 2021 to July 2022.

Weber has also served as Chief Financial Officer of Abaco Drilling Technologies from July 2019 to February 2021 and Chief Financial Officer of Haliburton Company from June 2017 to November 2018.

Prior to Halliburton, Mr.

Weber served as Chief Financial Officer of Parker Drilling Company, and held senior finance roles at Valaris predecessor companies, Ensco plc and Pride International, Inc.

He received an MBA in Finance and Strategy from the Wharton School and a BA in Economics and English Literature from Vanderbilt.

Gilles Luca became Senior Vice President and Chief Operating Officer in December 2019.

Previously, he served as Senior Vice President, Operations Support.

He joined Ensco in 1997.

Luca also served Ensco as Senior Vice President - Western Hemisphere, Vice President - Business Development and Strategic Planning, Vice President - Brazil Business Unit and General Manager - Europe and Africa.

Before joining Ensco as an Operations Engineer in The Netherlands, Mr.

Luca was employed by Foramer Drilling and Schlumberger with assignments in France and Venezuela.

He holds a Master Degree in Petroleum Engineering from the French Petroleum Institute and a Bachelor in Civil Engineering.

Matthew Lyne became the Senior Vice President and Chief Commercial Officer of Valaris in September 2022.

Previously, he served as Executive Vice President, Chief Commercial and Strategy Officer of Seadrill Limited from May 2021 to September 2022.

Seadrill Limited filed for bankruptcy in February 2021.

Prior to this role, he held a number of senior marketing and commercial roles at Seadrill Limited for more than 10 years.

He also served in a number of senior operational and functional roles with Transocean Ltd.

prior to joining Seadrill Limited.

Lyne has over 20 years of offshore drilling experience in various international locations.

Lyne has a Bachelor of Science degree in Engineering from Montana Technological University.

Davor Vukadin was appointed Senior Vice President, General Counsel and Secretary in May 2022.

Before being named to his current position, Mr.

Vukadin served as Associate General Counsel and Secretary from June 2021 to May 2022.

Previously, he served as Associate General Counsel and Assistant Secretary from November 2018 to June 2021.

He joined Valaris as Senior Counsel in 2014.

Prior to joining Valaris, Mr.

Vukadin practiced corporate and securities law with the law firm of Norton Rose Fulbright for thirteen years.

He holds a Bachelor of Arts degree in Economics from The University of Chicago and a law degree from The University of Texas School of Law.

Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports that we file or furnish to the Securities and Exchange Commission ("SEC") in accordance with the Exchange Act are available on our website at www.valaris.com/investors.

In addition, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

These reports also are available in print without charge by contacting our Investor Relations Department as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports that we file with, or furnish to, the Securities and Exchange Commission ("SEC") in accordance with the Exchange Act are available free of charge on our website at www.valaris.com/investors.

In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

The information contained on our website is not included as part of, or incorporated by reference into, this report.

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Risks Related to Our Business, Operations, Indebtedness and Market Conditions

• The effects of the COVID-19 pandemic have adversely impacted, and could continue to adversely impact, our financial condition and results of operations.

• The success of our business largely depends on the level of activity in the oil and gas industry, which can be significantly affected by oil and natural gas prices.

• The offshore contract drilling industry historically has been highly competitive and cyclical, with periods of low demand and excess rig availability that could result in adverse effects on our business.

• The success of our business depends on the level of activity in offshore oil and natural gas exploration, development and production, which can be significantly affected by volatile oil and natural gas prices.

• The offshore contract drilling industry is highly competitive and cyclical.

• Our current backlog of contract drilling revenue may not be fully realized and may decline significantly in the future.

• Our business will be adversely affected if we are unable to secure contracts on economically favorable terms.

• Our business will be materially adversely affected if we are unable to secure contracts on economically favorable terms or if option periods in existing contracts are not exercised as expected.

• Our customers may be unable or unwilling to fulfill their contractual commitments to us, including their obligations to pay for losses, damages or other liabilities.

• We may suffer losses if our customers terminate or seek to renegotiate our contracts, if operations are suspended or interrupted or if a rig becomes a total loss.

• The loss of a significant customer or customer contract, as well as customer consolidation and changes to customer strategy, could adversely affect us.

• Rig reactivation, upgrade and enhancement projects are subject to risks, including delays and cost overruns.

• We have historically made significant expenditures to maintain our fleet to comply with laws and the applicable regulations and standards of governmental authorities and organizations, or to expand our fleet, and we may be required to make significant capital expenditures to maintain our competitiveness.

• The loss of a significant customer or customer contract, as well as customer consolidation and changes to customer strategy, could materially adversely affect our business.

• Our long-term contracts are subject to the risk of cost increases, which could adversely affect our profitability.

• Our information technology systems, including rig operating systems and critical data, are subject to cybersecurity risks.

• Rig reactivation, upgrade and enhancement projects are subject to risks, including delays and cost overruns, which could materially adversely affect our financial position, operating results or cash flows.

• We make significant expenditures to meet customer requirements, maintain our fleet to comply with laws and the applicable regulations and standards of governmental authorities and organizations, or to expand our fleet, and we may be required to make significant expenditures to maintain our competitiveness.

• Failure to recruit and retain skilled personnel could adversely affect our business.

• Our shared service center may not create the operational efficiencies that we expect and may create risks relating to the processing of transactions and recording of financial information.

• We may not realize the expected benefits of ARO, which depends on a single customer for its income and accounts receivable.

• Our information technology systems, including rig operating systems, are subject to cybersecurity risks.

• We may have difficulty obtaining or maintaining insurance in the future on terms we find acceptable and our insurance coverage cannot protect us against all of the risks and hazards we face.

• The potential for hurricane related windstorm damage or liabilities could result in uninsured losses.

• We may not realize the expected benefits of our ARO joint venture.

• Joint venture investments could be adversely affected by our joint venture partners' actions, financial condition and liquidity and disputes between us and our joint venture partners.

• Our business involves operating hazards, and our insurance and indemnities from our customers may not be adequate to cover any potential losses.

• Geopolitical events and violence could affect the markets for our services and have a material adverse effect on our business and cost and availability of insurance.

• Our drilling contracts with national oil companies may expose us to greater risks than we normally assume in drilling contracts with non-governmental customers.

• The impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, could have a material adverse effect on our business, financial condition and results of operations.

• Unionization efforts and labor regulations in certain countries in which we operate could materially increase our costs or limit our flexibility with regard to the management of our personnel.

• Significant part or equipment shortages, supplier capacity constraints, supplier production disruptions, supplier quality and sourcing issues or price increases could increase our operating costs, decrease our revenues and adversely impact our operations.

• We may incur impairments as a result of future declines in demand for offshore drilling rigs.

• Our long-term contracts are subject to the risk of cost increases, which could adversely affect our profitability.

• Significant equipment or part shortages, supplier capacity constraints, supplier production disruptions, supplier quality and sourcing issues or price increases could materially adversely affect our financial position, operating results or cash flows.

• Our operating and maintenance costs will not necessarily fluctuate in proportion to changes in our operating revenues.

• Our ability to pay our operating and capital expenses and make payments due on our debt depends on many factors beyond our control.

• The Indenture (as defined below) governing the First Lien Notes contains operating and financial restrictions that restrict our business and financing activities.

• On April 30, 2021, we emerged from bankruptcy, which may adversely affect our business and relationships.

• The Indenture (as defined below) governing the First Lien Notes contains provisions that could limit our business activities.

• Our actual financial results after emergence from bankruptcy may not be comparable to our projections filed with the Bankruptcy Court in the course of the Chapter 11 Cases.

• Our historical financial information will not be indicative of future financial performance as a result of the implementation of the plan of reorganization and the transactions contemplated thereby, as well as our application of fresh start accounting following emergence.

• The exercise of all or any number of outstanding warrants or the issuance of stock-based awards may dilute the holders of our Common Shares.

• Regulation of greenhouse gases and climate change could have a negative impact on our business.

• Consumer preferences for alternative fuels and electric-powered vehicles, as part of the global energy transition, may lead to reduced demand for our services.

• Increased scrutiny from stakeholders and others regarding our ESG practices and reporting responsibilities could result in additional costs or risks and adversely impact our business and reputation.

Regulatory, Legal and Tax Risks

• Failure to comply with anti-bribery statutes could result in fines, criminal penalties, drilling contract terminations and have an adverse effect on our business.

• Failure to comply with anti-corruption and anti-bribery statutes, such as the U.S.

Foreign Corrupt Practices Act and the U.K.

Bribery Act 2010, could result in fines, criminal penalties, drilling contract terminations and materially adversely affect our financial position, operating results or cash flows.

• Increasing regulatory complexity could adversely impact our offshore drilling operations and reduce demand.

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• Our consolidated effective income tax rate may vary substantially over time.

• We are subject to litigation that could have a material adverse effect on us.

• The rights of our shareholders are governed under Bermuda law, and as a result, holders of our Common Shares may have difficulty enforcing civil judgments against us.

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• Provisions in our bye-laws could delay or prevent a change in control of our company.

• Legislation enacted in Bermuda as to Economic Substance may affect our operations.

• Our business could be affected as a result of activist investors.

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operations involve additional risks not typically associated with U.S.

• Legislation enacted in Bermuda as to Economic Substance may affect our operations.

• The impact of the U.K.'s withdrawal from the E.U.

on economic conditions may affect our business.

• Regulation of greenhouse gases and climate change could have a negative impact on our business.

• Consumer preferences for alternative fuels and electric-powered vehicles, as part of the global energy transition, may lead to reduced demand for our services.

• Increased scrutiny from stakeholders and others regarding our ESG practices, initiatives and reporting responsibilities could result in additional costs or risks.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business