What happened

Shares of Valaris (NYSE:VAL) rallied more than 12% by 3 p.m. EST on Monday. Fueling the energy company's rise was news that an activist investor had boosted its stake in the offshore driller.

So what

Luminus management unveiled that it now holds an 18.7% active stake in Valaris. That's up from a 4.5% interest in the offshore driller as of mid-June.

An offshore driling rig with the sun setting in the background.

Image source: Getty Images.

Luminus also sent a letter to Valaris' board, urging the company to take "actions to safeguard and grow shareholder value." That's after its stock has tumbled 84% over the past year due in part to concerns about its finances.

In particular, it wants the company to refrain from making deals with creditors that would restrict its financial flexibility. That's after it heard market chatter that some banks have proposed that it issue new debt that could limit its flexibility.

Alternatively, it wants the company to do three things:

  1. Improve its operational execution, including doing a better job marketing its rigs
  2. Take advantage of other opportunities to improve its balance sheet
  3. Refresh and enhance its board of directors

Luminus also wants to collaborate with Valaris on these initiatives instead of continuing to meet resistance.

Now what

Luminus is taking a more active position to drive Valaris to make changes that could boost its sinking stock price. There are no guarantees Valaris will adopt any of these initiatives. However, the company is under increasing pressure to make changes that boost shareholder value, given how far the stock has fallen in the last year, even though the offshore drilling market is showing signs of improvement. As a result, it could have more upside if it does decide to work with its top investor on ways to improve.