What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-02-20 compared with 2025-02-20 · 209 added, 214 removed, 350 unchanged (55% of the section changed)

7 unchanged sentences

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.

As of February 20, 2025, we own 52 rigs, including 13 drillships, four dynamically positioned semisubmersible rigs, one moored semisubmersible rig, 34 jackup rigs and a 50% equity interest in ARO, our 50/50 unconsolidated joint venture with Saudi Aramco, which owns an additional nine rigs.

Our fleet of offshore drilling rigs is among the largest in the world and includes one of the highest specification ultra-deepwater fleets, as well as a leading premium jackup fleet.

As of February 20, 2026, we own 46 rigs, including 13 drillships, two semisubmersible rigs, 31 jackup rigs and a 50% equity interest in ARO, our 50/50 unconsolidated joint venture with Saudi Aramco, which owns an additional nine rigs.

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 global operations.

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

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

We provide drilling services on a day rate contract basis.

Under day rate contracts, we provide an integrated service that includes the provision of a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term, depending on the operations of the rig.

Under day rate contracts, we provide an integrated drilling service that includes the provision of a drilling rig and rig crews for which we receive a daily rate that may vary between the full rate and zero rate throughout the duration of the contractual term, depending on the operations of the rig.

We also may receive lump-sum fees or similar compensation for the mobilization, demobilization and capital upgrades of our rigs.

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.

Operating results in the offshore contract drilling industry are highly cyclical and are directly related to the demand for and the available supply of drilling rigs.

Low demand and excess supply can independently affect day rates and utilization of drilling rigs.

Therefore, adverse changes in either of these factors can result in adverse changes in our industry.

While the cost of moving a rig may cause the balance of supply and demand to vary somewhat between regions, significant variations between most regions are generally of a short-term nature due to rig mobility.

Demand for offshore drilling is impacted by fundamental supply and demand dynamics for crude oil.

Since late 2022, Brent crude oil prices have been largely trading in a range between $70 and $90 per barrel, with OPEC+ members managing supply in an effort to keep the market in balance.

Importantly, longer-dated Brent crude oil prices have remained stable, with the five-year forward price above $65 per barrel, a level at which nearly 90% of undeveloped offshore reserves are expected to be profitable.

As a result, we believe the constructive oil price environment is supportive of continued investment in long-cycle offshore projects.

Rig attrition in the industry over the last decade, particularly for floaters, has resulted in a smaller global fleet of rigs that is available to meet customer demands.

While demand for offshore drilling services has declined modestly since early 2024, global demand for hydrocarbons continues to increase and offshore production, particularly deepwater, is expected to play an important role in providing secure, reliable and affordable energy to meet the world’s growing energy needs.

Consequently, our outlook for the offshore drilling business is positive.

Inflationary pressures have continued, resulting in increased personnel costs as well as in the prices of goods and services required to operate our rigs or execute capital projects.

We expect that our costs will continue to rise in the near term and although certain of our long-term contracts contain provisions for escalating costs, we cannot predict with certainty our ability to successfully claim recoveries of higher costs from our customers under these contractual stipulations.

The offshore drilling industry is cyclical and primarily influenced by global energy demand, oil and gas supply dynamics and customer capital allocation decisions.

Periods of oil oversupply generally place downward pressure on commodity prices, while periods of undersupply can result in higher and more volatile oil prices, influencing investment decisions across the upstream sector.

While the oil market is currently in a period of oversupply, industry fundamentals are generally viewed as constructive over the medium to long term.

Market participants generally expect the current oil supply imbalance to shift to a structurally tighter market over the next few years, driven by past underinvestment in upstream development and slowing production growth from non-OPEC sources.

Industry studies, including those published by the International Energy Agency and the U.S.

Energy Information Administration, indicate that substantial upstream investment is required to offset natural field declines and maintain existing production levels.

Against this backdrop, customers continue to emphasize the need for sustained investment in oil and gas to support secure, reliable and affordable energy supply, with increasing focus on offshore developments, particularly in deepwater.

Compared to other sources of supply, deepwater projects typically offer large resource potential, competitive project economics and lower carbon intensity per barrel.

Despite near-term commodity price uncertainty, customers are continuing to advance long-cycle offshore developments.

Industry participants anticipate increased deepwater project sanctioning over the next five years across greenfield, brownfield and exploration opportunities.

According to Rystad Energy estimates, approximately 70% of this expected activity is associated with projects with breakeven oil prices below $50 per barrel and over 80% is associated with projects with breakeven prices below $60 per barrel.

Operating results in the offshore drilling industry are directly related to the demand for and the available supply of drilling rigs, each of which affects rig utilization and day rates.

While the balance of rig supply and demand can vary somewhat between regions, significant variations between most regions are generally short-term due to rig mobility.

Rig attrition in the industry over the last decade, particularly for floaters, has resulted in a smaller global fleet of rigs that is available to meet customer demand.

Inflationary pressures impact our cost base, resulting in increased personnel costs as well as in the prices of goods and services required to operate our rigs or execute capital projects.

Additionally, the weakening of the U.S.

dollar against foreign currencies may increase costs in certain foreign jurisdictions in which we operate.

We expect that our costs will continue to rise in the near term, particularly given the potential impact of increased tariffs on global trade, and although certain of our long-term contracts contain provisions for escalating costs, we cannot predict with certainty our ability to successfully claim recoveries of higher costs from our customers under these contractual stipulations.

Pending Business Combination with Transocean

On February 9, 2026, Valaris and Transocean (Valaris and Transocean, collectively, the “Parties” and each, a “Party”), entered into a Business Combination Agreement under which Transocean will acquire all of the issued and outstanding common shares of Valaris in exchange for shares of Transocean at an exchange ratio of 15.235 Transocean shares for each Valaris share.

The Business Combination will be effected by way of a court-approved scheme of arrangement between Valaris and the holders of the Valaris shares pursuant to section 99 of the Companies Act 1981 of Bermuda, as amended.

The Transocean shares are expected to be issued in reliance on the exemption from the registration requirements of the U.S.

Securities Act of 1933, as amended, provided by Section 3(a)(10) thereof and pursuant to exemptions from registration under any applicable state securities laws.

Following the consummation of the Business Combination, Transocean’s existing shareholders and Valaris’ existing shareholders will own approximately 53% and 47%, respectively, of the combined company on a fully diluted basis assuming conversion to shares of Transocean’s exchangeable bonds due 2029.

Completion of the Business Combination is subject to customary closing conditions, including (1) the receipt of the requisite approvals of the Valaris shareholders and the Transocean shareholders, (2) the granting of the sanction order on terms consistent with the Business Combination Agreement, (3) the Transocean shares issued pursuant to the Business Combination Agreement having been approved for listing on the NYSE, (4) certain regulatory approvals having been obtained or any applicable waiting period having expired or been terminated, (5) no governmental authority within applicable jurisdictions having enacted or issued any law or order preventing or prohibiting the consummation of the Business Combination and (6) the absence of a Transocean Material Adverse Effect or a Valaris Material Adverse Effect.

Therefore, the Business Combination Agreement may not be completed or may not be completed as timely as expected.

In addition, the Business Combination Agreement also contains certain customary termination rights in favor of each Party, including for the failure to receive the requisite approvals of the Valaris shareholders and Transocean shareholders.

In addition, a Party may terminate the Business Combination Agreement, prior to the receipt of the requisite approval of the other Party’s shareholders, if the other Party shall have made an Adverse Recommendation Change (as defined in the Business Combination Agreement).

In addition, either Valaris or Transocean may terminate the Business Combination Agreement if the effective time shall not have occurred on or prior to February 9, 2027 (as such date may be extended in accordance with the terms of the Business Combination Agreement).

If the Business Combination Agreement is terminated under specified circumstances, including if the Business Combination Agreement is terminated by Valaris for Transocean having made an Adverse Recommendation Change (as defined in the Business Combination Agreement), or for certain other triggering events, Valaris will be required to pay to Transocean a termination fee of $173.0 million.

The foregoing description of the Business Combination Agreement and the transactions contemplated thereby does not purport to be complete and is subject to and qualified in its entirety by reference to the Business Combination Agreement, a copy of which is filed as Exhibit 2.1 with the Current Report on Form 8-K, filed with the SEC on February 10, 2026.

See “ Part I .

Item 1A - Risk Factors ” for further discussion about the risks related to the Business Combination.

Our contract drilling backlog reflects commitments represented by signed drilling contracts and is calculated by multiplying the contracted operating day rate by the contract period.

12 unchanged sentences

$ 2,011.3 $ 1,422.9

(1) The decrease for Floaters is primarily due to revenues realized, partially offset by a multi-year contract award for VALARIS DS-17 offshore Brazil and two six-month contract extensions for VALARIS DS-9 offshore Angola, which resulted in incremental aggregate backlog of approximately $570.0 million.

(2) The increase for Jackups is primarily due to various contract awards and extensions executed for incremental aggregate backlog of approximately $690.0 million, including a three-year contract extension for VALARIS 118, which resulted in incremental aggregate backlog of approximately $168.0 million, and a multi-year contract award for VALARIS 144, which resulted in incremental aggregate backlog of approximately $144.0 million.

These increases were partially offset by revenues realized.

(1) The increase for Floaters is primarily due to contract awards and extensions executed for various drillships, which resulted in incremental aggregate backlog of approximately $2.1 billion, partially offset by revenues realized.

(2) The decrease for Jackups is primarily due to revenues realized and the removal of approximately $120.0 million of backlog from VALARIS 120, which completed a drilling program in December 2025 at which time the contract was suspended.

We no longer expect future revenues to be realized under that contract, which was previously scheduled through mid-2028.

This decrease was partially offset by various contract awards and extensions executed, which resulted in incremental aggregate backlog of approximately $590.0 million.

(3) Other includes the backlog for our managed rig services and the bareboat charter backlog for the jackup rigs leased to ARO in order for ARO to fulfill certain of its drilling contracts with Saudi Aramco.

The increase in Other is primarily due to three-year contract extensions for our managed rigs, which resulted in incremental aggregate backlog of approximately $180.0 million, partially offset by revenues realized and a reduction of backlog of approximately an aggregate $35.0 million attributable to the VALARIS 143, VALARIS 147 and VALARIS 148 contracts, which were terminated during 2024.

(4) The decrease in ARO backlog is due to revenues realized and a reduction of backlog of approximately $125.0 million attributable to the termination of the VALARIS 143, VALARIS 147 and VALARIS 148 contracts.

The increase in Other is primarily due to five-year contract extensions for five of our leased rigs, VALARIS 116, VALARIS 140, VALARIS 141, VALARIS 146 and VALARIS 250, which resulted in incremental aggregate backlog of approximately $407.0 million, partially offset by revenues realized.

(4) The increase for ARO is primarily due to five-year contract extensions for the five rigs leased, referenced above, which resulted in incremental aggregate backlog of approximately $1.2 billion, partially offset by revenues realized.

The following table summarizes our and 100% of ARO's contract backlog as of February 17, 2026 and the periods in which revenues are expected to be realized (in millions):

9 unchanged sentences

There can be no assurances that our customers will be able to or willing to fulfill their contractual commitments to us.

See " Item 1A .

Risk Factors - Our current backlog of contract drilling revenue may not be fully realized and may decline significantly in the future."

BUSINESS ENVIRONMENT

In recent years, the more constructive oil price environment led to an improvement in contracting and tendering activity for floaters.

The number of contracted benign environment floaters increased to a peak of 128 in April 2024 from a low of 101 in early 2021, contributing to an increase in global utilization, from 73% to 86%, for the industry's marketed fleet over the same period, which resulted in a meaningful increase in day rates.

During 2024, some customer demand for 2024 and 2025 was deferred to future periods, which slowed the pace of contracting compared to the previous three years.

As a consequence, we have seen a modest decline in the number of contracted benign environment floaters to 123 at December 31, 2024, representing 83% utilization of the global marketed fleet, which has tempered day rates in the near term.

However, there is a strong pipeline of opportunities for benign environment floaters, particularly for high specification drillships, with anticipated contract commencements in 2026 and beyond.

From a supply perspective, as of December 31, 2024, the number of benign environment floaters including stacked rigs declined by 41% to 166 from a peak of 281 in late 2014.

Given the moderate decline in utilization in the second half of 2024 for benign environment floaters, we could see further rigs retired from the global fleet.

Also, given the expected high construction cost and lack of shipyard capacity, we do not believe that market conditions are supportive of floater newbuild construction for the foreseeable future.

Contracting and tendering activity for jackups has improved in recent years as a result of the more constructive oil price environment, and we have seen a corresponding increase in utilization.

The number of contracted jackups increased to a peak of 412 in March 2024 from a low of 341 in early 2021, contributing to an increase in global utilization, from 78% to 94%, for the industry's marketed fleet over the same period, leading to a meaningful increase in day rates for jackups.

In early 2024, Saudi Arabia announced that they plan to maintain maximum sustainable capacity at 12 million barrels per day.

Since this announcement, Saudi Aramco has sent contract suspension notices to several offshore drillers to suspend contracts, totaling 33 rigs, which represents 8% of the marketed jackup fleet.

This included notice to ARO with respect to its drilling contracts for VALARIS 143, VALARIS 147 and VALARIS 148.

To date, 11 of the 33 suspended rigs have been contracted in other regions and one rig has been retired from the offshore drilling fleet.

We believe that less than half of the remaining suspended rigs are likely to be competitive in other higher-specification, benign environment regions.

Adjusting for the rigs under suspension that are awaiting to resume their contracts with Saudi Aramco, utilization for the global marketed jackup fleet was 88% at December 31, 2024.

The decrease in global utilization from earlier in 2024 is putting some downward pressure on day rates in certain benign environment regions.

From a supply perspective, as of December 31, 2024, the number of jackups declined by 7% to 503 from a peak of 542 in early 2015.

While the number of jackups has decreased less than floaters, 28% of the current jackup fleet is more than 40 years of age with limited useful lives remaining.

Further, we believe that some of the jackups that are currently idle are not competitive, either due to their age or length of time stacked.

Within the floater segment, utilization for the global marketed drillship fleet was approximately 88% at the end of 2025 and included 13 drillships which were not working at year-end due to gaps between contracts.

Market conditions are expected to improve as these rigs commence new contracts during 2026, including four Valaris drillships that are scheduled to return to work later in the year following idle periods between contracts.

Customers continue to favor technically capable and efficient assets to support complex deepwater developments.

Historically, seventh-generation drillships have achieved higher utilization and stronger day rates relative to older assets, a trend that is expected to continue.

We believe we are well positioned in the market with 12 of 13 of our drillships being seventh-generation units.

Utilization for benign environment semisubmersibles, such as the remaining semisubmersible in our active fleet, continues to be lower than for drillships, and the outlook for this asset class remains challenging.

In response to this market environment, we retired three benign environment semisubmersibles in 2025 and have classified VALARIS DPS-1 as held for sale as of December 31, 2025.

From a supply perspective, rig attrition over the past decade has resulted in a reduced global floater fleet to meet customer demand.

The supply of benign environment floaters, such as those in our fleet, has decreased by more than 45% from a peak of approximately 280 rigs in 2014 to 150 rigs as of December 31, 2025.

This decrease is primarily attributable to rig retirements, including 14 benign environment floaters retired in 2025.

Further, given the expected high construction cost and lack of shipyard capacity, we do not believe that market conditions are supportive of floater newbuild construction for the foreseeable future.

Global jackup utilization remains solid, with utilization at the end of 2025 of approximately 89%, driven primarily by national oil companies focused on energy security and infrastructure development.

For example, Saudi Aramco recently recalled seven previously-suspended jackups to recommence operations in 2026 and there are other ongoing multi-rig tenders in the Middle East, which should further support the supply and demand balance of the global jackup fleet.

From a supply perspective, as of December 31, 2025, there were 494 jackups in the global fleet, with 29% of the current jackup fleet being more than 40 years of age with limited useful lives remaining.

Further, we believe that some of the jackups that are currently idle are not competitive, either due to their age or the length of time stacked.

Expenditures required to reactivate some of these rigs may prove cost prohibitive and drilling contractors may instead elect to scrap certain rigs.

We believe there are only 11 newbuild jackups remaining at shipyards, of which eight are at Chinese shipyards, some of which are expected to be used locally in China.

RESULTS OF OPERATIONS

For the purposes of our discussion below, we refer to Revenues (exclusive of reimbursable revenues) and Contract drilling expenses (exclusive of depreciation and reimbursable expenses) as "revenues" and "contract drilling expenses", respectively.

We typically receive reimbursements from our customers for purchases of supplies, equipment and incremental services provided at their request.

These reimbursements and the related costs incurred are recognized on a gross basis within Reimbursable revenues and Reimbursable expenses, respectively.

Changes within these line items generally do not have a material effect on our operating results or cash flows.

The following table summarizes our Consolidated Results of Operations for the years ended December 31, 2025 and 2024 (in millions, except percentages):

12 unchanged sentences

152.6 142.4 10.2 7 %

Total contract drilling (exclusive of depreciation) (3)

Total contract drilling expenses (exclusive of depreciation)

1,629.7 1,760.9 (131.2) (7) %

Loss on impairment 27.3 — 27.3 NM

Depreciation 146.3 122.1 24.2 20 %

2 unchanged sentences

Equity in earnings (losses) of ARO 8.4 (11.0) 19.4 (176) %

Operating income 352.3 53.5 298.8 NM

Operating income 477.0 352.3 124.7 35 %

Other income, net 75.3 17.9 57.4 321 %

Provision (benefit) for income taxes 0.4 (782.6) 783.0 (100) %

Provision (benefit) for income taxes (426.8) 0.4 (427.2) NM

Net income 979.1 369.8 609.3 165 %

Net (income) loss attributable to noncontrolling interests 3.6 (1.4) 5.0 (357) %

Net loss attributable to noncontrolling interests 3.7 3.6 0.1 3 %

Net income attributable to Valaris $ 982.8 $ 373.4 $ 609.4 163 %

NM - Not meaningful

(1) For the purposes of our discussion below, we refer to Revenues (exclusive of reimbursable revenues) and Contract drilling expense (exclusive of depreciation and reimbursable expenses) as "Revenues" and "Contract Drilling Expenses", respectively.

(2) We typically receive reimbursements from our customers for purchases of supplies, equipment and incremental services provided at their request.

These reimbursements and the related costs incurred are recognized on a gross basis within Reimbursable revenues and Reimbursable expenses, respectively.

Changes within these line items generally do not have a material effect on our operating results or cash flows.

(3) Certain previously reported line items presented in the Consolidated Statements of Operations (Total operating revenues and Total contract drilling expenses (exclusive of depreciation)) were further disaggregated to separately disclose Reimbursable revenues and Reimbursable expenses, respectively, to align with the updated presentation of our segment tables upon the adoption of ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The disaggregation of these line items is presentational only and was retrospectively applied to the year ended December 31, 2023.

There were no impacts to the overall Total operating revenues or Total contract drilling expense (exclusive of depreciation) line items.

See " Note 13 - Segment Information " to our consolidated financial statements included in "Item 8.

Financial Statements and Supplementary Data" for additional information.

Revenues increased in 2024, compared to 2023, primarily due to $401.7 million of incremental revenue earned for VALARIS DS-17, VALARIS DS-8 and VALARIS DS-7, which have commenced new contracts since mid-2023 following reactivations.

For the remaining fleet, there was a net increase of $165.8 million from higher average daily revenue, primarily due to certain rigs working under higher day rate contracts as compared to the prior year, which was partially offset by a $30.9 million net decrease attributable to fewer operating days in the current year.

Contract Drilling Expenses increased in 2024, compared to 2023, primarily due to incremental costs of $73.2 million incurred for VALARIS DS-17, VALARIS DS-7 and VALARIS DS-8 and $25.0 million of expense recognized in 2024 related to an accrual for a legal matter.

We also incurred an aggregate $16.3 million in incremental costs related to the stacking of VALARIS DS-13 and VALARIS DS-14, which were delivered in December 2023 and stacked in early 2024, and three jackups, which were stacked during 2024 upon termination of their leases with ARO.

For the remaining fleet, we had an increase in personnel-related costs of $32.7 million, partially driven by wage increases in certain regions and higher incentive compensation costs.

Depreciation expense increased in 2024, compared to 2023, primarily due to new assets placed in service for certain rigs that underwent reactivation projects and capital upgrades.

General and administrative expenses increased in 2024 compared to 2023, primarily due to higher professional fees and higher compensation related to our long-term incentive plans.

Other income, net, decreased in 2024, compared to 2023, primarily due to a $27.3 million gain on the sale of VALARIS 54 recognized in the prior year, a $15.9 million increase in interest expense, net, and a $15.3 million decrease in interest income.

These decreases were partially offset by a $29.2 million loss from the extinguishment of the Senior Secured First Lien Notes due 2028 (the "First Lien Notes") recognized in 2023 (see " Note 6 - Debt " to our consolidated financial statements included in " Item 8 .

Financial Statements and Supplementary Data " for additional information) and a $17.3 million increase related to net foreign currency gains relative to the prior year, largely driven by favorable exchange rate movements in certain currencies.

Revenues remained relatively flat in 2025 compared to 2024, largely driven by a net decrease of $316.9 million from fewer operating days relative to the prior year, primarily due to certain floaters which completed their contracts since 2024 and have been either warm stacked or retired, partially offset by a net increase of $225.5 million from higher average daily revenues, largely attributable to various rigs working under higher day rate contracts in 2025.

Further contributing to the offset were incremental revenues of $72.4 million for VALARIS DS-7, following its reactivation and commencement of a contract in May 2024.

Contract drilling expenses decreased in 2025 compared to 2024, primarily due to lower operating costs of $93.7 million for certain of our floater rigs which have been warm stacked or retired after completing contracts since the end of the second quarter of 2024 and a $18.5 million net decrease in expenses related to VALARIS DS-7, which was largely driven by reactivation costs incurred in the prior year and were partially offset by incremental operating costs in 2025.

For the remaining fleet, we had a decrease of $45.2 million from lower mobilization costs compared to the prior year, largely driven by VALARIS 247 and certain other rigs within the fleet which mobilized to commence new contracts during 2024.

Further contributing to the decrease was the reversal of a 2024 accrual for a previously disclosed patent license litigation during 2025 due to a favorable outcome.

These decreases were partially offset by a net increase of $28.8 million related to higher personnel-related costs on various rigs, largely driven by more operating days within the jackup fleet.

In connection with the retirements of VALARIS DPS-3, VALARIS DPS-5 and VALARIS DPS-6 (collectively, the "Retired Semis") and VALARIS 102 and VALARIS 145 (collectively, the "Retired Jackups"), and the classification of VALARIS DPS-1 as held for sale, we recognized non-cash losses on impairment of $27.3 million in 2025.

See " Note 5 - Property and Equipment " to our consolidated financial statements included in " Item 8 .

Financial Statements and Supplementary Data " for information regarding the retirement of these assets.

Depreciation expense increased in 2025 compared to 2024, primarily due to new assets placed in service, including those related to rigs that underwent capital upgrades.

General and administrative expenses decreased in 2025 compared to 2024, primarily due to $19.0 million of lower professional fees, partially related to a non-recurring $7.4 million cost recovery award recognized in 2025 related to fees incurred for the patent license litigation discussed above.

Other income, net, increased in 2025 compared to 2024, primarily due to an aggregate $115.4 million of pre-tax gains recognized in 2025 related to the sales of VALARIS 247, VALARIS 75 and an office in Angola.

This increase was partially offset by unfavorable foreign currency exchange rate fluctuations of $28.1 million, lower interest income of $15.3 million and higher interest expense of $14.0 million.

Rig Counts, Utilization and Average Daily Revenue

3 unchanged sentences

Active Fleet - Valaris 35 38

(1) During 2024, we leased VALARIS 108 and VALARIS 76 to ARO.

Separately, during 2024 the contracts with ARO for VALARIS 143, VALARIS 147 and VALARIS 148 were terminated and the rigs have been preservation stacked .

(1) During 2025, VALARIS DPS-3, VALARIS DPS-5 and VALARIS DPS-6 were sold.

VALARIS DPS-1 is included in the Floaters count but was reclassified to held for sale as of December 31, 2025.

(2) During 2025, VALARIS 75, VALARIS 247, VALARIS 102 and VALARIS 145 were sold.

(3) This represents the jackup rigs leased to ARO through bareboat charter agreements whereby substantially all operating costs are incurred by ARO.

Rigs leased to ARO operate under long-term contracts with Saudi Aramco.

During 2024, we leased VALARIS 108 and VALARIS 76 to ARO.

Separately, the contracts with ARO for VALARIS 143, VALARIS 147 and VALARIS 148 were terminated.

(3) This represents the jackup rigs owned by ARO, which are operating under long-term contracts with Saudi Aramco, including Kingdom 2, which was delivered in the second quarter of 2024.

This table does not include Kingdom 3, a newbuild jackup ordered by ARO in October 2024, as the rig is under construction.

(4) Active fleet represents rigs that are not preservation stacked and includes rigs that are in the process of being reactivated.

We provide management services in the U.S.

Gulf of Mexico on two rigs owned by a third-party not included in the table above.

(4) This represents the jackup rigs owned by ARO, which are operating under long-term contracts with Saudi Aramco.

This table does not include Kingdom 3 and Kingdom 4, which are newbuild jackups that are under construction in the Middle East.

(5) Active fleet represents rigs that are not preservation stacked or classified as held for sale and includes rigs that are in the process of being reactivated.

(6) During 2025, we classified VALARIS DPS-1 as held for sale, removing it from the active fleet, and sold VALARIS DPS-5.

(7) During 2025, we sold VALARIS 247.

We provide management services in the Gulf of America on two rigs owned by a third-party that are not included in the table above.

Operating results for our contract drilling services segment are largely dependent on two primary revenue metrics:

6 unchanged sentences

Total Valaris 65 % 67 %

ARO 86 % 80 %

Rig Utilization - Active Fleet (1)

2 unchanged sentences

Total Valaris 87 % 87 %

ARO 86 % 80 %

Average Daily Revenue (3)

5 unchanged sentences

(1) Rig utilization for the total fleet and active fleet are derived by dividing the operating days by the number of days in the period for the total fleet and active fleet, respectively.

Active fleet represents rigs that are not preservation stacked and includes rigs that are in the process of being reactivated.

Operating days equals the total number of days that rigs have earned and recognized day rate revenue, including days associated with early contract terminations, compensated downtime and mobilizations and excluding suspension periods.

Active fleet represents rigs that are not preservation stacked or classified as held for sale and includes rigs that are in the process of being reactivated.

Operating days equals the total number of days that rigs have earned and recognized day rate revenue, including days associated with compensated downtime and mobilizations and excluding suspension periods.

When revenue is deferred and amortized over a future period, for example, when we receive fees while mobilizing to commence a new contract or while being upgraded in a shipyard, the related days are excluded from operating days.

(2) Includes our two management services contracts and our rigs leased to ARO under bareboat charter contracts.

(3) Average daily revenue is derived by dividing Revenues (exclusive of reimbursable revenues) by the aggregate number of operating days.

(3) Average daily revenue is derived by dividing Revenues (exclusive of reimbursable revenues), excluding contract termination fees, by the aggregate number of operating days.

Operating Income by Segment

2 unchanged sentences

Floaters, Jackups and ARO are also reportable segments.

Our onshore support costs included within Contract Drilling Expenses are not allocated to our operating segments for purposes of measuring segment operating income (loss) and as such, those costs are included in “Reconciling Items." Further, general and administrative expense and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income (loss) and are included in "Reconciling Items."

Our onshore support costs included within contract drilling expenses are not allocated to our operating segments for purposes of measuring segment operating income (loss) and as such, those costs are included in “Reconciling Items." Further, general and administrative expenses and depreciation expense incurred by our corporate office are not allocated to our operating segments for purposes of measuring segment operating income (loss) and are included in "Reconciling Items."

Because ARO is a 50/50 unconsolidated joint venture, its full operating results included below are not included within our consolidated results and thus are deducted under "Reconciling Items" and replaced with our equity in earnings of ARO.

19 unchanged sentences

34.3 83.5 — 34.8 — 152.6

Total contract drilling

(exclusive of depreciation) (3)

Total contract drilling expenses (exclusive of depreciation)

799.9 570.0 360.7 105.4 (206.3) 1,629.7

2 unchanged sentences

General and administrative — — 28.8 — 68.3 97.1

Equity in losses of ARO — — — — (11.0) (11.0)

Equity in earnings of ARO — — — — 8.4 8.4

Operating income $ 376.6 $ 280.5 $ 66.6 $ 77.0 $ (323.7) $ 477.0

16 unchanged sentences

54.9 64.3 — 23.2 — 142.4

Total contract drilling

(exclusive of depreciation) (3)

Total contract drilling expenses (exclusive of depreciation)

985.2 541.4 367.7 86.8 (220.2) 1,760.9

Loss on impairment — — 28.4 — (28.4) —

Depreciation 58.1 45.0 89.2 9.5 (79.7) 122.1

General and administrative — — 23.7 — 92.6 116.3

Equity in earnings of ARO — — — — 13.3 13.3

Equity in losses of ARO — — — — (11.0) (11.0)

Operating income $ 397.4 $ 168.5 $ 3.5 $ 70.7 $ (287.8) $ 352.3

(2) We typically receive reimbursements from our customers for purchases of supplies, equipment and incremental services provided at their request.

These reimbursements and the related costs incurred are recognized on a gross basis within Reimbursable revenues and Reimbursable expenses, respectively.

Changes within these line items generally do not have a material effect on our operating results or cash flows.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The disaggregation of these line items was presentational only and was retrospectively applied to the year ended December 31, 2023.

There were no impacts to the overall Total operating revenues or Total contract drilling expense (exclusive of depreciation) line items.

See " Note 13 - Segment Information " to our consolidated financial statements included in "Item 8.

Financial Statements and Supplementary Data" for additional information.

Floater Revenues increased $480.0 million, or 53%, in 2024 as compared to 2023, primarily due to incremental revenue of $401.7 million from VALARIS DS-17, VALARIS DS-8 and VALARIS DS-7, which have commenced new contracts since mid-2023 following reactivations.

For the remaining floater fleet, there was a net increase of $113.5 million from higher average daily revenue, primarily due to certain floaters working under higher day rate contracts in the current period as compared to the prior year.

These increases were partially offset by a $34.8 million decrease attributable to fewer operating days in the current year, largely driven by VALARIS DPS-5 and VALARIS DS-10, which completed their contracts in the third quarter of 2024.

Floater Contract Drilling Expenses increased $161.9 million, or 21%, in 2024 as compared to 2023, primarily due to incremental costs of $73.2 million incurred for VALARIS DS-17, VALARIS DS-8 and VALARIS DS-7 in 2024 and $25.0 million of expense recognized in 2024 related to an accrual for a legal matter.

For the remaining fleet, there were increases of $34.7 million in personnel-related costs, partially driven by wage increases in certain regions and incentive compensation costs, $18.6 million from higher repair and maintenance costs, primarily due to planned maintenance during the current year, and $10.8 million incurred related to the stacking of VALARIS DS-13 and VALARIS DS-14 during 2024.

Jackup Revenues increased $65.9 million, or 11%, in 2024 as compared to 2023, primarily due to a net increase of $56.0 million from higher average daily revenue, largely driven by certain rigs working under contracts with higher day rates than the prior year, and incremental operating days in 2024 of $9.2 million.

Jackup Contract Drilling Expenses decreased $3.3 million, or 1%, in 2024 as compared to 2023, primarily due to a $15.4 million decrease in repairs and maintenance costs, largely attributable to maintenance activities performed for certain rigs during special periodic surveys in the prior year period, and a net decrease in personnel-related costs of $4.0 million, partially driven lower costs as a result of leasing VALARIS 76 and VALARIS 108 to ARO during the first half of 2024.

These decreases were partially offset by increased mobilization costs of $10.9 million, primarily driven by the amortization of mobilization costs related to VALARIS 247, which mobilized from the U.K.

to Australia for a new contract in 2024, and $5.5 million in incremental costs related to the stacking of VALARIS 143, VALARIS 147, and VALARIS 148 after the termination of their leases with ARO.

Floater revenues decreased $158.7 million, or 11%, in 2025 compared to 2024, primarily due to a net decrease of $346.6 million from fewer operating days relative to the prior year, primarily due to certain floaters which completed their contracts since the end of the second quarter of 2024 and have either been warm stacked or retired.

This decrease was partially offset by $72.4 million of incremental revenues for VALARIS DS-7, following its reactivation and commencement of a new contract in May 2024, and a net increase of $107.6 million from higher average daily revenues for the remaining fleet, resulting from various rigs working under higher day rate contracts during 2025.

Floater contract drilling expenses decreased $164.7 million, or 18%, in 2025 compared to 2024, primarily due to lower operating costs of $93.7 million for certain of our floater rigs which have been warm stacked or retired since the end of the second quarter of 2024 and a $18.5 million net decrease in expenses related to VALARIS DS-7, which was largely driven by reactivation costs incurred in the prior year period and was partially offset by incremental operating costs in 2025.

For the remaining fleet, we had a decrease of $17.3 million from lower mobilization costs as a result of certain drillships which mobilized in the prior year.

Further contributing to the decrease was the reversal of a 2024 accrual for a previously disclosed patent license litigation recognized in 2025 due to a favorable outcome.

In connection with the retirement of the Retired Semis and the classification of VALARIS DPS-1 as held for sale in 2025, we recognized non-cash losses on impairment of $23.6 million during 2025.

See " Note 5 - Property and Equipment " to our consolidated financial statements included in " Item 8 .

Financial Statements and Supplementary Data " for information regarding the retirement of these assets.

Jackup revenues increased $136.9 million, or 20%, in 2025 compared to 2024, largely driven by a net increase of $79.5 million from higher average daily revenues, primarily due to various rigs working under higher day rate contracts during 2025, and a net increase of $50.6 million from more operating days, primarily attributable to rigs which were preparing for new contracts or undergoing scheduled maintenance activities in the prior year.

Jackup contract drilling expenses increased $9.4 million, or 2%, in 2025 compared to 2024, primarily due to $32.1 million from higher personnel-related costs on various rigs as a result of more operating days during 2025, partially offset by $27.9 million of lower mobilization costs, largely attributable to VALARIS 247, which mobilized from the United Kingdom to Australia during the prior year.

In connection with the retirement of the Retired Jackups in 2025, we recognized a non-cash loss on impairment of $3.7 million during 2025.

See " Note 5 - Property and Equipment " to our consolidated financial statements included in " Item 8 .

Financial Statements and Supplementary Data " for information regarding the retirement of these assets.

Jackup depreciation expense increased $13.6 million, or 30%, in 2025 compared to 2024, primarily due to new assets placed in service for certain rigs that underwent capital upgrades.

The operating revenues of ARO reflect revenues earned under drilling contracts with Saudi Aramco for both the ARO-owned jackup rigs and the rigs leased from us.

2 unchanged sentences

Financial Statements and Supplementary Data " for additional information on ARO and related arrangements.

ARO Revenues increased $15.9 million, or 3%, in 2024 as compared to 2023, primarily due to $80.7 million of incremental revenue from Kingdom 1 and Kingdom 2, which commenced operations in November 2023 and August 2024, respectively, and VALARIS 108, which we began leasing to ARO during the first quarter of 2024.

This increase was partially offset by decreases of $44.3 million related to the contract terminations for VALARIS 143, VALARIS 147 and VALARIS 148 during the current year and $17.6 million related to certain rigs which were undergoing maintenance projects or had unplanned downtime in the current year.

ARO Contract Drilling Expenses remained relatively flat, with an increase of $1.8 million in 2024 as compared to 2023, primarily due to $16.8 million of incremental operating costs related to the operation of Kingdom 1, Kingdom 2 and VALARIS 108 in the current year and higher personnel-related costs of $2.2 million for the remainder of the fleet.

These increases were largely offset by $16.9 million of lower bareboat charter lease expense, inclusive of certain adjustments, primarily driven by the terminations of the VALARIS 143, VALARIS 147 and VALARIS 148 contracts and corresponding bareboat charter leases during 2024.

ARO revenues increased $58.5 million, or 11%, in 2025 compared to 2024, primarily due to incremental revenues of $47.5 million from Kingdom 2, which commenced operations in August 2024, and VALARIS 108, which we began leasing to ARO late in the first quarter of 2024.

Further contributing to the increase were net increases of $38.4 million from more operating days for the remaining fleet, largely driven by certain rigs which were undergoing maintenance projects in the prior year, and $28.5 million from higher average daily revenues, driven by the commencement of five long-term contract extensions at higher day rates than those earned in the prior year.

These increases were partially offset by a decrease of $55.9 million related to the contract terminations for VALARIS 143, VALARIS 147 and VALARIS 148 during 2024.

ARO contract drilling expenses decreased $7.0 million, or 2%, in 2025 compared to 2024, primarily due to a decrease of $55.2 million from lower operating costs for VALARIS 143, VALARIS 147 and VALARIS 148.

This decrease was partially offset by $20.3 million of incremental operating costs for Kingdom 2 and VALARIS 108 and $19.4 million of increased bareboat charter lease expenses for five of our leased rigs which commenced long-term bareboat charter lease extensions at higher rates during 2025.

During the year ended December 31, 2024, ARO recorded non-cash losses on impairment totaling $28.4 million with respect to the contract terminations for VALARIS 143, VALARIS 147 and VALARIS 148.

1 unchanged sentence

Financial Statements and Supplementary Data " for information regarding the impairment.

ARO depreciation expense increased $23.3 million, or 35%, in 2024 as compared to 2023, primarily due to the additions of Kingdom 1 and Kingdom 2 to the fleet.

Other Revenues decreased $10.0 million, or 7%, in 2024 as compared to 2023, primarily due to a $16.6 million decrease in revenue from lease agreements with ARO, primarily driven by contract terminations for VALARIS 143, VALARIS 147 and VALARIS 148 during 2024.

This decrease was partially offset by a $6.3 million increase in average daily revenues earned by our two managed rigs as a result of contract extensions executed in the first half of 2024 at higher rates.

Other Contract Drilling Expenses increased $11.0 million, or 21%, in 2024 as compared to 2023, primarily due to higher repairs and maintenance costs of $6.8 million related to special periodic survey related projects on the leased rigs and higher personnel-related costs for our managed rigs of $2.1 million.

ARO depreciation expense increased $25.7 million, or 29%, in 2025 compared to 2024, primarily due to the addition of Kingdom 2 to the fleet and new assets placed in service for certain rigs that underwent capital upgrades.

Other revenues increased $17.8 million, or 12%, in 2025 compared to 2024, primarily due to higher lease revenue of $16.8 million, largely attributable to five long-term bareboat charter lease extensions at higher rates for our leased rigs to ARO which commenced in 2025.

Other contract drilling expenses increased $7.0 million, or 11%, in 2025 compared to 2024, primarily due to higher personnel-related costs and increased repairs and maintenance costs.

Other Income (Expense), Net

1 unchanged sentence

Years Ended December 31,

Interest income $ 86.1 $ 101.4

Net gain (loss) on sale of property

$ 118.6 $ (0.2)

Interest expense, net (98.8) (84.8)

Interest income 70.8 86.1

Net foreign currency exchange gains (losses)

Net periodic pension and retiree medical income 2.4 0.9

Net gain (loss) on sale of property

Loss on extinguishment of debt — (29.2)

Net periodic pension and retiree medical income (loss)

Other, net (0.1) 0.6

$ 75.3 $ 17.9

Interest income decreased by $15.3 million, or 15%, in 2024 as compared to 2023, primarily due to a $21.2 million decrease in interest income on cash equivalents due to a lower average balance in 2024 and a $5.9 million decrease in interest income earned on our outstanding 10-year shareholder notes receivable due from ARO (the "Notes Receivable from ARO"), which was driven by lower outstanding principal balances as a result of a partial net settlement agreement executed in the second quarter of 2024 (the "Net Settlement Agreement") and lower interest rates relative to the prior year period.

These decreases were partially offset by an increase from the recognition of non-cash interest income of $13.9 million for an adjustment to the discount on our outstanding Notes Receivable from ARO, which resulted from the Net Settlement Agreement.

See " Note 3 - Equity Method Investment in ARO " to our consolidated financial statements included in " Item 8 .

Financial Statements and Supplementary Data " for information on this matter.

Interest expense, net increased by $15.9 million, or 23%, in 2024 as compared to 2023, primarily due to higher interest expense of $26.1 million related to a higher principal debt balance through 2024.

This increase was partially offset by higher capitalized interest of $10.2 million, primarily due to VALARIS DS-13 and VALARIS DS-14, which were delivered at the end of 2023, and certain rigs that underwent capital projects in 2024.

Net foreign currency exchange gains increased $17.3 million in 2024 as compared to 2023, primarily driven by favorable exchange rate movements in the euros, Brazilian reals, Mexican pesos, Angolan kwanza and Australian dollars, partially offset by unfavorable exchange rate movements in the Nigerian naira and Egyptian pounds.

Net gains on sale of property in 2025 primarily related to the sales of VALARIS 247, VALARIS 75 and an office in Angola, which resulted in aggregate pre-tax gains of $115.4 million.

See " Note 5 - Property and Equipment " to our consolidated financial statements included in " Item 8 .

Financial Statements and Supplementary Data " for information regarding the rig sales.

Interest expense, net increased by $14.0 million, or 17%, in 2025 compared to 2024, primarily due to lower capitalized interest for VALARIS DS-13 and VALARIS DS-14, which were delivered at the end of 2023 and mobilized to the shipyard in 2024.

Interest income decreased by $15.3 million, or 18%, in 2025 compared to 2024, primarily due to a $15.8 million decrease in interest income earned on our outstanding Notes Receivable from ARO, which was largely driven by the recognition of $13.9 million of non-cash interest income related to an adjustment to the discount on our outstanding Notes Receivable with ARO as part of a net settlement agreement in the prior year period and a lower interest rate as a result of an annual interest rate reset that occurred at the end of 2024.

Net foreign currency exchange losses were $14.3 million in 2025 compared to $13.8 million of gains in 2024, primarily driven by unfavorable exchange rate movements in euros, Brazilian real, British pounds, Mexican pesos and Australian dollars.

See " Note 1 - Description of the Business and Summary of Significant Accounting Policies " to our consolidated financial statements included in " Item 8 .

Financial Statements and Supplementary Data " for further information on our functional currency.

Net gains on the sale of property decreased by $28.8 million in 2024 as compared to 2023, primarily due to the sale of VALARIS 54 in 2023.

We recognized a $29.2 million loss from the extinguishment of the First Lien Notes in 2023.

See " Note 6 - Debt " to our consolidated financial statements included in " Item 8 .

Financial Statements and Supplementary Data " for information on this matter.

Provision for Income Taxes

10 unchanged sentences

Effective Tax Rate

During the year ended December 31, 2024, we recorded an income tax expense of $0.4 million and had an effective income tax rate of 0.1%.

Our 2024 consolidated effective income tax rate includes a discrete tax benefit of $85.8 million, primarily attributable to change in liabilities for unrecognized tax benefits associated with tax positions taken in prior years.

Excluding the impact of the aforementioned discrete tax items, the consolidated effective income tax rate was 21.8% as of December 31, 2024.

During the year ended December 31, 2025, we recorded an income tax benefit of $426.8 million and had an effective income tax rate of (77.3)%.

Our 2023 consolidated effective income tax rate includes a discrete tax benefit of $42.0 million primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years, including unrecognized tax benefits described below.

The income tax benefit was primarily related to a net $523.2 million reduction of our valuation allowance, largely driven by changes in the balances of relevant positive and negative evidence considered when assessing the realization of our deferred tax assets in certain operating jurisdictions.

Our 2025 consolidated effective income tax rate includes a discrete tax expense of $153.7 million, primarily attributable to the establishment of a valuation allowance in connection with the retirement of the Retired Semis, partially offset by discrete tax benefit attributable to rig impairments.

Excluding the impact of the aforementioned discrete tax items, the consolidated effective income tax rate was (92.2)% as of December 31, 2025.

During the year ended December 31, 2024, we recorded an income tax expense of $0.4 million and had an effective income tax rate of 0.1%.

Our 2024 consolidated effective income tax rate includes a discrete tax benefit of $85.8 million, primarily attributable to changes in liabilities for unrecognized tax benefits associated with tax positions taken in prior years.

Excluding the impact of the aforementioned discrete tax items, our consolidated effective income tax rate was 21.8% for the year ended December 31, 2024.

The tax benefit in 2023 includes a $799.5 million deferred tax benefit recognized in the fourth quarter of 2023 to reduce our valuation allowance due to the determination that sufficient positive evidence existed to conclude that a portion of the allowance was no longer needed.

During 2023, we also recognized tax benefits for the reduction of unrecognized tax benefit liabilities related to the lapse of statutes of limitations applicable to certain of our tax positions of $73.6 million and settlements reached with taxing authorities of $41.8 million.

These benefits were partially offset by a $88.6 million increase in unrecognized tax benefit liabilities for tax positions taken during prior years, including $66.0 million recognized in the fourth quarter of 2023 related to tax assessments received from the Luxembourg tax authorities.

The changes in our consolidated effective income tax rate excluding discrete tax items during the two-year period result primarily from changes in the relative components of our earnings from the various taxing jurisdictions in which our drilling rigs are operated and/or owned and differences in tax rates in such taxing jurisdictions.

See " Note 10 - Income Taxes " to our consolidated financial statements included in " Item 8 .

Financial Statements and Supplementary Data " for additional information.

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

Additionally, we have liquidity available under our senior secured revolving credit agreement, which matures in 2028 (the "2028 Credit Agreement.").

We expect to fund our long-term liquidity needs, including contractual obligations and anticipated capital expenditures, from cash and cash equivalents, cash flows from operations, as well as cash to be received from maturity of our Notes Receivable from ARO and from the distribution of earnings from ARO.

We may rely on the issuance of debt and/or equity securities in the future to supplement our liquidity needs.

We may rely on the issuance of debt and/or equity securities in the future to supplement our liquidity needs, subject to certain restrictions provided within the Business Combination Agreement.

However, the Indenture governing our 2030 Second Lien Notes, as defined below, dated as of April 19, 2023 (the "Indenture"), and the 2028 Credit Agreement contain covenants that limit our ability to incur additional indebtedness.

10 unchanged sentences

Capital expenditures $ (343.5) $ (455.1)

During the year ended December 31, 2025, we generated $546.2 million of cash flow from operating activities primarily due to operating income for the year of $477.0 million, approximately $26.0 million of tax refunds received from the Australian tax authority during the first quarter of 2025 and other changes in working capital.

An additional source of cash was $137.9 million of cash proceeds related to the sales of certain assets in 2025.

Our primary uses of cash were $343.5 million for maintenance and upgrades of our drilling rigs and $100.0 million for our share repurchase program, which is discussed further below.

During the year ended December 31, 2024, we generated $355.4 million of cash flow from operating activities primarily due to operating income for the year of $352.3 million.

1 unchanged sentence

Additionally, we spent $126.4 million under our share repurchase program during the year, which is discussed further below.

During the year ended December 31, 2023, we generated $267.5 million of cash flow from operating activities, primarily due to operating income for the year of $53.5 million, the collection of $45.9 million for certain tax refunds and other changes in working capital.

Our primary uses of cash were $337.0 million for the purchase of VALARIS DS-13 and DS-14 and $359.1 million for maintenance and upgrades of our drilling rigs, including reactivations.

Other primary sources and uses of cash during 2023 resulted from the First Lien Notes redemption, the corresponding Second Lien Notes issuance and our share repurchase program, which are each further discussed below, combined with the sale of VALARIS 54 for net proceeds of $30.3 million.

We continue to take a disciplined approach to reactivations of our stacked rigs, only reactivating them to the active fleet for opportunities that provide meaningful returns.

Generally, most of the reactivation cost are operating expenses, recognized in the income statement, related to de-preservation activities, including reinstalling key pieces of equipment and crew costs.

We completed our most recent rig reactivation project in the first half of 2024.

Generally, most of the reactivation costs are operating expenses, recognized in the income statement, related to de-preservation activities, including reinstalling key pieces of equipment and crew costs.

Capital expenditures during reactivations include rig modifications, equipment overhauls and any customer required capital upgrades.

Reactivation costs incurred for VALARIS DS-13 and VALARIS DS-14 would be capitalized as such activities would be required to prepare the rigs for their intended use.

We would generally expect to be compensated for any customer-specific enhancements.

We are generally compensated for any customer-specific enhancements.

Based on our current projections, we expect capital expenditures during 2026 to approximate $425.0 million to $475.0 million, primarily relating to maintenance and upgrade projects, including contract-specific capital expenditures.

Depending on market conditions, contracting activity and future opportunities, we may make additional capital expenditures to upgrade rigs for customer requirements and acquire additional rigs.

Depending on market conditions, contracting activity and future opportunities, we may make additional capital expenditures to upgrade rigs for customer requirements and acquire additional rigs, subject to certain restrictions within the Business Combination Agreement.

We review from time to time possible acquisition opportunities relating to our business, which may include the acquisition of rigs or other businesses.

4 unchanged sentences

In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to shareholders.

Our business strategy has been to focus on ultra-deepwater floater and premium jackup operations and de-emphasize other assets and operations that are not part of our long-term strategic plan or that no longer meet our standards for economic returns.

Consistent with this strategy, we sold VALARIS 54 in April 2023 for $28.2 million.

At the time of sale, the rig had a net book value of $0.9 million and we recognized a pre-tax gain on sale of $27.3 million within the Jackups segment during the second quarter of 2023.

Further, in the first quarter of 2025, we sold VALARIS 75 resulting in a pre-tax gain on sale of approximately $23.0 million in 2025.

Of the proceeds, approximately $14.0 million were collected upon closing, with the remaining $10.0 million expected to be received in equal installments on the first and second anniversaries of the closing.

The rig had an immaterial net book value as of December 31, 2024.

We continue to focus on our fleet management strategy in light of the composition of our rig fleet.

While taking into account certain restrictions on the sales of assets under our debt agreements, as part of our strategy, we may act opportunistically from time to time to monetize assets to enhance stakeholder value and improve our liquidity profile, in addition to reducing holding costs by selling or disposing of lower-specification or non-core rigs.

In connection with our sustainability-related efforts, during 2024, we spent approximately $9.0 million.

Our sustainability initiatives will continue to require, among other actions, investment in systems and equipment and cooperation with our customers.

Our business strategy has been to focus on ultra-deepwater floater and premium jackup operations and de-emphasize other assets and operations that no longer meet our standards for economic returns.

While taking into account certain restrictions on the sales of assets under our debt agreements and within the Business Combination Agreement, as part of our strategy, we may act opportunistically from time to time to monetize assets to enhance shareholder value and improve our liquidity profile, in addition to reduce holding costs by selling or disposing of lower-specification or non-core rigs.

We sold the following rigs during the years ended December 31, 2025 and 2024 (in millions):

Rig Date of Sale Segment (1)

Net Proceeds (2)

Pre-tax Gain on sale

(Loss on Impairment)

Retired Jackups (3)

December 2025

Jackups $ 0.5 $ (3.7)

Jackups 103.9 88.4

Retired Semis (3)

VALARIS 75 (4)

$ 136.0 $ 99.9

(1) Classification denotes the location of any prior operating results, gain on sale or loss on impairment for the respective rig in our Consolidated Statements of Operations.

(2) Represents gross proceeds less certain selling and transaction costs, including brokerage fees, commissions and other directly related expenses.

(3) The Retired Semis and Retired Jackups were sold for recycling and removed from service during 2025.

(4) Of the proceeds related to the sale of VALARIS 75, approximately $14.0 million was collected upon closing in January 2025, $5.0 million was collected in January 2026, and the remaining $5.0 million is expected to be received on the second anniversary of the closing.

Financing and Capital Resources

First Lien Notes

The First Lien Notes were redeemed on May 3, 2023 for an aggregate redemption price of approximately $571.8 million (excluding accrued and unpaid interest) with a portion of the net proceeds from the issuance of the Initial Second Lien Notes, as discussed below.

See “ Note 6 - Debt " to our consolidated financial statements included in " Item 8 .

Financial Statements and Supplementary Data " for additional information on the First Lien Notes.

2030 Second Lien Notes

On April 19, 2023, the Company and Valaris Finance Company LLC (“Valaris Finance,” together, the "Issuers"), issued and sold $700.0 million aggregate principal amount of Second Lien Notes (the "Initial Second Lien Notes") in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”).

The Initial Second Lien Notes were issued at par for net proceeds of $681.4 million, after deducting the initial purchasers’ discount and offering expenses.

A portion of the proceeds were used to fund the redemption of all of the outstanding First Lien Notes as discussed above.

Additionally, on August 21, 2023, the Issuers issued $400.0 million aggregate principal amount of additional Second Lien Notes (the "Additional Notes") in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act.

The Additional Notes were issued at 100.75% of par, plus accrued interest from April 19, 2023, for net proceeds of approximately $396.9 million after deducting the initial purchasers’ discount and estimated offering expenses, and excluding accrued interest received of $11.4 million.

We used a portion of the proceeds to finance the purchase of VALARIS DS-13 and VALARIS DS-14.

The Initial Second Lien Notes and the Additional Notes were issued under the Indenture and form a single series.

In 2023, the Company and Valaris Finance Company LLC (“Valaris Finance,” together, the "Issuers"), issued and sold $1.1 billion in aggregate principal amount of 8.375% Senior Secured Second Lien Notes due 2030 (the "2030 Second Lien Notes").

The 2030 Second Lien Notes mature on April 30, 2030 and bear an interest rate of 8.375% per annum.

2 unchanged sentences

Financial Statements and Supplementary Data " for additional information on the 2030 Second Lien Notes.

Senior Secured Revolving Credit Agreement

On April 3, 2023, the Company entered into a senior secured revolving credit agreement (the “Credit Agreement”).

2028 Credit Agreement

The 2028 Credit Agreement provides for commitments permitting borrowings of up to $375.0 million (which may be increased, subject to the satisfaction of certain conditions and the agreement of lenders to provide such additional commitments, by an additional $200.0 million pursuant to the terms of the 2028 Credit Agreement) and includes a $150.0 million sublimit for the issuance of letters of credit.

6 unchanged sentences

The distribution of earnings to the joint-venture partners is at the discretion of the ARO board of managers, consisting of 50/50 membership of managers appointed by Saudi Aramco and managers appointed by us, with approval required by both shareholders.

The timing and amount of any cash distributions to the joint-venture partners cannot be predicted with certainty and will be influenced by various factors, including the liquidity position and long-term capital requirements of ARO.

ARO has not made a cash distribution of earnings to its partners since its formation.

ARO had cash and cash equivalents of $99.3 million as of December 31, 2025.

The Notes Receivable from ARO, which are governed by the laws of Saudi Arabia, mature during 2027 and 2028.

In the event that ARO is unable to repay the Notes Receivable from ARO when they become due, we would require the prior consent of our joint venture partner to enforce ARO’s payment obligations.

In June 2024, the Company and ARO executed a Net Settlement Agreement whereby approximately $50.7 million of our accounts payable due to ARO relating to our bareboat charter arrangements were net settled against a portion of the principal of our Notes Receivable from ARO.

Furthermore, the 2024 interest owed by ARO on the Notes Receivable from ARO of $24.6 million was paid in kind in December 2024 by increasing the principal balance of the Notes Receivable from ARO.

We expect to agree to extend the maturity of the Notes Receivable from ARO to facilitate its capital allocation priorities, in particular its newbuild jackup rig program.

Notwithstanding any extension of the maturity, in the event that ARO does not repay the Notes Receivable from ARO when they become due, we would require the prior consent of our joint venture partner to enforce ARO's payment obligations.

In 2025, interest owed by ARO on the Notes Receivable from ARO of $24.1 million was paid in kind in December 2025 by increasing the principal balance of the Notes Receivable from ARO.

See " Note 3 - Equity Method Investment in ARO " to our consolidated financial statements included in " Item 8 .

18 unchanged sentences

In connection with our 50/50 unconsolidated joint venture, we have a potential obligation to fund ARO for newbuild jackup rigs.

The Shareholder Agreement specifies that ARO shall purchase 20 newbuild jackup rigs over an approximate 10-year period.

The joint venture partners intend for the newbuild jackup rigs to be financed out of available cash on hand and from ARO's operations and/or funds available from third-party financing.

The first newbuild jackup, Kingdom 1, was delivered and commenced operations in the fourth quarter of 2023, and the second newbuild jackup, Kingdom 2, was delivered in the second quarter of 2024 and commenced operations in the third quarter of 2024.

In January 2020, ARO paid 25% of the purchase price from cash on hand for each of the two newbuilds, and in October 2023, entered into a $359.0 million term loan to finance the remaining newbuild payments due upon delivery and for general corporate purposes.

The Shareholder Agreement specifies that ARO shall purchase 20 newbuild jackup rigs.

The joint venture partners intend for the newbuild jackup rigs to be financed from available cash on hand and from ARO's operations and/or funds available from third-party financing.

The first two newbuild jackups, Kingdom 1 and Kingdom 2, were delivered and commenced operations in 2023 and 2024, respectively.

In October 2023, ARO entered into a $359.0 million term loan to finance the remaining payments due upon delivery of the two rigs and for general corporate purposes.

The term loan matures in eight years following the related drawdown under the term loan and requires equal quarterly amortization payments during the term, with a 50% balloon payment due at maturity.

The term loan bears interest based on the three-month Secured Overnight Financing Rate ("SOFR") plus a margin ranging from 1.25% to 1.4%.

Additionally, in the second quarter of 2024, ARO entered into a revolving credit facility which provides for borrowings of up to $100.0 million.

As of December 31, 2024, there was $10.0 million outstanding under this facility.

In 2024, ARO entered into a revolving credit facility which provides for borrowings of up to $100.0 million, which was amended in the fourth quarter of 2025 to increase the maximum borrowings to $150.0 million.

As of December 31, 2025, there were no amounts outstanding under this facility.

Our Notes Receivable from ARO are subordinated and junior in right of payment to both ARO’s term loan and credit facility.

In October 2024, ARO ordered the third newbuild jackup, Kingdom 3, for a purchase price of approximately $300.0 million, and paid the 25% down payment from cash on hand.

The final payment will be due upon delivery of the rig.

ARO is expected to commit to order one additional newbuild jackup in the near term.

ARO intends for these newly ordered jackup rigs to be financed out of cash on hand or from operations or funds available from third-party financing.

In October 2024 and November 2025, ARO ordered the third and fourth newbuild jackups, Kingdom 3 and Kingdom 4, respectively, for a purchase price of approximately $300.0 million each.

ARO paid a 25% down payment upon ordering Kingdom 3 from cash on hand in 2024 and made payments of $43.8 million related to the 25% down payment for Kingdom 4 from cash on hand as of December 31, 2025, with the remaining down payment balance payable in monthly installments through May 2026.

ARO expects these newly ordered jackup rigs to be financed from cash on hand or from operations or funds available from third-party financing.

In the event ARO has insufficient cash or is unable to obtain third-party financing, each partner may periodically be required to make additional capital contributions to ARO, up to a maximum aggregate contribution of $1.25 billion from each partner to fund the newbuild program.

Beginning with the delivery of the second newbuild, each partner's commitment shall be reduced by the lesser of the actual cost of each newbuild rig or $250.0 million, on a proportionate basis.

Beginning with the delivery of the second newbuild, each partner's commitment is reduced by the lesser of the actual cost of each newbuild rig or $250.0 million, on a proportionate basis.

Following the delivery of Kingdom 2, our commitment to fund the newbuild program has been reduced to $1.1 billion.

11 unchanged sentences

Tax Assessments

In February 2024, one of our Malaysian subsidiaries received an unfavorable court decision regarding a tax assessment for the 2012-2017 tax years totaling approximately MYR117.0 million (approximately $26.0 million converted at current period-end exchange rates), including a late payment penalty.

In February 2024, one of our Malaysian subsidiaries received an unfavorable court decision regarding a tax assessment for the 2012-2017 tax years totaling approximately MYR117.0 million (approximately $29.0 million converted at current quarter-end exchange rates), including a late payment penalty.

In July 2024, we received a payment demand from the Malaysian tax authority for the full assessment amount.

In order to further contest the assessment, we agreed to a seven-month payment plan which commenced in August 2024.

As of December 31, 2024, we made payments of approximately $18.0 million, which are included within Other assets in the Consolidated Balance Sheets, and had approximately $8.0 million of remaining payments.

In order to further contest the assessment, we made payments of approximately $8.0 million and $18.0 million in 2025 and 2024, respectively, for aggregate total payments of $26.0 million as of December 31, 2025.

These payments are included within Other assets in the Consolidated Balance Sheets.

There are no further payments remaining as of December 31, 2025.

We have not recorded a liability for uncertain tax positions as of December 31, 2025, related to this assessment based on a more-likely-than-not threshold.

We believe our tax returns are materially correct as filed and we will vigorously contest this assessment.

In December 2023, one of our Luxembourg subsidiaries received tax assessments for fiscal years 2019, 2020, 2021 and 2023.

In February 2024, the Luxembourg tax authorities rescinded the portion of the assessment relating to 2023, resulting in a revised aggregate tax assessment of approximately €60.0 million (approximately $65.0 million converted at then-current exchange rates).

We recorded a liability for uncertain tax positions for this amount during the fourth quarter of 2023 and contested the validity and amount of the assessments.

In April 2024, we received a favorable decision from the Luxembourg tax authorities stating that the assessments for the 2019-2021 tax years are not enforceable.

As a result, we reversed the uncertain tax position liability for the previously issued assessments and recognized a tax benefit of approximately $65.0 million in our Consolidated Statements of Operations for the year ended December 31, 2024.

During 2019, the Australian tax authorities issued aggregate tax assessments totaling approximately A$101.0 million (approximately $63.0 million converted at current period-end exchange rates) plus interest related to the examination of certain of our tax returns for the years 2011 through 2016.

We believe our tax returns are materially correct as filed and will vigorously contest this assessment.

During 2019, the Australian tax authorities issued aggregate tax assessments totaling approximately A$101.0 million, plus interest, related to the examination of certain of our tax returns for the years 2011 through 2016.

During the third quarter of 2019, we made a A$42.0 million payment (approximately $29.0 million at then-current exchange rates) to the Australian tax authorities to litigate the assessment.

In December 2024, we reached a settlement agreement with the Australian tax authorities for A$4.0 million (approximately $2.0 million at current period-end exchange rates).

As a result, we expect to receive a refund of A$38.0 million (approximately $24.0 million at current period-end exchange rates) in the first half of 2025.

Accordingly, we released approximately $18.0 million of the uncertain tax position liability previously recognized and recognized a corresponding tax benefit in our Consolidated Statements of Operations for these assessments in the fourth quarter of 2024.

In December 2024, we reached a settlement agreement with the Australian tax authorities for A$4.0 million (approximately $2.0 million at then-current exchange rates).

We no longer had a liability for unrecognized tax benefits relating to these assessments as of December 31, 2024.

During the first quarter of 2025, we received refunds (including interest) totaling A$42.0 million (approximately $26.0 million at then-current-period exchange rates).

See " Note 10 - Income Taxes " to our consolidated financial statements included in " Item 8 .

2 unchanged sentences

Our board of directors has authorized a share repurchase program under which we may purchase up to $600.0 million of our outstanding common shares.

The following table summarizes shares repurchase, aggregate cost (exclusive of fees) and the average per share price (in millions, except average per share price):

The following table summarizes shares repurchases, aggregate cost and the average per share price (in millions, except average per share price):

Years Ended December 31,

2025 2024 2023

Shares repurchased 2.0 2.2 3.0

3 unchanged sentences

$ 49.78 $ 56.11 $ 66.77

As of December 31, 2024, we had approximately $275.0 million available for share repurchases pursuant to the Share Repurchase Program.

As of December 31, 2025, we had approximately $175.0 million available for share repurchases pursuant to the Share Repurchase Program, subject to certain restrictions provided within the Business Combination Agreement.

Effects of Climate Change and Climate Change Regulation

2 unchanged sentences

For example, the U.S.

has initiated the process of withdrawing from the Paris Agreement in January 2025, after previously reentering it in February 2021.

initiated the process of withdrawing from the Paris Agreement in January 2025 and completed its withdrawal in January 2026, after previously reentering it in February 2021.

In November 2021, the U.S.

2 unchanged sentences

In an effort to reduce GHG emissions, governments have implemented or considered legislative and regulatory mechanisms to institute carbon pricing mechanisms, such as the EU’s Emission Trading System, and to impose technical requirements to reduce carbon emissions.

Governments have also proposed or implemented new or enhanced disclosure requirements related to climate change matters and GHG emissions that may increase compliance and disclosure costs.

In January 2023, the EU enacted the Corporate Sustainability Reporting Directive, which will require sustainability reporting across a broad range of sustainability topics for both EU and non-EU companies.

We anticipate that these requirements will apply to us as early as 2026 (for fiscal year 2025) for certain of our EU subsidiaries and at the consolidated entity level in 2030 (for fiscal year 2029).

During 2009, the EPA officially published its findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to human health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the earth’s atmosphere and other climatic changes.

Governments have also proposed, implemented or amended new or enhanced disclosure requirements related to climate change matters and GHG emissions that may increase compliance and disclosure costs.

In January 2023, the EU enacted the Corporate Sustainability Reporting Directive to require sustainability reporting across a broad range of sustainability topics for both EU and non-EU companies.

In 2025, the EU delayed the reporting timeline for many in-scope companies and, in December 2025, continued to progress on amendments that would limit the number of companies obligated to report under the law.

These requirements could apply to us as early as 2028 (for fiscal year 2027) for certain of our EU subsidiaries and at the consolidated entity level in 2029 (for fiscal year 2028).

During 2009, the EPA officially published its findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to human health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth’s atmosphere and other climatic changes.

These findings allowed the agency to proceed with the adoption and implementation of regulations to restrict GHG emissions under existing provisions of the Clean Air Act that establish permitting requirements, including emissions control technology requirements, for certain large stationary sources that are potential major sources of GHG emissions.

Although a number of bills related to climate change have been introduced in the U.S.

Congress in the past, comprehensive federal climate legislation has not yet been passed by Congress.

If such legislation were to be adopted in the U.S., such legislation could adversely impact many industries.

The EPA has also adopted rules requiring annual monitoring and reporting of GHG emissions from specified sources in the U.S., including, among others, certain onshore and offshore oil and natural gas production facilities, although in 2025, the EPA proposed rules that would rescind the 2009 endangerment finding and, accordingly, rescind regulations promulgated on the basis of that finding.

In the absence of federal legislation, almost half of the states have begun to address GHG emissions, primarily through the development or planned development of emission inventories or regional GHG cap-and-trade programs and commitments to contribute to meeting the goals of the Paris Agreement.

2 unchanged sentences

It is uncertain whether any of these initiatives will be implemented and what the impact of such initiatives would have on our financial condition, operating results and cash flows.

In connection with our sustainability-related efforts, during 2025, we spent approximately $4.1 million.

Our sustainability initiatives will continue to require, among other actions, investment in systems and equipment and cooperation with our customers.

Interest Rate Risk

26 unchanged sentences

We develop and apply property and equipment accounting policies that are designed to appropriately and consistently capitalize those costs incurred to enhance, improve and extend the useful lives of our assets and expense those costs incurred to repair or maintain the existing condition or useful lives of our assets.

The development and application of such policies requires estimates, judgments and assumptions relative to the nature of, and benefits from, expenditures on our assets.

The development and application of such policies require estimates, judgments and assumptions relative to the nature of, and benefits from, expenditures on our assets.

We establish property and equipment accounting policies that are designed to depreciate our assets over their estimated useful lives.

4 unchanged sentences

We evaluate the remaining useful lives of our rig components on a periodic basis, considering operating condition, functional capability and market and economic factors.

Our fleet of 18 floater rigs represented 59% of the gross cost and 61% of the net carrying amount of our depreciable property and equipment as of December 31, 2024.

Our fleet of 14 floater rigs, excluding our held-for-sale rig, represented 57% of the gross cost and 59% of the net carrying amount of our depreciable property and equipment as of December 31, 2025.

Our fleet of 31 jackup rigs represented 40% of the gross cost and 39% of the net carrying amount of our depreciable property and equipment as of December 31, 2025.

15 unchanged sentences

In addition, there are several factors that could cause the future level of uncertainty relating to our tax liabilities to increase, including the following:

• During recent years, the number of tax jurisdictions in which we conduct operations has increased.

• In order to utilize tax planning strategies and conduct operations efficiently, our subsidiaries frequently enter into transactions with affiliates that are generally subject to complex tax regulations and are frequently reviewed and challenged by tax authorities.

7 unchanged sentences

To develop the expected long-term rate of return on assets assumption, we considered the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the plans’ other asset classes, and the expectations for future returns of each asset class.

The expected return for each asset class was then weighted based upon the current asset allocation to develop the expected long-term rate of return on assets assumption for the plan, which decreased to 6.44% at December 31, 2024 from 6.88% at December 31, 2023.

The expected return for each asset class was then weighted based upon the current asset allocation to develop the expected long-term rate of return on assets assumption for the plan, which increased to 6.62% at December 31, 2025 from 6.44% at December 31, 2024.

See " Note 9 - Pension and Other Post Retirement Benefits " to our consolidated financial statements included in " Item 8 .

8 unchanged sentences

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 7. Management’s Discussion and Analysis