Seadrill Limited: Form 6-K Summary
Business context and reporting period
Seadrill filed this report on August 15, 2023, covering the second quarter and six months ended June 30, 2023. The company is an offshore drilling contractor focused increasingly on benign deepwater floaters. The Aquadrill transaction closed on April 3, 2023, adding four contracted floaters to the quarter and increasing Seadrill’s contracted floater count to 12. Seadrill also owned three harsh-environment rigs and four jackups at quarter-end, with plans to sell three jackups.
The financial statements identify Seadrill as the Successor entity. Comparisons with 2022 may not be directly comparable because of the company’s prior restructuring and predecessor/successor accounting.
Financial and operating highlights
| Metric | Q2 2023 | Q1 2023 | Change |
|---|---|---|---|
| Total operating revenues | $414 million | $266 million | Up $148 million, or 56% |
| Contract revenues | $329 million | $186 million | Up $143 million, or 77% |
| Operating profit | $109 million | $51 million | Up $58 million |
| Adjusted EBITDA | $159 million | $85 million | Up $74 million |
| Adjusted EBITDA margin | 38.4% | 32.0% | Up 6.4 percentage points |
| Net income | $94 million | Not clearly provided in the release’s highlights | Not clearly provided |
| Diluted EPS | $1.16 | $0.83 | Up $0.33 |
- Average rigs contributing to contract revenue increased to 13 from nine, with an average day rate of $276,000 and economic utilization of 93%.
- Management contract revenue was $66 million and reimbursable and other revenue was $19 million.
- Operating expenses were $308 million, including $16 million of merger and integration-related expenses.
- Net cash provided by operating activities was $20 million in Q2, compared with $15 million in Q1. Adverse working-capital movements reduced operating cash flow.
- Long-term maintenance costs were $23 million and capital upgrades were $14 million, resulting in total capital expenditures of $37 million during the quarter.
- At June 30, 2023, cash and cash equivalents were $412 million, restricted cash was $127 million, and total debt was approximately $355 million.
- For the six months ended June 30, 2023, net cash provided by operating activities was $35 million, investing activities provided $66 million, and financing activities used $167 million. Cash and restricted cash ended the period at $539 million.
Material changes and strategic actions
- The Aquadrill acquisition increased Seadrill’s scale and contributed a full quarter of acquired contracted-rig operations in Q2.
- After quarter-end, Seadrill issued $575 million of 8.375% senior secured second-lien notes due 2030 and established a new $225 million senior secured five-year revolving credit facility, with an accordion feature of up to $100 million.
- Management stated that the refinancing reduces the company’s cost of capital, removes certain restrictive covenants, and increases strategic flexibility. The filing does not provide post-refinancing total debt or net debt.
- On July 28, 2023, Seadrill completed the sale of three tender-assist units for approximately $85 million in cash.
- The company announced a share repurchase authorization of up to $250 million. The authorization has no fixed expiration, is discretionary, and does not obligate Seadrill to repurchase shares.
- Shares issued increased to 79,866,503 at June 30, 2023, from 49,999,998 at December 31, 2022, primarily reflecting shares issued in connection with the Aquadrill acquisition.
Backlog, outlook, risks, and unusual items
- Order backlog was $2.6 billion at quarter-end after approximately $203 million of contract additions and $2.4 billion as of August 15, 2023.
- Contract extensions included the Sonangol Quenguela through January 2025, the West Gemini through May 2025, and an approximately two-month extension for the West Capella. Two jackups also received extensions for operations offshore Qatar.
- Management stated that full-year performance remained in line with previous guidance; the filing text does not provide the numerical guidance range.
- Management emphasized a conservative capital structure, fleet refinement, disciplined growth, and potentially returning capital through share repurchases.
- Q2 results included $16 million of merger and integration expenses. Adjusted EBITDA also excluded primarily gains on sundry asset disposals.
- Key risks include offshore drilling market conditions, day rates, customer activity, contract cancellations, rig utilization, maintenance and capital-project costs, financing and covenant compliance, liquidity, interest rates, oil prices, regulatory and tax matters, litigation and Aquadrill integration, geopolitical conditions, climate and emissions regulation, cybersecurity, insurance limitations, and the company’s ability to maintain exchange listings.
Important facts for investors to verify
- Reconcile the post-quarter-end refinancing proceeds, repayment of prior secured debt, interest burden, covenants, collateral, and resulting net leverage.
- Verify the numerical full-year guidance referenced by management and assess whether it incorporates the Aquadrill contribution and asset sales.
- Confirm the timing, price, and amount of any share repurchases, as the authorization is discretionary and may be suspended or discontinued.
- Evaluate backlog quality, including contract duration, day rates, customer concentration, options, cancellation provisions, and the decline from $2.6 billion at quarter-end to $2.4 billion as of August 15.
- Monitor execution of the planned jackup divestitures and the company’s continued shift toward deepwater floaters.
- Review the unaudited financial statements and related-party disclosures, including $72 million of related-party revenue in Q2 2023.