Valaris Q2 2026 earnings: Drillship startups lift sequential revenue despite Middle East costs

Valaris (NYSE: VAL) reported Q2 2026 operating revenue of $539.2 million, down about 12% from $615.2 million a year earlier, while diluted EPS declined to $0.72 from $1.61. For the quarter ended June 30, sequential performance improved as drillship startups lifted revenue and Adjusted EBITDA, although Middle East conflicts reduced Adjusted EBITDA by approximately $30 million.

Core earnings data

Compared with Q1 2026, total operating revenue increased 16% from $465.4 million and net income swung to $47.0 million from a loss of $18.0 million. More operating days for VALARIS DS-17, DS-12, and DS-10 were the main revenue driver.

The year-over-year comparison was weaker. Revenue declined while contract drilling expenses increased, reducing operating income and compressing the operating margin.

Operating margin is calculated from reported operating income and total operating revenue. Non-GAAP Adjusted EBITDA was $96.5 million, up 45% sequentially from $66.7 million.

Business and segment performance

Floaters produced most of the sequential improvement as three drillships contributed more operating days. Jackups moved in the opposite direction because of fewer operating days, lower average daily revenue from certain North Sea accommodation services, maintenance work, and higher war-risk insurance costs.

ARO’s full operating results are not consolidated by Valaris. They are removed through reconciling items and replaced by Valaris’ equity in ARO earnings, which increased to $10.6 million from $6.8 million in Q1.

Floater operating income rose to $94.4 million from $29.2 million as DS-17 contributed a full quarter and DS-12 and DS-10 started new contracts. Jackup operating income fell to $24.4 million from $51.7 million, reflecting lower activity and higher maintenance and insurance costs.

Valaris also added more than $160 million of backlog for its North Sea jackup fleet. The company sold long-term stacked jackups VALARIS 104 and 109 in June and July for combined cash proceeds of $74 million.

Drillship restarts improved revenue, but regional costs limited the benefit

The contrast between stronger floater activity and rising regional costs was the quarter’s central operating issue. Middle East conflicts reduced Adjusted EBITDA by approximately $30 million, compared with an $8 million impact in Q1. The increase mainly reflected a full quarter of higher war-risk insurance costs, along with project delays that lowered revenue and raised costs for VALARIS 250 and 116.

Management expects these effects to moderate during the second half of 2026. VALARIS 250 resumed its bareboat charter in July, while VALARIS 116 is expected to resume in Q3. Insurance costs are also expected to decline following the sale of VALARIS 104 and the use of longer-term coverage with lower premiums.

Profitability, cash flow, and the balance sheet

The sequential improvement in net income was not entirely operational. Q2 included a $38 million gain on asset sales, compared with a $2 million loss in Q1, helping other income reach $30 million versus other expense of $10 million in the prior quarter.

Tax expense increased to $34 million from $28 million. Excluding discrete tax items, tax expense rose to $40 million from $26 million because of higher pretax income and a change in the jurisdictional mix of earnings.

Capital expenditures increased to $106 million from $101 million in Q1. Cash and cash equivalents declined to $541.2 million from $578.3 million, primarily because of capital spending, partly offset by operating cash flow and asset-sale proceeds. Long-term debt was largely unchanged at $1.09 billion.

Cash flow figures were provided on a first-half basis rather than for Q2 alone. Operating cash flow for the first six months of 2026 was $88.1 million, down from $275.9 million a year earlier, while property and equipment additions increased to $206.4 million from $167.4 million.

Management perspective

Valaris reported revenue efficiency of 98% for both Q2 and the first half of 2026. Management said DS-12 and DS-10 returned to work on schedule and on budget, and two additional drillships are scheduled to begin contracts before year-end.

The company continues to describe the deepwater contract pipeline as robust, supported by demand for high-specification rigs. Management also expects the pending combination with Transocean to close in Q4 2026. Because of that transaction, Valaris does not plan to hold future earnings calls or provide additional forward-guidance updates.

Risks investors need to watch

• Middle East exposure: War-risk insurance and project delays had a $30 million negative effect on Adjusted EBITDA. Management expects moderation, but the outcome depends on operating conditions, charter restarts, and insurance costs.
• Jackup weakness: Lower operating days, maintenance projects, leg repairs, and insurance expenses reduced jackup revenue and Adjusted EBITDA sequentially.
• Capital intensity and cash conversion: First-half capital additions exceeded operating cash flow, while quarter-end cash declined from Q1.
• Execution on additional drillship startups: Management expects two more drillships to begin contracts before year-end, making startup timing and operating reliability important to further improvement.
• Transocean transaction: Closing remains targeted for Q4 2026, while merger-related costs and the decision to stop guidance updates reduce visibility during the pending combination.

Summary

Valaris’ Q2 2026 results showed a meaningful sequential recovery led by higher floater activity and successful drillship startups. However, year-over-year profitability remained lower as operating costs rose, Middle East disruptions weighed on Adjusted EBITDA, and the jackup segment weakened. The main issues to monitor are moderation of regional costs, the return of affected rigs, cash generation relative to capital spending, and execution on the remaining drillship contract startups.