Seadrill Limited — 2019 Form 20-F summary
Period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter filing; the supplied text does not provide clear Q4-only financial results. Amounts are in U.S. dollars unless stated otherwise.
Business context and reporting period
Seadrill is a Bermuda-incorporated offshore drilling contractor serving the oil and gas industry. At year-end it owned 35 rigs—7 drillships, 12 semi-submersibles and 16 jack-ups—and managed 20 rigs for affiliates and joint ventures. Its 2019 results use U.S. GAAP and reflect the successor reporting entity established after emergence from Chapter 11 on July 2, 2018. Fresh-start accounting makes post-emergence results not directly comparable with predecessor periods; the 2018 successor comparison covers only July 2–December 31.
Key financial and operating metrics
| Metric | 2019 / year-end 2019 | Comparison or context |
|---|---|---|
| Revenue | $1.388 billion | $541 million in the 2018 successor period (six months; not comparable). Revenue comprised $997 million contract, $264 million reimbursable and $127 million other revenue. |
| Operating loss | $295 million | Operating margin was approximately -21%, derived from reported revenue and operating loss. |
| Net loss | $1.222 billion | $605 million loss in the 2018 successor period (six months; not comparable); 2019 basic and diluted loss per share were both $12.18. |
| Major non-operating charges | $302 million impairment of investments; $487 million interest expense | The impairment principally related to Seadrill Partners. Net loss also included $115 million share of losses from associated companies and other financial items. |
| Cash flow | Operating cash flow: -$256 million; investing: -$26 million; financing: -$367 million | Cash and restricted cash decreased $646 million during 2019. |
| Cash and liquidity | $1.115 billion unrestricted cash; $242 million restricted cash | Year-end cash and cash equivalents including restricted cash were $1.357 billion, versus $2.003 billion at December 31, 2018. |
| Debt | $6.759 billion external debt principal, plus $314 million related-party debt principal | External debt carrying value was $6.623 billion after discounts and fees. Secured credit facilities accounted for $5.662 billion; Senior Secured Notes principal was $476 million. |
| Assets and equity | Total assets: $9.279 billion; total equity: $1.793 billion | At December 31, 2018, total assets were $10.848 billion and equity was $3.035 billion. |
| Capital spending | $162 million | Primarily rig additions and long-term maintenance. |
| Backlog and fleet activity | $2.544 billion contract backlog; 17 contracted and 18 idle rigs at year-end | Backlog was $2.087 billion a year earlier. Average rigs on contract rose from 15 in the 2018 successor period to 16 in 2019. |
| Utilization and dayrates | Economic utilization: 92% floaters, 96% jack-ups | 2018 successor: 95% and 99%, respectively. Average contractual dayrates were $245,000/day for floaters and $106,000/day for jack-ups. |
Material changes versus prior periods
- Revenue and the number of rigs on contract increased relative to the six-month 2018 successor period, but that period is not a full-year comparable. The filing cautions against comparisons across the fresh-start accounting boundary.
- Backlog increased from $2.087 billion at year-end 2018 to $2.544 billion at year-end 2019. Management projected $721 million of that backlog for 2020; actual realization depends on operations, downtime, customer performance and contract terms.
- Cash including restricted balances fell from $2.003 billion to $1.357 billion. Operating cash flow remained negative, while external debt principal declined from $7.086 billion to $6.759 billion, including the 2019 repurchase of $311 million principal of Senior Secured Notes for $342 million.
- Seadrill recorded a $302 million impairment of investments, chiefly in Seadrill Partners, whose common units were suspended from NYSE trading in 2019 and later delisted.
Outlook, management commentary and risks
- Management said available cash and expected operating cash flows should cover working capital and obligations for at least 12 months after the report date. However, operating cash flow was negative in 2019, and management forecast possible noncompliance with liquidity requirements in periods after that 12-month horizon.
- Since Q4 2019, Seadrill had been negotiating amendments with secured lenders to seek near-term liquidity and flexibility, including converting some cash interest to PIK and deferring or converting amortization payments. Discussions were described as advanced but unresolved; contingency plans were being prepared. Failure to reach agreement could increase default, acceleration and liquidity risks.
- The filing’s covenant descriptions should be checked carefully: its narrative says Seadrill expected not to meet financial covenants when testing began at the end of Q1 2021, while the debt note lists net-leverage and debt-service coverage testing from March 2022 and describes possible margin increases during 2021. The filing also identifies a $400 million minimum-liquidity covenant.
- Industry conditions remained uncertain. The filing cites the COVID-19 pandemic and the March 2020 breakdown in OPEC/Russia production-cut negotiations, after which Brent crude fell sharply. These developments occurred after the 2019 year-end and could adversely affect customer spending, utilization, dayrates and cash flows.
- Five customers represented approximately 67% of 2019 revenue, creating customer-concentration risk. Seadrill also identified risks from idle rigs and oversupply, contract cancellation or renegotiation, high leverage, floating-rate debt, affiliate exposures, regulatory and tax disputes, and insurance limitations.
- Other notable items include a $302 million Seadrill Partners investment impairment, an $11 million impairment of the Archer convertible bond, and a $161 million Brazilian tax assessment and $171 million Nigerian tax claims being contested. The company stated it had not recognized a loss contingency for those tax claims; $83 million of collateral was posted in Brazil.
- The NYSE notified Seadrill on March 26, 2020 that its share price was below the $1 minimum standard. The company said it intended to cure the deficiency, potentially through a share consolidation. No dividend had been paid since 2014, and future dividends were uncertain and restricted by debt terms.
- PwC issued an unqualified audit opinion on the 2019 financial statements and concluded internal control over financial reporting was effective as of year-end. The audit report included an emphasis of matter concerning lender negotiations to restructure debt.
Most important facts for investors to verify
- Progress and final terms of lender amendments, including payment-in-kind interest, amortization deferrals, covenant timing, liquidity tests and any required waivers.
- Cash available for general use versus restricted cash, near-term debt service, and the company’s ability to generate positive operating cash flow.
- Whether contract backlog converts to revenue and cash as projected, given idle rigs, utilization, dayrates, customer concentration and termination rights.
- Potential further impairments or funding needs involving Seadrill Partners, SeaMex, Seabras Sapura and other affiliates, including guarantees and related-party receivables.
- Outcomes of Brazilian and Nigerian tax matters, the Dalian newbuild claims, and the AOD minority shareholder put option, exercisable through September 30, 2020.
- NYSE listing compliance actions and any resulting share issuance, consolidation or dilution.