Offshore Warrants: An Informed Speculation With Skewed Upside

Back Of The Napkin Math On Valaris Warrants & Why I'm Still Buying

Summary

• The Noble & Valaris warrants provide leveraged upside for an offshore bull market. I explain why I find the Valaris warrants more attractive.

• The Noble warrants expire February 4, 2026, and shares would have to go from $45.10 to $124.10 (the exercise price) in a relatively short period of time.

• The Valaris warrants expire on April 29, 2028, and shares would have to go from $68.48 to $131.88 (the exercise price) over a longer time horizon.

• I break down the potential outcomes of the Valaris warrants with back of the napkin math on a couple hypothetical share price outcomes.

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I spent a good chunk of yesterday going through the legalese in the Valaris VAL 0.00%↑ and Noble NE 0.00%↑ warrant documents. It was giving me a headache so I had to go blow off steam at the gym. After I got back, I wrote the rest of this post. The offshore warrants carry more risk than just buying shares, but I think the setup is very interesting for investors willing to speculate on an offshore bull market. I gave an update on the bull case for offshore yesterday, so I’m not going to reiterate that in detail here.

The warrants carry risks that the regular shares of Noble and Valaris don’t have. If you are buying these warrants, you should consider using limit orders because they aren’t very liquid. They are even more volatile than the regular shares, and sometimes the moves don’t make a ton of sense. To prove the point, Noble was up a little more than 1% yesterday. Noble’s warrants (which I will explain in more detail shortly) were down 19% yesterday. I want to distill the case for reason I own the Valaris warrants and why I prefer them to the Noble warrants.

I have talked briefly about the Valaris warrants in the past, but I wanted to provide an update because I have been buying more this week. I also had some questions when discussing them with a friend, so I wanted to walk through my thought process instead of just saying “if the stock goes up long-term, the warrants go up more”. It’s my preferred way to have exposure to Valaris, and it’s still a speculative position, but I plan to continue adding until I have my fill. Both warrants have dilution protection in the language, and I think both are an interesting way to speculate on an offshore bull market.

Noble Warrants (NBLWF)

I’ll talk about Noble NE 0.00%↑ first. While I find these warrants interesting, I don’t think they are as attractive as the Valaris warrants. They expire on February 4, 2026, with a exercise price of $124.40. If you want to double check, the link to the warrants document is here. Buying these warrants is more of a one to two year trade where you are looking to sell them at some point in the next couple years at a higher price, instead of expecting shares to exceed the exercise price. The stock would have to go from $45.10 to $124.40 in two years (so basically a triple), which is unlikely even in an offshore bull market. While I think Noble shares are attractive, a triple in two years is probably unlikely in my opinion. This is part of why I find the Valaris warrants more attractive.

Valaris Warrants (VAL.WS or VAL/WS)

I have talked about the Valaris warrants a couple times, but I wanted to lay out a hypothetical example to show you how I think owning the Valaris warrants could play out between now and April 2028. The Valaris warrants give investors much more time than the Noble warrants for the offshore bull case to develop, and the shares wouldn’t have to triple to get to the exercise price. It’s basically a double from the current share price. For a quick refresher, here is the important language in the Valaris warrant terms.

The Warrants are exercisable from the date of issuance until 5:01 p.m., Eastern Time, on April 29, 2028, at which time all unexercised Warrants will expire and the rights of the holders of such Warrants to purchase Common Shares will terminate. The Warrants are initially exercisable for one Common Share per Warrant at an initial exercise price of $131.88 per Warrant (the “Exercise Price”).

Back of the Napkin Math