Valaris (VAL) saw an unusual large trade on 2/20 open 1000 August $50/$40 bull risk reversals and also has 2000 May $37.5 short puts in open interest as well as 1500 August $52.5$42.5 bull risk reversals that opened on 2/4. VAL is a possible beneficiary of the new administrations energy policy.

VAL is trading down to multi-year lows with $39 key support. Valaris provides offshore contract drilling services Gulf of Mexico, South America, North Sea, the Middle East, Africa, and the Asia Pacific. The company operates through four segments: Floaters, Jackups, ARO, and Other. Valaris has the largest offshore drilling fleet by rig count, operating in deep-water and shallow water offshore markets across six continents.

The $2.9B Company trades 7X Earnings, 6.8X EBITDA and 1.3X Book with EBITDA estimates seen at 40.75% growth in FY26. The company is navigating through a period of short-term market dislocations but remains confident in the long-term structural upcycle, with plans to deploy its high-spec assets and return significant cash to shareholders as it generates increased earnings and cash flow in 2025 and beyond.

The offshore drilling market is in a structural upcycle, with drillship day rates well below the previous peak on an inflation-adjusted basis, and significant headroom for further rate increases as the market tightens. Valaris sees potential for additional call on sidelined capacity, including its three high-spec drillships, as the market continues to tighten, particularly in late 2025 and 2026. Valaris expects the overall trend of increasing day rates and contract durations to continue as the market tightens. Valaris is seeing increased exploration activity, with customers undertaking more frontier and rank exploration work, which is a positive sign for future demand.