Massive Tailwinds, Dirt-Cheap Stock—Is This the Best Bet in Oil?

This offshore drilling company is down over 50% just when things haven't looked this promising in a long time.

Welcome to DeepValue Capital by Kyler!

Tired of working for hours just to find one good idea? Let me do the work for you.

I write in-depth reports on unloved and undervalued companies that are turning that around. From January 1, 2024, to February 28, 2025 my portfolio delivered returns of 145.31%.

This week I am writing about a company that sits squarely among the unloved and undervalued.

Valaris, an offshore drilling company with incredible potential and catalysts right around corner.

TL;DR

• Offshore Drilling Market: Demand for offshore drilling is rising while rig supply remains tight. High newbuild costs and long construction timelines limit supply growth, driving day rates higher.

• Industry Comparison: Valaris stands out for its balance sheet strength, lack of dilution, and disciplined capital allocation. Competitors like Transocean and Borr Drilling carry more risk due to debt or dilution.

• Management & Shareholder Returns: While incentives aren’t perfect, management prioritizes buybacks. They repurchased $200M in 2023 and doubled their buyback limit to $600M in 2024, signaling confidence in future cash flows.

• Valuation & Risk Considerations: Offshore drillers historically trade at 8-10x peak FCF. Valaris is positioned to generate strong cash flow in a high day-rate environment. Risks include geopolitics, energy policy shifts, and macro downturns, but supply-demand fundamentals remain favorable.

Valaris

Ticker: $VAL

Market Cap: $2.63B

Stock Price: $37.04

Valaris provides offshore contract drilling services to the international oil and gas industry. They operate a fleet of ultra-deepwater drill ships, semisubmersibles, and shallow water jackups.

They break their revenue into 2 main segments:

• Floaters-57% of Revenue (Broken further into 13 Drillships and 5 Semisubmersibles)

• Jackups-36% of Revenue (35 Jackups)

• Other-7% of Revenue (Leased and Managed Rigs)

Last week I covered my initial reaction and questions on the company. Now I present my full research breaking down the company and catalysts.

Are the catalysts behind day rate increases likely to continue?

At heart of this question the only thing that matters is how the supply and demand of rigs will evolve.