The Valaris Ltd (NYSE: VAL) stock price has risen 11.75% in the past week after hitting the bottom of a price range that has been in place since late April. The move has left many investors wondering whether the rally will continue.
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The good news for investors is that the offshore oil rig owner and operator’s prospects appear promising as demand for offshore rigs surges from all the leading oil companies that have refocused their energy on offshore drilling, which is cheaper than onshore.
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The global realisation that crude oil and natural gas will continue supplying most of the world’s energy needs for the foreseeable future has made leading oil companies and even smaller ones refocus their efforts on crude oil supply instead of renewable energy sources.
European companies such as Shell and BP, which had pivoted heavily towards renewable energy, have shifted back to offshore drilling and are investing heavily in new wells that could generate energy crude oil for the foreseeable future.
As an offshore drill rig operator, the company is paid by the oil companies that use its drill rigs to operate them on their behalf. The industry rate for a drill rig has risen from a low of $125,000 per day in May 2020 to a new high of $500,000 per day.
On the other hand, the costs for operating such a rig are usually relatively low at around $150,000, which means that the amount charged by the drill rig operator above this is pure profit. While many drill rip operators, including Valaris, suffered immensely during the height of the COVID-19 pandemic and the start of the Russia-Ukraine war, the situation is vastly different now as global demand for crude oil is rising again.
Oil companies prefer offshore rigs since they can operate them profitably even if crude oil prices fall below $50 a barrel. Therefore, they do not have to worry much about oil prices. Given the above dynamics, it is safe to say that Valaris’ prospects are up-and-coming.
Despite the positive outlook, shares tend to move up and down even in an uptrend.
*This is not investment advice.
Valaris stock price.
The Valaris stock price has risen 11.75% in the past week. Will the rally higher continue?
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY.