Seadrill Limited — Third-Quarter 2022 Form 6-K Summary
Business Context and Reporting Period
Seadrill Limited, an offshore drilling contractor, reported results for the three months ended September 30, 2022. The filing was furnished on November 30, 2022. Results reflect the post-reorganization successor entity, and certain comparisons with 2021 predecessor results may not be directly comparable.
- Owned fleet at September 30: 21 rigs, including 12 operating, seven future contracted and two idle.
- Technical utilization was 98% and economic utilization was 97% for the owned fleet.
- The Saudi Arabian jackup business was classified as discontinued operations following the agreement to sell seven rigs to ADES.
Financial Metrics
| Metric | 3Q22 | 2Q22 | Change |
|---|---|---|---|
| Total operating revenue | $269 million | $253 million | 6% increase |
| Operating profit | $20 million | $25 million | 20% decrease |
| Adjusted EBITDA from continuing operations | $57 million | $64 million | 11% decrease |
| Total Adjusted EBITDA | $71 million | $75 million | 5% decrease |
| Total Adjusted EBITDA margin | 23.4% | 26.4% | 3.0 percentage-point decrease |
| Net loss | $16 million | $36 million | $20 million improvement |
Continuing-operations EBITDA margin declined to 21.2% from 25.3%. Revenue increased primarily from a full quarter of West Hercules operations and higher dayrates on West Tellus and Sevan Louisiana, partly offset by West Saturn’s preparation period and lower reimbursable management revenue. Operating expenses rose to $250 million from $228 million, including higher operating days and the reinstatement of the short-term incentive plan.
- Cash and cash equivalents, including restricted cash, declined to $349 million from $466 million at June 30, 2022.
- Unrestricted cash was $224 million; restricted cash was $125 million.
- Restricted cash included $70 million collateral for a Brazilian tax case, $23 million in Saudi escrow and $17 million collateral for a guarantee facility.
- Continuing-operations operating cash flow was negative $22 million; investing cash flow was negative $93 million; financing cash flow was zero.
- Total assets were $2.982 billion and total equity was $1.454 billion at September 30, 2022.
- Reported long-term debt was $950 million, with $32 million of debt due within one year.
Material Changes and Strategic Transactions
- Seadrill signed agreements to sell seven Saudi Arabian jackups to ADES; the sale closed October 18, 2022. The transaction generated $670 million of proceeds.
- Seadrill sold its entire 35% interest in Paratus Energy Services Limited; closing was expected in December 2022 or early 2023.
- The Saudi jackup sale triggered a $204 million mandatory payment under the second lien facility. Seadrill subsequently made a $269 million voluntary payment on November 14, 2022.
- Total post-period second lien payments were $473 million, including $442 million of principal, interest and exit fees.
- Order backlog was approximately $3.0 billion at September 30, including $718 million related to the seven jackups later sold. Backlog was $2.4 billion as of November 30, 2022.
- Seadrill relisted on the New York Stock Exchange on October 14, 2022 and uplisted to the Oslo Stock Exchange main list on November 17, 2022.
Guidance, Outlook, Risks and Unusual Items
- Unaudited 2022 guidance remains total revenue of $1.115 billion to $1.125 billion, Total Adjusted EBITDA of $245 million to $265 million, and capital expenditures and long-term maintenance of $280 million to $300 million.
- Guidance includes the seven jackups sold to ADES as discontinued operations and excludes approximately $60 million of forecast mobilization revenue. It includes approximately $50 million of pre-closing jackup reactivation and upgrade costs reimbursed or assumed by ADES.
- Management expects offshore drilling fundamentals to remain favorable, supported by underinvestment in exploration and production, strong demand for high-specification rigs, and improving benign ultra-deepwater and jackup utilization.
- West Saturn and West Carina commenced long-term Brazil campaigns in the fourth quarter; West Tellus and West Jupiter were expected to commence Brazil contracts later in the fourth quarter.
- Key risks include offshore drilling supply and demand, dayrates, contract awards and mobilizations, customer payment disputes, rig maintenance and reactivation costs, financing and liquidity, loan covenants, interest and foreign-exchange rates, inflation, geopolitical developments including the Ukraine conflict, tax and legal matters, climate and emissions regulation, cybersecurity, and continued NYSE and Oslo Stock Exchange listing compliance.
- Cash usage was significant during the quarter because of rig reactivation and upgrade projects, mobilization spending, working-capital movements and interest payments.
Investor Verification Checklist
- Verify completion and final proceeds from the Paratus Energy Services sale and any related accounting treatment.
- Reconcile the $473 million of second lien payments with remaining debt principal, interest, fees and future maturities.
- Assess post-sale liquidity, including unrestricted cash and the availability of restricted cash.
- Track achievement of 2022 revenue, EBITDA and capital-expenditure guidance after the jackup divestiture.
- Confirm commencement, utilization and profitability of the Brazil contracts and the timing of related reactivation expenditures.
- Evaluate the decline in backlog from approximately $3.0 billion at September 30 to $2.4 billion at November 30, including the effect of the ADES transaction.
- Review the Brazilian tax case collateral and other commitments, contingencies and listing-compliance requirements.