There was quite a lot of commentary on X this morning regarding this merger, most of the sources lacked your history and depth of knowledge in this specialized thinly covered sector. Your positive analysis holds a great deal of creditability, I can rest easy, thanks.
Thanks for reading Peter. It’s a positive announcement for the industry and I think the two fleets complement each other well. Still unsure how jackup fleet works out. I prefer Borr’s jackup fleet to Valaris’ but the Shelf transaction a couple quarters ago was positive on that asset class
Thanks, AK. I had a painful crash course on this industry in 2015-2017 and now am a fully dedicated analyst toward this niche. Substack is a great outlet for free content which will continue -- I appreciate your time and attention!
> The Valaris merger achieves three objectives simultaneously: deleveraging (acquiring Valaris' underleveraged balance sheet), capturing $200 million in annual cost synergies and consolidating pricing power.
It also paves the way for more attractive credit opportunities for the larger entity, right? Even if it doesn't transition to "investment-grade", surely the larger backlog and the larger asset base can help it secure more favorable terms?
> (3) Why would Valaris shareholders want RIG shares?
They also buy them at a discount given the deal structure and price spike. So if their thesis is offshore oil, they got a better entry point into the most derisked $RIG has ever been, with higher price torque potential than ever
Thanks, Stanislav. Yes, there’s clearly credit opportunities with the larger, less leveraged entity to loosen up debt terms to improve shareholder returns.
Great post, as always. I've been waiting for it since the transaction was made public :) Read your x post but I knew there's more to come :) Thank you. One question arises now: as you mentioned the day rates are a bit behind now. Is this price advance in the space justified or frontrunning fueled by rotation into energy and these moves in the space? (RIG is almost a 3x and NE a 2.5 x since the April '25 lows). I see that there is a lot of potential but oil is still in the 60's. Don't get me wrong, I'm invested in the space and glad to have held positions through the bad times BUT now I'm questioning if it's not time to harvest.
Fair comments, Mihai. I think the offshore drillers were oversold in April 2025 bc there was concern about OPEC flooding the market and crushing prices along with tariffs crushing demand. That didn’t materialize on both ends so I wouldn’t anchor price performance from there. Understood on valuations. Part of bull case is citing Odfjell demonstrating you can get $600mm/rig valuations with steady 7-8% dividends and high utilization with dayrates around $460k. Still definitely some wood to chop for drillship market to get to where Odfjell is with Semisubs in Norway however and there will be bumps in the road. I think oil majors will still be cautious with capex spend but my interpretation is they aren’t going to be dropping deepwater rigs for prolonged periods
Don’t think m/m oil price matters that much. It’s the projection of supply and demand in the future that will be decisive when it comes to investments in offshore. Dayrates started to look nice in 2023 and look where Val price was (RIG got dilluted). Now shareprice will have to adjusf to future more stable balance sheet and pricing power in the market. If the dayrates actually go up in later 26/27 you can easily count how big the upside is (better and less debt, shareholder returns etc).
There was quite a lot of commentary on X this morning regarding this merger, most of the sources lacked your history and depth of knowledge in this specialized thinly covered sector. Your positive analysis holds a great deal of creditability, I can rest easy, thanks.
Thank you Dio. That means a lot to me because credibility is my primary goal. Appreciate your consistent readership and comment!
Many thanks for sharing your research and ideas - very helpful.
Thank you for reading Michael. Your time is appreciated.
Thank you for your great insight!
Thanks for finding the substack and reading!
I thought i know a thing or two about offshore drillers, but hats down to you sir
Your take reads like a win win and the mkt seems to agree. I am for ever grateful for your astute observations of this sector.
Thanks for reading Peter. It’s a positive announcement for the industry and I think the two fleets complement each other well. Still unsure how jackup fleet works out. I prefer Borr’s jackup fleet to Valaris’ but the Shelf transaction a couple quarters ago was positive on that asset class
Thanks Tommy. Insightful as always. Cheers John
I value your consistent readership, John. Lots more to come.
Thank you very much 👍🏽
Glad you found the substack and thanks for reading, Thiyagu
thank you Tommy.
Appreciate you reading and restacking the post, Stuart. This industry can be a roller coaster ride!
Don’t know how are you so capable to put so much information in such a simple read, thanks man!
Thanks, AK. I had a painful crash course on this industry in 2015-2017 and now am a fully dedicated analyst toward this niche. Substack is a great outlet for free content which will continue -- I appreciate your time and attention!
Tommy the goat.
> The Valaris merger achieves three objectives simultaneously: deleveraging (acquiring Valaris' underleveraged balance sheet), capturing $200 million in annual cost synergies and consolidating pricing power.
It also paves the way for more attractive credit opportunities for the larger entity, right? Even if it doesn't transition to "investment-grade", surely the larger backlog and the larger asset base can help it secure more favorable terms?
> (3) Why would Valaris shareholders want RIG shares?
They also buy them at a discount given the deal structure and price spike. So if their thesis is offshore oil, they got a better entry point into the most derisked $RIG has ever been, with higher price torque potential than ever
Thanks, Stanislav. Yes, there’s clearly credit opportunities with the larger, less leveraged entity to loosen up debt terms to improve shareholder returns.
Great article, thanks!
Thanks for reading and the comment. Major transaction announcement!
I know SDRL rig quality is lower, but they have to be attractive given their mm/rig valuation??
I think a challenge with Seadrill and M&A is they have outstanding lawsuits with SFL and Eldorado. That complicates a deal despite economics on paper.
Great post, as always. I've been waiting for it since the transaction was made public :) Read your x post but I knew there's more to come :) Thank you. One question arises now: as you mentioned the day rates are a bit behind now. Is this price advance in the space justified or frontrunning fueled by rotation into energy and these moves in the space? (RIG is almost a 3x and NE a 2.5 x since the April '25 lows). I see that there is a lot of potential but oil is still in the 60's. Don't get me wrong, I'm invested in the space and glad to have held positions through the bad times BUT now I'm questioning if it's not time to harvest.
Fair comments, Mihai. I think the offshore drillers were oversold in April 2025 bc there was concern about OPEC flooding the market and crushing prices along with tariffs crushing demand. That didn’t materialize on both ends so I wouldn’t anchor price performance from there. Understood on valuations. Part of bull case is citing Odfjell demonstrating you can get $600mm/rig valuations with steady 7-8% dividends and high utilization with dayrates around $460k. Still definitely some wood to chop for drillship market to get to where Odfjell is with Semisubs in Norway however and there will be bumps in the road. I think oil majors will still be cautious with capex spend but my interpretation is they aren’t going to be dropping deepwater rigs for prolonged periods
Don’t think m/m oil price matters that much. It’s the projection of supply and demand in the future that will be decisive when it comes to investments in offshore. Dayrates started to look nice in 2023 and look where Val price was (RIG got dilluted). Now shareprice will have to adjusf to future more stable balance sheet and pricing power in the market. If the dayrates actually go up in later 26/27 you can easily count how big the upside is (better and less debt, shareholder returns etc).
What do you see as a bear case following the recent positive price action?