Seadrill Limited — Form 6-K Summary
Filing date: May 25, 2022. Reporting period: quarter ended March 31, 2022. Seadrill is an offshore drilling contractor operating owned, leased and managed drilling rigs. The company emerged from Chapter 11 on February 22, 2022 and applied Fresh Start accounting, creating separate predecessor and successor reporting periods. Combined quarterly figures are non-GAAP and are used for comparison with the fourth quarter of 2021.
Financial and Operating Highlights
| Metric | Q1 2022 | Q4 2021 | Change |
|---|---|---|---|
| Total operating revenue | $293 million | $305 million | Down 4% |
| Adjusted EBITDA | $78 million | $98 million | Down 20% |
| Adjusted EBITDA margin | 26.6% | 32.1% | Down from 32.1% |
| Operating profit | $42 million | $96 million | Down 56% |
| Net profit | $3.710 billion | $104 million | Increase primarily from restructuring and Fresh Start adjustments |
| Operating cash flow from continuing operations | $(29) million | $(30) million | Approximately unchanged |
| Investing cash flow from continuing operations | $(30) million | $20 million | Unfavorable $50 million movement |
| Financing cash flow | $65 million | Nil | Primarily new emergence debt facilities |
Cash and cash equivalents, including restricted cash, were $553 million at March 31, 2022, comprising $393 million of unrestricted cash and $160 million of restricted cash. Restricted cash included $75 million held as collateral for a Brazilian tax case and $40 million held for guarantee facilities.
Debt at March 31, 2022 included $944 million of long-term debt and $10 million due within one year. Liabilities subject to compromise declined from $6.235 billion at December 31, 2021 to nil following the restructuring. Equity was $1.503 billion, compared with a predecessor deficit of $3.716 billion at year-end.
Fleet operating performance was strong, with 99% technical utilization and 95% economic utilization for the owned fleet. Fourteen owned rigs were operating at period end, with five additional owned rigs idle, two under future contract and two planned for disposal or recycling.
Material Changes Versus Prior Periods
- Revenue declined by $12 million versus Q4 2021. Contract revenue was reduced by idle time between contracts for West Hercules and Sevan Louisiana and early completion of the West Bollsta contract, partly offset by West Gemini operations and improved harsh-environment performance.
- Operating expenses fell by $32 million, primarily because of lower rig operating expenses, lower COVID-19 costs, cost-saving initiatives and Fresh Start adjustments.
- Other operating income fell to $2 million from $76 million, reflecting fewer rig sales and the absence of prior-quarter gains from liability extinguishments and an insurance premium rebate.
- Net profit was heavily affected by approximately $3.7 billion of restructuring and Fresh Start accounting benefits and is not representative of recurring operating performance.
- Paratus Energy Services assets and liabilities were removed from the balance sheet following the January 2022 disposal; Seadrill retained a 35% investment interest in the group.
- Order backlog was approximately $2.4 billion at March 31, 2022, increasing to $2.8 billion by May 25, 2022 after post-period contract awards and extensions.
Guidance, Outlook, Risks and Unusual Items
Management issued 2022 guidance for total revenue of $1.040 billion to $1.110 billion, adjusted EBITDA of $240 million to $280 million, and capital expenditures and long-term maintenance of $320 million to $360 million. Guidance excludes approximately $60 million of forecast mobilization revenue and approximately $75 million of forecast mobilization costs that will be deferred and recognized over contract periods beyond 2022. Reactivation and upgrade projects could materially affect the timing of 2022 expenditures.
Management cited higher oil prices, energy-security priorities and industry fleet reductions as support for an offshore drilling recovery. Demand is strongest for premium ultra-deepwater drillships and Middle East jack-ups. The Norwegian harsh-environment market is expected to remain challenging in the near term, with improved activity anticipated toward the end of 2023.
Key risks include offshore drilling supply and demand, day rates, contract awards and mobilizations, customer payment disputes, rig maintenance and reactivation costs, access to financing, debt covenant compliance, liquidity, oil-price volatility, inflation, supply-chain disruption, geopolitical uncertainty, regulatory and tax matters, climate-related regulation, cybersecurity incidents and the cyclical nature of the industry. The filing also cautions that forward-looking statements are not guarantees of future performance.
Unusual items included Chapter 11 emergence, Fresh Start valuation adjustments, reorganization gains, cancellation of predecessor equity, issuance of successor equity and new debt financing. These items materially distort comparisons of net income, assets, liabilities and equity.
Investor Verification Checklist
- Verify the final terms, amortization, covenants and maturity profile of the approximately $954 million of reported debt.
- Assess unrestricted versus restricted cash and the availability of restricted balances, particularly the $75 million Brazilian tax collateral.
- Reconcile successor, predecessor and combined non-GAAP results before comparing Q1 2022 with prior periods.
- Evaluate the recurring earnings impact of contract gaps, idle rigs, reactivation projects and planned rig disposals.
- Confirm the timing, firm terms, mobilization economics and customer credit quality underlying the $2.8 billion backlog reported at May 25, 2022.
- Compare actual 2022 revenue, adjusted EBITDA and capital expenditures with the issued guidance ranges.
- Review the Brazilian tax case, restructuring-related obligations and other contingencies in the full financial statement notes.