Seadrill Limited — Form 6-K Summary
Business context and reporting period
Seadrill Limited, an offshore drilling contractor, reported results for the three months ended March 31, 2023. The filing was furnished on May 23, 2023. Seadrill operated 12 owned rigs at quarter-end, with technical utilization of 96% and economic utilization of 95%. The financial statements reflect the post-reorganization “Successor” period; comparisons with 2022 may not be fully comparable because 2022 includes predecessor and successor periods.
Financial performance and liquidity
| Metric | 1Q23 | 4Q22 | Change |
|---|---|---|---|
| Total operating revenues | $266 million | $228 million | Up 17% |
| Operating profit/(loss) | $51 million | $(7) million | Improved by $58 million |
| Adjusted EBITDA | $85 million | $39 million | Up 118% |
| Adjusted EBITDA margin | 32.0% | 17.1% | Up 14.9 percentage points |
| Net profit | $43 million | $249 million | Down $206 million |
| Cash flow from operating activities | $15 million | $76 million | Down $61 million |
| Capital expenditures and equipment additions | $11 million | Not clearly provided in the filing summary | Not clearly determinable |
Net profit in 4Q22 benefited from $272 million of profit from discontinued operations, primarily a one-time gain on the sale of the KSA Business. Accordingly, the quarter-over-quarter decline in net profit does not reflect the improvement in operating performance.
Cash flow from investing activities was a $36 million inflow, including approximately $43 million of net proceeds from the PES Sale. Financing activities used $160 million, primarily for Second Lien Facility repayments. Cash and cash equivalents, including restricted cash, declined to $491 million at March 31, 2023, from $598 million at December 31, 2022. Unrestricted cash was $376 million and restricted cash was $115 million.
Total debt was approximately $358 million at March 31, 2023, comprising $10 million due within one year and $348 million of long-term debt, compared with approximately $518 million at December 31, 2022. Equity increased to $1.745 billion from $1.702 billion.
Material changes and transactions
- Seadrill made voluntary Second Lien Facility payments totaling $162 million during the quarter, including $150 million of principal, and made a further $3 million scheduled amortization payment plus associated interest and fees.
- Seadrill completed the sale of its 35% interest in Paratus Energy Services Ltd. and certain other interests on February 24, 2023, for total consideration of $44 million.
- Master service agreements with PES and SeaMex were terminated effective July 12, 2023 and September 10, 2023, respectively. Management stated that the terminations were not expected to have a material effect on Seadrill’s financial condition.
- Seadrill completed its all-stock acquisition of Aquadrill LLC on April 3, 2023. Aquadrill’s results and assets and liabilities were not included in the first-quarter financial statements, but will be consolidated from April 3, 2023.
- The Aquadrill acquisition added approximately $470 million of order backlog. A subsequent Gulfdrill award extended contracts for three Qatar jackups through 2026, with total contract value of approximately $343 million and materially higher bareboat charter rates during the extension periods.
- Order backlog increased from approximately $2.2 billion at March 31, 2023 to $2.6 billion as of May 23, 2023.
Guidance, outlook, risks and unusual items
Management maintained 2023 guidance, including the consolidation of Aquadrill from April 3, 2023:
| 2023 guidance | Range |
|---|---|
| Total operating revenues | $1.435 billion–$1.485 billion |
| Adjusted EBITDA | $435 million–$485 million |
| Capital expenditures and long-term maintenance | $210 million–$250 million |
The guidance includes $30 million of non-cash amortized mobilization revenue and $42 million of non-cash amortized mobilization costs. Implied Adjusted EBITDA margin is approximately 30.3% to 32.7%.
Management described offshore drilling fundamentals as constructive, citing expected increases in oil demand, offshore capital expenditures and demand for ultra-deepwater rigs, together with constrained rig supply. Management expects further tightening and improving dayrates in benign ultra-deepwater markets, while the harsh-environment market is expected to remain muted in 2023 but improve from 2024 onward.
Key risks include offshore drilling demand, dayrates, contract awards and cancellations, rig performance and maintenance costs, liquidity and access to financing, loan covenant compliance, customer payment disputes, oil prices, inflation, geopolitical conditions, regulation, competition, acquisition integration, litigation and contingencies, tax matters, climate and emissions regulation, cybersecurity, personnel availability and stock-exchange listing requirements.
Investor verification points
- Verify the post-acquisition financial contribution, debt profile and integration costs of Aquadrill in subsequent filings.
- Reconcile the $2.6 billion May 23, 2023 backlog to individual contracts, including the Gulfdrill extensions and contract cancellation or termination provisions.
- Assess unrestricted liquidity separately from the $115 million of restricted cash, including the $76 million collateral balance related to a Brazilian tax case.
- Compare actual 2023 revenue, Adjusted EBITDA and capital expenditures with the stated guidance ranges; Adjusted EBITDA is a non-GAAP measure.
- Monitor the financial effect of the PES and SeaMex management agreement terminations after July and September 2023.
- Review the terms, remaining amortization schedule and covenant requirements of the Second Lien Facility after the first-quarter repayments.