What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-02-20 compared with 2025-02-20 · 376 added, 278 removed, 1114 unchanged (37% of the section changed)

138 unchanged sentences

Cash and cash equivalents $ 599.4 $ 368.2

Restricted cash 12.3 15.2

Accounts receivable, net 474.8 571.2

Assets held for sale

Other current assets 144.7 139.3

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Adjustments to reconcile net income to net cash provided by operating activities:

Deferred income tax expense (benefit) ( 515.1 ) 5.8 ( 786.4 )

Depreciation expense 146.3 122.1 101.1

Accretion of discount on the Notes Receivable from ARO

( 40.0 ) ( 28.3 ) ( 44.9 )

Net (gain) loss on sale of property ( 118.6 ) 0.2 ( 28.6 )

Loss on impairment 27.3 — —

Share-based compensation expense 25.2 27.7 27.3

Accretion of discount on the Notes Receivable from ARO ( 24.7 ) ( 40.0 ) ( 28.3 )

Equity in losses (earnings) of ARO ( 8.4 ) 11.0 ( 13.3 )

Deferred income tax expense (benefit) 5.8 ( 786.4 ) 7.9

Net periodic pension and retiree medical income ( 2.4 ) ( 0.9 ) ( 16.4 )

Net (gain) loss on sale of property 0.2 ( 28.6 ) ( 141.2 )

Loss on extinguishment of debt — — 29.2

Loss on impairment — — 34.5

Changes in contract liabilities ( 41.0 ) ( 31.7 ) 4.9

Changes in deferred costs 16.1 39.3 ( 26.1 )

Changes in contract assets

( 10.3 ) ( 1.0 ) 0.6

Other 8.0 6.9 5.8

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Additions to property and equipment ( 343.5 ) ( 455.1 ) ( 696.1 )

Net proceeds from disposition of assets 2.8 30.3 150.3

Purchases of short-term investments — — ( 220.0 )

Maturities of short-term investments — — 220.0

Repayment of note receivable from ARO — — 40.0

Proceeds from disposition of assets

137.9 2.8 30.3

Net cash used in investing activities ( 205.6 ) ( 452.3 ) ( 665.8 )

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Payments related to tax withholdings for share-based awards ( 3.6 ) ( 29.9 ) ( 5.4 )

( 29.9 ) ( 5.4 ) ( 2.5 )

Debt issuance costs — ( 0.8 ) ( 38.6 )

1 unchanged sentence

Redemption of 2028 First Lien Notes

— — ( 571.8 )

Other — ( 1.2 ) ( 3.1 )

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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 Saudi Aramco Rowan Offshore Drilling Company ("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 Saudi Aramco Rowan Offshore Drilling Company ("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.

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Certain previously reported amounts have been reclassified to conform to the current year presentation.

In addition, the Total operating revenues and Total contract drilling expenses (exclusive of depreciation) line items presented in the Consolidated Statements of Operations, 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 ("Update 2023-07") effective January 1, 2024 (see " Note 13 - Segment Information ").

The disaggregation of these line items is presentational only and was retrospectively applied to the years ended December 31, 2023 and 2022.

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

Pervasiveness of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses and disclosures of gain and loss contingencies as of the date of the financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S.

GAAP") requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the related revenues and expenses and disclosures of gain and loss contingencies as of the date of the financial statements.

Actual results could differ from those estimates.

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Certain gains and losses from the translation of foreign currency balances of our non-U.S.

dollar functional currency subsidiaries are included in Accumulated other comprehensive income on our Consolidated Balance Sheet.

Net foreign currency exchange gains and losses were $ 13.8 million of gains, $ 3.5 million of losses and $ 12.2 million of gains, and were included in Other, net, in our Consolidated Statements of Operations for the years ended December 31, 2024, 2023 and 2022, respectively.

Cash Equivalents and Short-Term Investments

dollar functional currency subsidiaries are included in Accumulated other comprehensive income on our Consolidated Balance Sheets.

Net foreign currency exchange gains and losses were $ 14.3 million of losses, $ 13.8 million of gains and $ 3.5 million of losses, and were included in Other, net, in our Consolidated Statements of Operations for the years ended December 31, 2025, 2024 and 2023, respectively.

Cash Equivalents

Highly liquid investments with maturities of three months or less at the date of purchase are considered cash equivalents.

Highly liquid investments with maturities of greater than three months but less than one year at the date of purchase are classified as short-term investments.

There were no short-term investments as of December 31, 2024 and 2023.

Cash flows from purchases and maturities of short-term investments were classified as investing activities in our Consolidated Statements of Cash Flows for the year ended December 31, 2022.

To mitigate our credit risk, our investments in time deposits have historically been diversified across multiple, high-quality financial institutions.

Restricted Cash

Our restricted cash primarily consists of collateral on letters of credit.

We classify restricted cash balances on the Consolidated Balance Sheets within Other current assets, if the restriction is expected to expire or otherwise be resolved within one year, and in Other assets, if the restriction is expected to expire or otherwise be resolved in more than one year.

See " Note 14 - Supplemental Financial Information " for additional information on our restricted cash balances and " Note 11 - Commitments and Contingencies " for more information regarding our letters of credit.

Property and Equipment

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Costs incurred to place an asset into service are capitalized, including costs related to the initial mobilization of a newbuild drilling rig.

Repair and maintenance costs are charged to contract drilling expense in the period in which they are incurred.

Repair and maintenance costs are charged to contract drilling expenses in the period in which they are incurred.

Upon the sale or retirement of assets, the related cost and accumulated depreciation are removed from the balance sheet, and the resulting gain or loss is included in Other, net in our Consolidated Statements of Operations.

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If the carrying value of an asset is not recoverable, the amount of impairment loss is measured as the difference between the carrying value of the asset and its estimated fair value.

Property and equipment held-for-sale is recorded at the lower of net book value or fair value less cost to sell.

In June 2022, a drilling contract awarded to VALARIS DS-11 was terminated prior to commencement.

At that time, we had capitalized certain costs incurred to upgrade the rig pursuant to the requirements of the contract, which upon termination were determined to be impaired.

As a result, we recorded pre-tax, non-cash impairment losses related to long-lived assets of $ 34.5 million in the year ended December 31, 2022.

See " Note 2 - Revenue from Contracts with Customers " for additional information on the contract termination.

Property and equipment classified as held for sale is recorded at the lower of its net book value or fair value less the estimated cost to sell.

We recorded pre-tax, non-cash impairment losses related to long-lived assets of $ 27.3 million in the year ended December 31, 2025.

See " Note 5 - Property and Equipment " for additional information on our impairment charges.

Operating Revenues and Expenses

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Should we make a distribution from these subsidiaries in the form of dividends or otherwise, we may be subject to additional income taxes.

The Organization for Economic Co-operation and Development issued Pillar Two rules introducing a new global minimum tax of 15% applied on a country-by-country basis effective on January 1, 2024.

Certain jurisdictions have enacted new tax laws to align with the recommendations under Pillar Two, while other jurisdictions have proposed or are actively considering changes to existing tax laws based on the new rules.

The impact of the Pillar Two model rules, which have been enacted to date, was not significant to our consolidated financial statements for the year ended December 31, 2024.

There remains uncertainty as to how global legislation relating to Pillar Two will evolve and we will continue to monitor developments related to this initiative and the potential impact on future periods.

See " Note 10 - Income Taxes " for additional information on our income taxes.

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Compensation cost for awards based on a market performance objective is recognized as long as the requisite service period is completed and will not be reversed even if the market-based objective is never satisfied.

Any adjustments to the compensation cost recognized in our Consolidated Statements of Operations for awards that are forfeited are recognized in the period in which the

forfeitures occur.

Any adjustments to the compensation cost recognized in our Consolidated Statements of Operations for awards that are forfeited are recognized in the period in which the forfeitures occur.

See " Note 8 - Share Based Compensation " for additional information on our share-based compensation.

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Actual results may differ from the assumptions included in these calculations.

If gains or losses exceed 10% of the greater of the plan assets or plan liabilities, we amortize such gains or losses into income over either the period of expected future service of active participants, or over the expected average remaining lifetime of all participants.

If actuarial gains or losses exceed 10% of the greater of the plan assets or plan liabilities, we amortize such gains or losses into income over either the period of expected future service of active participants, or over the expected average remaining lifetime of all participants.

We recognize gains or losses related to plan curtailments at the date the plan amendment or termination is adopted which may precede the effective date.

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subsidiaries.

Noncontrolling interests are classified as equity on our Consolidated Balance Sheet, and net income attributable to noncontrolling interests is presented separately in our Consolidated Statements of Operations.

Noncontrolling interests are classified as equity on our Consolidated Balance Sheets, and net income attributable to noncontrolling interests is presented separately in our Consolidated Statements of Operations.

All income attributable to noncontrolling interest was from continuing operations.

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Diluted 70.9 72.9 75.2

EARNINGS PER SHARE

Basic $ 13.92 $ 5.18 $ 11.68

Diluted $ 13.86 $ 5.12 $ 11.51

Anti-dilutive share awards totaling 217,000 , 160,000 and 147,000 were excluded from the computation of diluted EPS for the years ended December 31, 2025, 2024 and 2023, respectively.

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Recently adopted accounting pronouncements

Improvements to Reportable Segment Disclosures - In November 2023, the FASB issued Update 2023-07, which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The amendments in Update 2023-07 require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to an entity's chief operating decision maker ("CODM"), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources.

Annual disclosures are required for fiscal years beginning after December 15, 2023 and interim disclosures are required for periods within fiscal years beginning after December 15, 2024.

Retrospective application is required for all prior periods presented, and early adoption is permitted.

We adopted Update 2023-07 effective for this annual report for the year ended December 31, 2024 on a retrospective basis.

See " Note 13 - Segment Information " for additional disclosures around our segment information.

Accounting pronouncements to be adopted

Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures - In November 2024, the FASB issued ASU No.

2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses ("Update 2024-03"), which requires companies to disclose additional information for certain relevant expense categories in the Statements of Operations and within the notes to the financial statements.

Update 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted and can be applied either prospectively to financial statements issued for reporting periods after the effective date, or retrospectively to prior periods which are presented in the financial statements.

We are currently assessing the impact of the requirements on our consolidated financial statements and disclosures.

Improvements to Income Tax Disclosures - In December 2023, the FASB issued ASU No.

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The amendments are required to be applied on a prospective basis, with an option to apply the guidance retrospectively.

While the adoption of Update 2023-09 will result in expansion of our income tax disclosures, we do not expect it to impact the recognition or measurement of income taxes within our consolidated financial statements.

We adopted Update 2023-09 effective for this annual report for the year ended December 31, 2025 on a prospective basis.

See " Note 10 - Income Taxes " for expanded disclosures around our income tax information.

Measurement of Credit Losses for Accounts Receivable and Contract Assets - In July 2025, the FASB issued ASU No.

2025-05, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses for Accounts Receivable and Contract Assets ("Update 2025-05"), which allows public business entities to elect a practical expedient for current accounts receivables and contract assets to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset.

Update 2025-05 is effective for fiscal years beginning after December 15, 2025, with early adoption permitted, and is required to be applied on a prospective basis.

We have elected the practical expedient as allowed by Update 2025-05 effective January 1, 2026 and it has not had, nor is it expected to have, a material impact on the recognition or measurement of our credit losses within our condensed consolidated financial statements.

Accounting pronouncements to be adopted

Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures - In November 2024, the FASB issued ASU No.

2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

We are currently assessing the impact of the requirements on our consolidated financial statements and disclosures.

With the exception of the updated standards discussed above, there have been no accounting pronouncements issued and not yet effective that have significance, or potential significance, to our consolidated financial statements.

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2014-09, " Revenue from Contracts with Customers (Topic 606), " and have not disclosed the variable consideration related to our estimated future day rate revenues.

The term of our drilling contracts is typically defined by either a specified period of time or the completion of a specified number of wells.

The remaining duration of our drilling contracts based on those in place as of December 31, 2025 was between approximately 1 month and 5 years.

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Such incentives are generally based on our performance over individual monthly time periods or individual wells.

Consideration related to performance bonus is generally recognized in the specific time period to which the performance criteria was attributed.

Consideration related to a performance bonus is generally recognized in the specific time period to which the performance criteria was attributed.

We may receive termination fees if certain drilling contracts are terminated by the customer prior to the end of the contractual term.

Such compensation is recognized as revenue when our performance obligation is satisfied, the termination fee can be reasonably measured and collection is probable.

Contract Termination - VALARIS DS-11

In June 2022, a customer terminated a contract for VALARIS DS-11 that was expected to commence in mid-2024.

As a result of the contract termination, we received an early termination fee of $ 51.0 million which is included in revenues on our Consolidated Statements of Operations for the year ended December 31, 2022.

Mobilization / Demobilization Revenue

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Fees received for the mobilization or demobilization of equipment and personnel are included in Operating revenues.

The costs incurred in connection with the mobilization and demobilization of equipment and personnel are included in Contract drilling expense.

The costs incurred in connection with the mobilization and demobilization of equipment and personnel are included in Contract drilling expenses.

Mobilization fees received prior to commencement of drilling operations are recorded as a contract liability and amortized on a straight-line basis over the contract term.

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Future Amortization of Contract Liabilities and Deferred Costs

Our contract liabilities and deferred costs are amortized on a straight-line basis over the contract term or corresponding certification period to Operating revenues and Contract drilling expense, respectively, with the exception of the contract liabilities related to our bareboat charter arrangements with ARO which would not be contractually payable until the end of the lease term or termination, if sooner.

Our contract liabilities and deferred costs are amortized on a straight-line basis over the contract term or corresponding certification period to Operating revenues and Contract drilling expenses, respectively, with the exception of the contract liabilities related to our bareboat charter arrangements with ARO which would not be contractually payable until the end of the lease term or termination, if sooner.

See " Note 3 - Equity Method Investment in ARO " for additional information on ARO and related arrangements.

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ARO is a 50/50 unconsolidated joint venture between the Company and Saudi Aramco that owns and operates jackup drilling rigs in Saudi Arabia.

As of December 31, 2024, ARO owned nine jackup rigs, had ordered one newbuild jackup rig and leased seven rigs from us through bareboat charter arrangements (the "Lease Agreements") whereby substantially all operating costs are incurred by ARO.

At December 31, 2024, the leased rigs were primarily operating under three-year drilling contracts, or related extensions, with Saudi Aramco.

As of December 31, 2025, ARO owned nine jackup rigs, had ordered two newbuild jackup rigs and leased seven rigs from us through bareboat charter arrangements (the "Lease Agreements") whereby substantially all operating costs are incurred by ARO.

At December 31, 2025, the leased rigs were under long-term drilling contracts, or related extensions, with Saudi Aramco.

The nine rigs owned by ARO are currently operating under contracts with Saudi Aramco, each with a minimum aggregate contract term of 15 years, provided that the rigs meet the technical and operational requirements of Saudi Aramco.

The shareholder agreement governing the joint venture (the "Shareholder Agreement") specifies that ARO shall purchase 20 newbuild jackup rigs over an approximate 10-year period.

The first two newbuild jackups were ordered in January 2020, the first of which, Kingdom 1, was delivered and commenced operations in the fourth quarter of 2023, and the second, Kingdom 2, was delivered in the second quarter of 2024 and commenced operations in the third quarter of 2024.

In October 2024, ARO ordered the third newbuild jackup, Kingdom 3 .

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

The shareholder agreement governing the joint venture (the "Shareholder Agreement") specifies that ARO shall purchase 20 newbuild jackup rigs.

The first two newbuild jackups, Kingdom 1 and Kingdom 2, were ordered in January 2020 and commenced operations in the fourth quarter of 2023 and the third quarter of 2024, respectively.

ARO ordered the next two newbuild jackups, Kingdom 3 and Kingdom 4, in October 2024 and November 2025, respectively.

In connection with these plans, we have a potential obligation to fund ARO for newbuild jackup rigs.

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The operating revenues of ARO presented below reflect revenues earned under drilling contracts with Saudi Aramco for the ARO-owned jackup rigs as well as the rigs leased from us.

Contract drilling expense is inclusive of the bareboat charter fees for the rigs leased from us.

ARO's contract drilling expenses are inclusive of the bareboat charter fees for the rigs leased from us.

See additional discussion below regarding these related-party transactions.

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Operating expenses

Contract drilling (exclusive of depreciation) 367.7 365.9 341.8

Contract drilling expenses (exclusive of depreciation)

360.7 367.7 365.9

Loss on impairment (1)

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Net income (loss) $ ( 8.6 ) $ ( 47.2 ) $ 2.5

(1) In connection with Saudi Arabia’s announcement to limit oil production capacity and Saudi Aramco's suspension of certain drilling contracts, the VALARIS 143, VALARIS 147 and VALARIS 148 contracts were suspended and subsequently terminated during the year ended December 31, 2024.

(1) In connection with Saudi Aramco's suspension of certain drilling contracts, the VALARIS 143, VALARIS 147 and VALARIS 148 contracts were suspended and subsequently terminated during the year ended December 31, 2024.

Pursuant to the requirements of the contracts, ARO had capitalized certain costs to maintain and upgrade these rigs, which were determined to be impaired due to the contract suspensions and subsequent terminations.

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Our equity method investment in ARO was recorded at its estimated fair value in fresh start accounting upon emergence from bankruptcy in 2021.

We computed the difference between the fair value of ARO's net assets and the carrying value of those net assets in ARO's GAAP financial statements ("basis differences") at that date.

We computed the difference between the fair value of ARO's net assets and the carrying value of those net assets in ARO's U.S.

GAAP financial statements ("basis differences") at that date.

These basis differences primarily related to ARO's long-lived assets and the recognition of intangible assets associated with certain of ARO's drilling contracts that were determined to have favorable terms relative to market terms as of the measurement date.

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Related-Party Transactions

Revenues recognized by us related to the Lease Agreements are included within Operating revenues in our Consolidated Statements of Operations and were as follows (in millions):

Revenues recognized by us related to the Lease Agreements are included within Revenues (exclusive of reimbursable revenues) and revenues related to certain reimbursable expenses in accordance with the Lease Agreements are recognized within Reimbursable revenues in our Consolidated Statements of Operations and were as follows (in millions):

Years Ended December 31,

2025 2024 2023

Revenues from Lease Agreements

Revenues (exclusive of reimbursable revenues) from Lease Agreements

$ 69.4 $ 52.6 $ 69.2

Our balances related to the Lease Agreements were as follows (in millions):

Amounts receivable (1)

Reimbursable revenues from Lease Agreements

Total operating revenues from Lease Agreements

$ 73.6 $ 52.6 $ 69.2

Our balances related to the ARO lease agreements were as follows (in millions):

Accounts receivable

$ 47.8 $ 16.5

Contract assets (1)

Contract liabilities (1)

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$ 61.8 $ 43.1

(1) Amounts receivable from ARO is included in Accounts receivable, net in our Consolidated Balance Sheets.

(2) The per day bareboat charter amount in the Lease Agreements is subject to adjustment based on actual performance of the respective rig and therefore, the corresponding contract liabilities are subject to adjustment during the lease term.

(1) The per day bareboat charter amount in the Lease Agreements is subject to adjustment based on actual performance of the respective rig and therefore, the corresponding contract assets and contract liabilities are subject to adjustment during the lease term.

Upon completion of the lease term, such amounts become a payable to or a receivable from ARO.

As a result of the Net Settlement Agreement, as defined below, a portion of our accounts payable to ARO was reduced by $ 50.7 million in June 2024.

During 2017 and 2018, the Company contributed assets to ARO in exchange for a 10-year shareholder note receivable due from ARO (the "Notes Receivable from ARO"), which as amended in December 2023, bear interest based on a one-year term SOFR, set as of the end of the year prior to the year applicable, plus 2.10 %.

In addition, the accounts payable balance includes amounts owed to ARO for certain reimbursable costs.

During 2017 and 2018, the Company contributed assets to ARO in exchange for a 10-year shareholder note receivable due from ARO (the "Notes Receivable from ARO"), which as amended in December 2023, bear interest based on a one-year term Secured Overnight Financing Rate ("SOFR"), set as of the end of the year prior to the year applicable, plus 2.10 %.

The Notes Receivable from ARO were adjusted to the estimated fair value in fresh start accounting in 2021 and the resulting discount to the principal amount is being amortized using the effective interest method to interest income over the remaining terms of the notes.

Under the Shareholder Agreement, a contract liability is created when amounts that the Company bills in accordance with its Lease Agreements are in excess of lease revenues earned.

These contract liabilities are required to be settled in cash.

In June 2024, the Company and ARO executed a net settlement agreement (the “Net Settlement Agreement”) whereby $ 50.7 million of accounts payable due to ARO, which related to lease revenue adjustments resulting from the actual performance of rigs leased to ARO between 2018 and early 2023, was net settled against a portion of the Notes Receivable from ARO retroactive to January 1, 2024.

As a result of the Net Settlement Agreement, the aggregate principal balance of the Notes Receivable from ARO was reduced by $ 50.7 million and we recognized non-cash interest income of $ 13.9 million related to the discount attributable to the partial settlement in 2024.

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

The principal amount and discount of the Notes Receivable from ARO were as follows (in millions):

Principal amount (1)

$ 400.7 $ 376.6

Discount ( 55.7 ) ( 80.4 )

Carrying value $ 345.0 $ 296.2

(1) The interest on the Notes Receivable from ARO for 2025 and 2024 of approximately $ 24.1 million and $ 24.6 million, respectively, were paid in kind in December 2025 and 2024 by increasing the principal balance of the Notes Receivable from ARO in each respective period.

Interest income earned on the Notes Receivable from ARO was as follows (in millions):

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(1) Represents the amortization of the discount on the Notes Receivable from ARO using the effective interest method to interest income over the term of the notes.

In 2024, we recognized non-cash interest income of $ 13.9 million related to the discount attributable to the Net Settlement Agreement.

In 2022, we recognized non-cash interest income of $ 14.8 million attributable to a $ 40.0 million early principal repayment of the Notes Receivable from ARO received in September 2022.

(2) In 2024, we recognized $ 13.9 million of non-cash interest income attributable to a settlement agreement executed in June 2024 whereby $ 50.7 million of accounts payable due to ARO was net settled against a portion of the Notes Receivable from ARO.

Maximum Exposure to Loss

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$ 345.0 $ 403.8 $ 296.2 $ 378.3

(1) The estimated fair value of the 8.375 % Senior Secured Second Lien Notes due 2030 (the "Second Lien Notes") was determined using quoted market prices, which are level 1 inputs.

(1) The estimated fair value of the 2030 Second Lien Notes (as defined in " Note 6 - Debt ") was determined using quoted market prices, which are level 1 inputs.

(2) The estimated fair value of the Notes Receivable from ARO was estimated using an income approach to value the forecasted cash flows attributed to the Notes Receivable from ARO using a discount rate based on a comparable yield with a country-specific risk premium, which are considered to be level 2 inputs.

(3) The aggregate principal balance of the Notes Receivable from ARO includes a net reduction of $ 26.1 million, which is comprised of a $ 50.7 million decrease resulting from the Net Settlement Agreement with ARO (executed in June 2024) and an increase of $ 24.6 million related to paid in kind interest, which was applied to the principal balance on December 31, 2024.

(3) The aggregate principal balance of the Notes Receivable from ARO as of December 31, 2025, includes an increase of $ 24.1 million related to paid in kind interest, which was applied to the principal balance on December 31, 2025.

See " Note 3 - Equity Method Investment in ARO " for additional information.

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$ 2,598.3 $ 2,309.4

While taking into account certain restrictions on the sales of assets under our Indenture dated as of April 19, 2023 (the "Indenture”), 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.

While taking into account certain restrictions on the sales of assets under our Indenture dated as of April 19, 2023 (the "Indenture”) and within the Business Combination Agreement (as defined within " Note 15 - Subsequent Events "), as part of our strategy, we may act opportunistically from time to time to sell assets to enhance shareholder value.

Additionally, we may consider retiring assets that no longer meet our standards for economic returns.

Gains recognized on sales of assets are included in Other, net in the Consolidated Statements of Operations.

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.

Assets Held for Sale

In the fourth quarter of 2025, we approved a plan to retire VALARIS DPS-1, a semisubmersible rig within our Floaters segment.

VALARIS DPS-1 was reclassified from Property and equipment, net to Assets held for sale on our Consolidated Balance Sheets during the fourth quarter of 2025.

In connection with the held-for-sale classification of VALARIS DPS-1, we recognized a non-cash loss on impairment of $ 15.8 million during the year ended December 31, 2025, which represents the amount of carrying value that exceeded its estimated fair value less costs to sell.

We estimated the fair value using a probability-weighted market approach based on recent transactions involving comparable assets, non-binding independent broker quotes and management assumptions, all of which are considered Level 3 inputs due to the level of estimation involved.

Sale of VALARIS 102 and VALARIS 145

In the fourth quarter of 2025, we approved a plan to retire two rigs within our Jackups segment, VALARIS 102 and VALARIS 145 (collectively, the "Retired Jackups").

The Retired Jackups were sold for recycling and permanently removed from service in December 2025 for total cash proceeds of $ 0.5 million.

In connection with the sale of the Retired Jackups, we recognized a non-cash loss on impairment of $ 3.7 million, which represents the amount of carrying value that exceeded the disposal group's aggregate fair value less costs to sell.

We estimated the fair value using the contractual sales price within the executed sale agreement for the Retired Jackups, which is considered a Level 2 input.

Sale of VALARIS 247

During the year ended December 31, 2025, we sold VALARIS 247, a rig within our Jackups segment, and collected cash proceeds of approximately $ 108.0 million.

We recognized a pre-tax gain of $ 88.4 million in connection with the sale.

Sale of Retired Semis

In the first quarter of 2025, we approved a plan to retire three semisubmersible rigs within our Floaters segment, VALARIS DPS-3, VALARIS DPS-5, and VALARIS DPS-6 (collectively, the “Retired Semis”).

In April 2025, the Retired Semis were sold for recycling and permanently removed from service for total cash proceeds of $ 10.0 million.

In connection with the retirement of the Retired Semis, we recognized a non-cash loss on impairment of $ 7.8 million, which represents the amount of carrying value that exceeded the disposal group's aggregate fair value less costs to sell.

We estimated the fair value using a market approach based on the preliminary sale agreement for the Retired Semis, which is considered a Level 3 input due to the level of estimation involved since the sale had not yet been completed at the time of our analysis.

Sale of VALARIS 75

In the first quarter of 2025, VALARIS 75, a rig within our Jackups segment which had an immaterial net book value, was sold resulting in a pre-tax gain on sale of $ 23.0 million.

Of the proceeds, $ 14.0 million was collected upon closing, $ 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.

Sale of Angola Office Building

During the year ended December 31, 2025, we sold an office building in Angola for cash proceeds of $ 5.2 million, resulting in a pre-tax gain of $ 4.0 million.

Of the proceeds, approximately $ 2.5 million was collected in 2024 and $ 2.7 million was collected in 2025.

Sale of VALARIS 54

During the year ended December 31, 2023, we recognized a pre-tax gain of $ 27.3 million for the sale of VALARIS 54.

During the year ended December 31, 2022, we recognized an aggregate pre-tax gain of $ 130.5 million for the sales of VALARIS 113, VALARIS 114, VALARIS 36 and VALARIS 67.

Additionally, we recognized pre-tax gains of $ 3.2 million and $ 7.0 million in 2022 related to additional proceeds received for our 2021 sale of VALARIS 100 and 2020 sale of VALARIS 68, respectively, resulting from post-sale conditions of those sale agreements.

2028 First Lien Notes

On the April 30, 2021, the Company issued $ 550.0 million aggregated principal amount of Senior Secured First Lien Notes due 2028 (the "First Lien Notes").

The First Lien Notes were scheduled to mature on April 30, 2028 and accrued interest, at our option, at a rate of:

(1) 8.25 % per annum, payable in cash;

(2) 10.25 % per annum, with 50 % of such interest to be payable in cash and 50 % of such interest to be paid in kind;

or (3) 12 % per annum, with the entirety of such interest to be paid in kind.

Interest was due semi-annually in arrears on May 1 and November 1 of each year and was computed on the basis of a 360-day year of twelve 30-day months.

The Company incurred $ 5.2 million in issuance costs in 2021 associated with the First Lien Notes.

In August 2022, the Company completed a consent solicitation pursuant to which the Company amended the indenture that governed the First Lien Notes to (1) implement a consolidated net income builder basket for restricted payments, increase the general basket for restricted payments from $ 100.0 million to $ 175.0 million and make other incremental changes to the Company’s restricted payments capacity and (2) increase the general basket for investments from the greater of $ 100.0 million and 4.0 % of total assets to the greater of $ 175.0 million and 6.5 % of total assets.

The Company incurred $ 3.9 million of costs in connection with the consent solicitation, comprised of a consent fee paid to consenting holders and professional fees.

These costs along with the issuance costs incurred in 2021 were amortized into interest expense over the term of the First Lien Notes using the effective interest method.

On April 3, 2023, the Company issued a notice of conditional redemption to the holders of the First Lien Notes at a redemption price equal to 104.0 % of the aggregate $ 550.0 million principal amount of the First Lien Notes plus accrued and unpaid interest to, but not including, the redemption date (the “Redemption Price”).

On April 3, 2023, the Company issued a notice of conditional redemption to the holders of our Senior Secured First Lien Notes due 2028 (the "2028 First Lien Notes") at a redemption price equal to 104.0 % of the aggregate $ 550.0 million principal amount of the 2028 First Lien Notes plus accrued and unpaid interest to, but not including, the redemption date (the “Redemption Price”).

On April 19, 2023, in connection with the issuance of our 2030 Second Lien Notes, as discussed below, the Company discharged its obligations under the indenture governing the 2028 First Lien Notes and deposited the Redemption Price with Wilmington Savings Fund Society, as trustee under such indenture.

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As of December 31, 2025, we were in compliance in all material respects with our covenants under the Indenture.

Senior Secured Revolving Credit Facility

2028 Credit Agreement

On April 3, 2023, the Company entered into a senior secured revolving credit agreement (the “2028 Credit Agreement”).

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Interest Expense

Interest expense totaled $ 84.8 million, $ 68.9 million and $ 45.3 million for the years ended December 31, 2024, 2023 and 2022 which was net of capitalized interest of $ 15.9 million, $ 5.6 million and $ 1.2 million, respectively, for capital projects.

Interest expense, net totaled $ 98.8 million, $ 84.8 million and $ 68.9 million for the years ended December 31, 2025, 2024 and 2023 which was net of capitalized interest of $ 1.9 million, $ 15.9 million and $ 5.6 million, respectively, for capital projects.

Amortization of debt premium and issuance costs was $ 6.6 million, $ 6.6 million and $ 5.0 million for the years ended December 31, 2025, 2024 and 2023, respectively, and is included within Interest expense, net in the Consolidated Statements of Operations.

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Par Value Additional

Capital Warrants Retained Earnings (Deficit) AOCI Treasury

Capital Warrants Retained Earnings AOCI Treasury

Shares Non-controlling

BALANCE, December 31, 2022 75.2 $ 0.8 $ 1,097.9 $ 16.4 $ 160.1 $ 14.7 $ — $ 8.0

75.0 $ 0.8 $ 1,083.0 $ 16.4 $ ( 16.4 ) $ ( 9.1 ) $ — $ 2.7

Net income — — — — 865.4 — — 1.4

1 unchanged sentence

Shares issued under share-based compensation plans, net 0.2 — — — — — — —

Net changes in pension and other postretirement benefits — — — — — 23.8 — —

Shares withheld for taxes on vesting of share-based awards — — ( 2.5 ) — — — — —

BALANCE, December 31, 2022 75.2 $ 0.8 $ 1,097.9 $ 16.4 $ 160.1 $ 14.7 $ — $ 8.0

Net income — — — — 865.4 — — 1.4

Share-based compensation cost — — 27.3 — — — —

Shares issued under share-based compensation plans, net 0.2 — — — — — — —

Repurchase of Common Shares — — — — — — ( 200.1 ) —

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BALANCE, December 31, 2024 76.2 $ 0.8 $ 1,113.3 $ 16.4 $ 1,398.9 $ 34.2 $ ( 325.1 ) $ 5.8

Net income (loss) — — — — 982.8 — — ( 3.7 )

Share-based compensation cost — — 25.2 — — — — —

Shares issued under share-based compensation plans, net 0.2 — — — — — — —

Repurchase of Common Shares — — — — — — ( 100.0 ) —

Net changes in pension and other postretirement benefits — — — — — 24.5 — —

Shares withheld for taxes on vesting of share-based awards — — ( 3.6 ) — — — — —

Foreign currency translation adjustments — — — — — 2.2 — —

BALANCE, December 31, 2025

76.4 0.8 1,134.9 16.4 2,381.7 60.9 ( 425.1 ) 2.1

(1) In 2024, the Company purchased the 51 % noncontrolling interest related to a certain non-U.S.

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The Share Repurchase Program does not have a fixed expiration, may be modified, suspended or discontinued at any time and any repurchases made pursuant to the Share Repurchase Program are subject to compliance with applicable covenants and restrictions under our financing agreements.

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

3 unchanged sentences

$ 49.78 $ 56.11 $ 66.77

(1) There were no share repurchases during the year ended December 31, 2022.

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 (as defined within " Note 15 - Subsequent Events ").

SHARE BASED COMPENSATION

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The grant-date fair value per share for these time-based restricted stock awards is equal to the closing price of the Company's stock on the grant date.

For senior officers, delivery of the shares underlying certain vested restricted stock unit awards is deferred until the third anniversary of the date of grant.

Non-employee directors received a one-time grant of time-based restricted awards in 2021, which vested ratably over a three-year period from the date of grant.

Additionally, non-employee directors receive an annual grant of time-based restricted awards which vest in full on the earlier of the first anniversary of the grant date or the next annual meeting of shareholders following the grant.

Non-employee directors receive an annual grant of time-based restricted awards which vest in full on the earlier of the first anniversary of the grant date or the next annual meeting of shareholders following the grant.

Non-employee directors are permitted to elect to receive deferred share awards which can be settled and delivered on the six-month anniversary following the termination of the director's service or a specific pre-determined date.

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Our compensation cost is reduced for forfeited awards in the period in which the forfeitures occur.

Compensation expense for our time-based share awards is allocated to Contract drilling expense and General and administrative expense within our Consolidated Statement of Operations based on the award holder's employment function.

Compensation expense for our time-based share awards is allocated to Contract drilling expenses (exclusive of depreciation and reimbursable expenses) and General and administrative expenses within our Consolidated Statements of Operations based on the award holder's employment function.

The following table summarizes time-based share award compensation expense and the related income tax benefit recognized (in millions):

1 unchanged sentence

2025 2024 2023

Contract drilling $ 8.8 $ 6.8 $ 3.9

Contract drilling expenses (exclusive of depreciation and reimbursable expenses)

$ 9.3 $ 8.8 $ 6.8

General and administrative 8.6 8.7 9.0

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(b) relative return on capital employed ("ROCE") as compared to a specified peer group, all as defined in the award agreements (the "ROCE Objective"), and (c) specified strategic goals as established by the Compensation Committee of the board of directors (the "Strategic Goal Objective" and together with the ROCE Objective, the "Performance-Based Objectives").

In 2023, incremental awards based on the Strategic Goal Objective were granted.

These awards were paid in equity during 2024 following a three-year performance period and were subject to attainment of such objectives ranging from 0 % to 150 % of target performance under such objectives.

The performance awards granted in 2023, 2024 and 2025 include awards which are subject to the achievement of goals based on our absolute total shareholder return and our total shareholder return relative to a specified peer group (the "TSR Objectives" and together with the Share Price Objective, the "Market-Based Objectives").

These awards are payable in equity at a range from 0 % to 200 % of target performance following three-year performance periods.

Also, in 2023, incremental awards based on the Strategic Goal Objective were granted.

These awards are payable in equity at a range from 0 % to 200 % of target performance following three-year performance periods, subject to approval by the Compensation Committee of the board of directors following the end of each respective performance period.

The estimated probable outcome of attainment of the specified performance goals is based primarily on relative performance over the requisite performance period.

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As our trading history increases, it will bear greater weight in determining our expected price volatility assumption.

The weighted average grant-date fair value of performance awards granted during the years ended December 31, 2024, 2023 and 2022 was $ 63.05 , $ 62.09 and $ 38.08 , respectively.

The weighted average grant-date fair values of performance awards granted during the years ended December 31, 2025, 2024 and 2023 were $ 28.92 , $ 63.05 and $ 62.09 , respectively.

The following table summarizes the performance award activity for the year ended December 31, 2025 (shares in thousands):

2 unchanged sentences

Granted - Market-Based Objectives (1)

Vested - Market-Based Objectives

( 557 ) $ 17.72

Vested - Performance-Based Objectives

( 234 ) $ 38.54

( 791 ) $ 23.88

Forfeited - Performance-Based Objectives

( 5 ) $ 71.63

Balance as of December 31, 2025

1 unchanged sentence

The number of shares actually issued after considering forfeitures may range from zero to 472,000 .

During the years ended December 31, 2024, 2023 and 2022, we recognized $ 10.6 million, $ 11.7 million and $ 6.7 million of compensation expense for performance awards, respectively, which was included in General and administrative expense in our Consolidated Statements of Operations.

(2) There were no forfeited or vested shares for the year ended December 31, 2025.

During the years ended December 31, 2025, 2024 and 2023, we recognized $ 7.7 million, $ 10.6 million and $ 11.7 million of compensation expense for performance awards, respectively, which was included in General and administrative expenses in our Consolidated Statements of Operations.

As of December 31, 2025, there was $ 8.4 million of total estimated unrecognized compensation cost related to performance awards, which has a weighted-average remaining vesting period of 1.6 years.

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The accumulated benefit obligation is equal to the projected benefit obligation at December 31, 2025 and 2024 as the pension and other post-retirement benefit plans were frozen in prior years.

The components of net periodic pension, retiree medical income and the weighted-average assumptions used to determine net periodic pension and retiree medical income were as follows (dollars in millions):

The components of net periodic pension, retiree medical (income) loss and the weighted-average assumptions used to determine such amounts were as follows (dollars in millions):

Years Ended December 31,

5 unchanged sentences

Amortization of net gain ( 0.7 ) ( 0.6 ) ( 0.7 )

Settlement gain recognized (1)

Net periodic pension and retiree medical income (2)

Net periodic pension and retiree medical (income) loss (1)

$ 0.9 $ ( 2.4 ) $ ( 0.9 )

2 unchanged sentences

Cash balance interest credit rate 3.26 % 3.26 % 3.23 %

(1) Settlement accounting is necessary when actual lump sums paid during a fiscal year exceed the sum of the service cost and interest cost for the year.

During the year ended December 31, 2022, the settlement threshold was reached for certain of our pension plans and we recognized a corresponding settlement gain in our Consolidated Statements of Operations.

(2) All components of Net periodic pension and retiree medical income are included in Other, net, in our Consolidated Statements of Operations.

(1) All components of Net periodic pension and retiree medical (income) loss are included in Other, net, in our Consolidated Statements of Operations.

We currently expect to contribute approximately $ 19.2 million to our pension plans and to directly pay other post-retirement benefits of approximately $ 0.9 million in 2026.

7 unchanged sentences

Target range (1)

21.7 % to 27.7 %

Global equity fund (2)

large cap — 93.3

small/mid cap — 24.6

Global Low Volatility Equity 4.2 % to 10.2 %

18.1 % to 24.1 %

Global Low Volatility Equity — 34.1

International all cap — 42.7

4 unchanged sentences

Long-term corporate bonds 160.2 102.8

Long-term government bonds

Treasury STRIPS 52.9 76.7

2 unchanged sentences

(1) Our investment policy only sets allocation target ranges for general asset classes and not specific investment types.

(2) During 2025, the assets in the various equity asset categories were consolidated into a single Global equity fund.

All of our investments, other than cash and cash equivalents, are measured at fair value using the net asset value per share (or its equivalent) practical expedient and therefore are not categorized in the fair value hierarchy.

Cash and cash equivalents are considered Level 1 as they were valued at cost, which approximates fair value.

Assets in the Global equity fund include a broad range of global equity securities for which the portfolio may be a full replication or a sampling of the Morgan Stanley Capital International All Country World Index and may be held through a commingled or institutional mutual fund.

Assets in the U.S.

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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 plan's 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.

Estimated future annual benefit payments from plan assets are presented below.

1 unchanged sentence

Pension Benefits Other Post-Retirement Benefits

Years ended December 31,

Years ending December 31,

2026 $ 41.0 $ 0.9

9 unchanged sentences

Contributions made to the Multinational Savings Plan may or may not qualify for tax deferral based on each plan participant's local tax requirements.

Employee contributions are matched up to a maximum of 5 %.

The following table summarizes the employer matching contributions for each plan (in millions):

Employee contributions have been matched up to a maximum of 6 % since the beginning of 2025 and were matched up to a maximum of 5 % in 2024 and 2023.

These matching contributions totaled $ 19.2 million, $ 15.6 million and $ 13.2 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Valaris Limited is domiciled and a resident for tax purposes in Bermuda.

Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries.

The income of our non-Bermuda subsidiaries is not subject to Bermuda taxation.

During the fourth quarter of 2025, we adopted Update 2023-09 (see " Note 1 - Description of the Business and Summary of Significant Accounting Policies " for further discussion on Update 2023-09) on a prospective basis.

As such, we have updated income tax disclosure presentations as of and for the year ended December 31, 2025 in order to comply with Update 2023-09, but have not retrospectively applied these presentational changes to any of the prior periods presented.

This adoption of Update 2023-09 resulted in presentational differences of our income tax disclosures and did not result in a change to the calculations of our income before income taxes, current tax expense, deferred tax expense or effective tax rates for the year ended December 31, 2025.

Our income before income taxes and benefit for income taxes for the year ended December 31, 2025 are summarized as follows (in millions):

Income (loss) before income taxes:

Bermuda $ ( 107.4 )

Other foreign

Total foreign

Total income before income taxes $ 552.3

Provision (benefit) for income taxes:

Current tax expense:

Bermuda federal $ —

Bermuda state —

Other foreign

Total foreign

Total current tax expense

Deferred tax benefit:

Bermuda federal $ —

Bermuda state —

Other foreign ( 513.4 )

Total foreign ( 515.1 )

Total deferred tax benefit

Total provision (benefit) for income taxes:

Bermuda federal $ —

Bermuda state —

Other foreign ( 438.8 )

Total foreign ( 426.8 )

Total benefit for income taxes

Our income before income taxes and provision for income taxes for the years ended December 31, 2024 and 2023 are summarized as follows (in millions):

Years Ended December 31,

2024 2023 2022

$ 9.2 $ 8.0 $ 4.7

Limited Retirement Plan

Multinational Savings Plan

Total matching contributions

Income before income taxes:

$ 49.8 $ 30.7

Effective January 1, 2025, the employer contributions increased whereby employee contributions are now matched up to a maximum of 6 %.

We generated profits of $ 49.8 million, $ 30.7 million and $ 39.7 million before income taxes in the U.S.

for the years ended December 31, 2024, 2023 and 2022, respectively.

We generated profits of $ 320.4 million, $ 53.5 million and $ 185.2 million before income taxes in non-U.S.

jurisdictions for the years ended December 31, 2024, 2023 and 2022, respectively.

The components of our provision for income taxes are summarized as follows (in millions):

Years Ended December 31,

$ 370.2 $ 84.2

2 unchanged sentences

( 16.9 ) 34.1

( 5.4 ) 3.8 35.2

Deferred income tax expense (benefit):

1 unchanged sentence

5.8 ( 786.4 )

5.8 ( 786.4 ) 7.9

Total income tax expense (benefit) $ 0.4 $ ( 782.6 )

Effective Tax Rate

Income tax rates and taxation systems in the jurisdictions in which our subsidiaries conduct operations vary and our subsidiaries are frequently subjected to minimum taxation regimes.

In some jurisdictions, tax liabilities are based on gross revenues, statutory deemed profits or other factors, rather than on net income, and our subsidiaries are frequently unable to realize tax benefits when they operate at a loss.

Accordingly, during periods of declining profitability, our income tax expense may not decline proportionally with income, which could result in higher effective income tax rates.

Furthermore, we will continue to incur income tax expense in periods in which we operate at a loss.

Our drilling rigs frequently move from one taxing jurisdiction to another to perform contract drilling services.

In some instances, the movement of drilling rigs among taxing jurisdictions will involve the transfer of ownership of the drilling rigs among our subsidiaries.

As a result of frequent changes in the taxing jurisdictions in which our drilling rigs are operated and/or owned, changes in profitability levels and changes in tax laws, our annual effective income tax rate may vary substantially from one reporting period to another.

As a Bermuda-domiciled company, Valaris Limited is subject to a 15.0 % Bermuda corporate income tax, which became effective on January 1, 2025.

In addition, we are subject to other income taxes, including those in the U.S.

and in various foreign jurisdictions.

Our consolidated effective tax rate reconciliation for the year ended December 31, 2025 is summarized below (in millions, except percentages):

Bermuda federal statutory rate $ 82.8 15.0 %

Changes in valuation allowances 16.1 2.9 %

Foreign tax effects

Withholding taxes 16.5 3.0 %

Changes in valuation allowances ( 8.0 ) ( 1.4 ) %

Other 8.4 1.5 %

Tax rate differential 11.5 2.1 %

Other ( 3.1 ) ( 0.6 ) %

British Virgin Islands

Tax rate differential 6.3 1.1 %

Changes in valuation allowances ( 1,092.2 ) ( 197.8 ) %

Prior period tax matters

( 54.8 ) ( 9.9 ) %

Cross border income inclusion 9.5 1.7 %

State and local tax rate differential 9.2 1.7 %

Other 4.8 0.9 %

Withholding taxes 6.3 1.1 %

Other 2.8 0.5 %

Changes in valuation allowances 383.9 69.5 %

Prior period tax matters 156.2 28.3 %

Tax rate differential ( 25.2 ) ( 4.6 ) %

State and local tax rate differential

Global minimum taxes

Other ( 1.4 ) ( 0.3 ) %

Tax rate differential 6.6 1.2 %

Changes in valuation allowances ( 5.2 ) ( 0.9 ) %

Other ( 1.5 ) ( 0.3 ) %

United Kingdom

Changes in valuation allowances 10.0 1.8 %

United States

Changes in valuation allowances ( 17.2 ) ( 3.1 ) %

Expiration of foreign tax credits 16.3 3.0 %

Other 6.6 1.2 %

Other foreign jurisdictions (1)

Changes in unrecognized tax benefits ( 3.7 ) ( 0.6 ) %

Total $ ( 426.8 ) ( 77.3 ) %

(1) Other foreign jurisdictions includes the aggregated remaining foreign jurisdictions for which there were no foreign tax effects reconciling items which exceeded the 5% disclosure threshold.

Our consolidated effective tax rate reconciliations for the years ended December 31, 2024 and 2023 are summarized below (in millions, except percentages):

Years Ended December 31,

Bermuda statutory income tax rate

Non-Bermuda taxes

Valuation allowance ( 2.3 ) ( 953.6 )

Resolution of prior year items

( 23.2 ) ( 49.9 )

Effective income tax rate 0.1 % ( 929.5 ) %

Our 2025 consolidated effective income tax rate includes 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.

Our 2024 consolidated effective income tax rate includes 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.

Our 2023 consolidated effective income tax rate includes 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.

Excluding the impact of the aforementioned discrete tax items, our consolidated effective income rates for the years ended December 31, 2025, 2024 and 2023 were ( 92.2 )%, 21.8 % and ( 872.3 )%, respectively.

The changes in our consolidated effective income tax rate excluding discrete tax items during the three-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.

Deferred Taxes

4 unchanged sentences

Interest limitation carryforwards 112.9 126.0

Foreign tax credits 16.4 44.7

Employee benefits, including share-based compensation 28.0 36.6

Premiums on long-term debt 4.0 6.0

Foreign tax credits 0.2 16.4

Other 17.9 21.9

8 unchanged sentences

The amount of deferred tax assets considered realizable could increase or decrease in the near-term if our estimates of future taxable income change.

As of December 31, 2024, we had gross deferred tax assets of $ 3.1 billion relating to $ 13.5 billion of net operating loss ("NOL") carryforwards, $ 16.4 million of U.S.

foreign tax credits (“FTCs”) and $ 126.0 million of interest limitation carryforwards, primarily related to the U.S., Luxembourg and the U.K., which can be used to reduce our income taxes payable in future years.

As of December 31, 2025, we had gross deferred tax assets of $ 3.1 billion relating to $ 13.6 billion of net operating loss ("NOL") carryforwards and $ 112.9 million of interest limitation carryforwards, primarily related to the U.S., Luxembourg and the U.K., which can be used to reduce our income taxes payable in future years.

NOL carryforwards, which were generated in various jurisdictions worldwide, include $ 8.4 billion that do not expire and $ 5.2 billion that will expire, if not utilized, between 2026 and 2042 .

Deferred tax assets for NOL carryforwards as of December 31, 2024 include $ 2.2 billion, $ 612.4 million, $ 78.0 million, $ 42.6 million and $ 39.8 million pertaining to NOL carryforwards in Luxembourg, the U.S., the U.K., Bermuda and Switzerland, respectively.

FTCs expire in 2025 .

Deferred tax assets for NOL carryforwards as of December 31, 2025 include $ 2.3 billion, $ 614.9 million, $ 75.7 million, $ 58.7 million, $ 27.2 million and $ 21.2 million pertaining to NOL carryforwards in Luxembourg, the U.S., the U.K., Bermuda, Switzerland and Trinidad, respectively.

Interest limitation carryforwards generally do not expire.

Additionally, as a result of our emergence from bankruptcy, the utilization of certain U.S.

deferred tax assets including, but not limited to, NOL carryforwards, FTCs, and interest limitation carryforwards is limited to $ 0.5 million annually.

deferred tax assets including, but not limited to, NOL carryforwards and interest limitation carryforwards is limited to $ 0.5 million annually.

We had a $ 3.3 billion and a $ 4.0 billion valuation allowance as of December 31, 2025 and 2024, respectively, on deferred tax assets relating to those assets for which we are not more likely than not to realize due to the inability to generate sufficient taxable income in the period prior to expiration and/or of the character necessary to use the benefit of the deferred tax assets.

During the years ended December 31, 2024, 2023 and 2022, we recognized a deferred tax benefit of $ 8.5 million, a deferred tax benefit of $ 802.9 million and a deferred tax expense of $ 1.5 million, respectively, associated with changes in deferred tax asset valuation allowances.

The deferred tax benefit in 2023 primarily related to a $ 799.5 million reduction of our valuation allowance due to changes in the balance of relevant positive and negative evidence considered when assessing the realization of our deferred tax assets in certain operating jurisdictions.

After considering the balance of evidence, which included historical financial results, projected earnings, contract backlog, day rates and market outlook, we determined that sufficient positive evidence existed to conclude that this portion of the valuation allowance on deferred tax assets was no longer needed.

During the years ended December 31, 2025, 2024 and 2023, we recognized a deferred tax benefit of $ 523.2 million, $ 8.5 million and $ 802.9 million, respectively, associated with changes in deferred tax asset valuation allowances.

The deferred tax benefit in 2025 includes a $ 1.1 billion reduction of our valuation allowance in Luxembourg, which was partially offset by a $ 383.9 million increase to the valuation allowance in Switzerland, driven in part by the establishment of a $ 168.8 million valuation allowance resulting from a change in estimated future taxable income in a certain operating jurisdiction in connection with the retirement of the Retired Semis.

The deferred tax benefit in 2023 primarily related to a $ 799.5 million reduction of our valuation allowance.

The net reductions to the valuation allowances for 2025 and 2023 were due to changes in the balances of relevant positive and negative evidence considered when assessing the realization of our deferred tax assets in certain operating jurisdictions.

After considering the balance of evidence, which included historical financial results, projected earnings, contract backlog, day rates and market outlook, we determined that sufficient positive evidence existed to conclude that these portions of the valuation allowance on deferred tax assets were no longer needed.

We intend to continue maintaining a valuation allowance on a substantial portion of our deferred tax assets until there is sufficient evidence to support a reversal of such allowances.

The timing and amount of future valuation allowance reductions are subject to future levels of contracting and profitability achieved.