I challenge you to combat! The history of Valaris.
The Gist: The first half of this post illustrates the challenges faced by offshore operations as shale production expanded, putting them at a competitive disadvantage. Nevertheless, a subsequent decrease in shale well productivity and an increase in capital intensity could restore offshore’s competitiveness. The second half of the post is a brief financial history of the company.
In 2019, following the merger between Ensco and Rowan, the resulting entity decided to change its name to Valaris, after the Latin root meaning strength, courage, and value.
Quoting the press release at the time (HERE), “the Valaris name embodies the company’s ambition to be ‘Boldly First’ as the leader.”
Valaris was also a Gothic soldier who fought against the Roman Eastern Empire in the Gothic Wars.
He would ride out before a battle and challenge any man to single combat.
A Persarmenian officer named Artabazes accepted the challenge and succeeded despite dying of his wounds a few days later.
Similar to the soldier of antiquity, the offshore driller would also be a victim of its own ‘boldly first’ strategy and enter into Chapter 11 bankruptcy as the market turned south in 2020.
But Valaris’s downfall was not due to a name change but rather the wheels were set in motion years prior.
The rise of shales was the worst thing to happen to the offshore industry.
It lowered the cost for companies to find & develop hydrocarbons
As a result, capital was directed to shales and exploration activity plummeted.
This happened during a period when the offshore industry was placing significant bets on the duration of the cycle, allocating more than 50% of revenues towards expanding capacity.
Yes, that is revenues! Not cash flow or EBITDA but revenues.
Day rates, a metric for pricing, would fall from 2014 to 2021.
And it would become very difficult for the company to service the debt.
However, this is precisely why the inquiries into shale well productivity holds immense importance for the offshore industry.
History shows that for energy prices to get a bid, productivity does not necessarily have to decline; it just needs to remain stagnant as shown below.
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