Seadrill Limited — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023; this is an annual report, not a standalone fourth-quarter filing. Seadrill is a Bermuda-incorporated offshore drilling contractor reporting under U.S. GAAP. Its results include Aquadrill from April 1, 2023. The 2022 Successor period covers February 23–December 31 and is not directly comparable; fresh-start accounting and changes in fleet size and composition also affect comparisons.
Business context and operations
Seadrill owns and operates offshore drillships, semi-submersibles and jackups, generally earning dayrates under customer drilling contracts. At year-end, it owned 19 rigs: 15 operating, three cold stacked and one warm stacked. It also managed two rigs owned by Sonangol. The April 2023 Aquadrill acquisition added four drillships, one semi-submersible and three tender-assist units; the three tender-assist units were sold in July for $84 million.
Financial and operating highlights
| Metric | FY2023 | Comparable reported period |
|---|---|---|
| Operating revenue | $1.502 billion | $843 million, Feb. 23–Dec. 31, 2022 Successor period |
| Operating profit | $329 million | $35 million, 2022 Successor period |
| Net income | $300 million | $201 million, 2022 Successor period, including $274 million from discontinued operations |
| Net income from continuing operations | $300 million | Loss of $73 million, 2022 Successor period |
| Operating cash flow | $287 million | $65 million, 2022 Successor period |
| Capital expenditures | $209 million, including $101 million of additions and $108 million of long-term maintenance | $214 million, 2022 Successor period |
| Year-end available liquidity | $953 million: $728 million cash and restricted cash, plus $225 million undrawn revolver | $723 million at December 31, 2022 |
| Debt | $625 million principal; $608 million carrying value | $496 million principal; $518 million carrying value at December 31, 2022 |
FY2023 operating margin was approximately 21.9% and net margin approximately 20.0%, calculated from reported revenue and profit. The filing does not report a standalone Q4 financial result or a single Free Cash Flow figure; its capital allocation framework defines Free Cash Flow as operating cash flow less capital expenditures.
Operating revenue comprised $1.154 billion in contract revenue, $271 million in management contract revenue, $32 million in reimbursables and $45 million in other revenue. Average rigs on contract increased from eight to 11, and average contractual dayrate rose from $241,000 to $284,000 per day. Economic utilization declined to 93% from 95%, reflecting planned maintenance and operational downtime. Contract backlog rose to approximately $3.020 billion from $2.315 billion; $1.226 billion was scheduled to unwind in 2024. Backlog is based on firm contracts and may not be realized as forecast.
Changes, financing and capital allocation
- Aquadrill merger: Seadrill issued approximately 29.9 million shares, about 37% of post-merger shares. Aquadrill contributed $383 million of revenue and $145 million of continuing-operations net income included after the April 1 convenience date. Merger and integration expenses were $24 million.
- Debt refinancing: Seadrill issued $575 million of 8.375% senior secured second-lien notes due 2030 and used proceeds to repay its prior secured facilities. It also established a five-year, $225 million first-lien revolving facility, undrawn at year-end. The company reported compliance with its financial covenants at year-end and expected continued compliance for the next 12 months.
- Share repurchases: FY2023 financing cash flows included $263 million of repurchases. The filing reports 6,161,198 shares purchased during 2023 at a weighted-average $43.12 per share. The Board’s aggregate authorization was raised to $500 million; approximately 2.5 million additional shares were repurchased from January 1 to March 22, 2024, at a weighted-average $44.94.
- Capital allocation targets: Management intends to maintain net leverage below 1.0x in current market conditions, below 2.0x through the cycle, and at least $250 million of cash on hand. Subject to those targets and covenant compliance, it aims to return at least 50% of Free Cash Flow through dividends or repurchases. These are goals, not a commitment; no dividend has been paid since incorporation.
- Asset sale discussions: Seadrill continued discussions about a potential sale of its Qatar jackup fleet and Gulfdrill interest, but could not predict whether or when a sale would occur.
Outlook, risks and unusual items
Management described offshore rig demand as improving, supported by energy-security concerns, commodity-price confidence and prior underinvestment. Brent averaged $82 per barrel in 2023 versus $101 in 2022. Seadrill reported improving utilization in several market segments, while noting that further gains in harsh-environment markets could be difficult in 2024 and that market recovery depends on continued supply discipline. No specific company revenue or earnings guidance is provided in the supplied filing text.
Key exposures include volatile oil prices and offshore drilling cycles; customer concentration (the five largest customers represented approximately 57% of 2023 revenue); geographic concentration (the United States, Brazil and Angola represented approximately 30%, 23% and 18%); cost inflation; rig downtime, maintenance and reactivation costs; contract cancellation or renegotiation; and reliance on customers, suppliers, joint ventures and skilled personnel. Seadrill reported $170 million of unrecognized tax benefits including interest and penalties. Disputed tax assessments include approximately $161 million in Brazil, $171 million in Nigeria and $110 million in Mexico; the company is contesting them.
Other notable contingencies include SFL’s approximately $55 million claim relating to redelivery of the West Hercules; an approximately $72 million claim alleging unpaid fees related to formation of Sonadrill; and Nigerian Cabotage litigation involving approximately $69 million of contract value. Seadrill intends to defend these matters; outcomes are uncertain. It also provided guarantees capped at $1.1 billion for Sonadrill and $100 million for Northern Ocean, with no liability recognized because management did not consider a call probable. The auditor identified uncertain tax positions and Aquadrill drilling-unit valuation as critical audit matters. The filing reports no identified impairment indicators for drilling units in 2023.
Seadrill expects to close its London office and consolidate corporate offices in Houston by March 31, 2024. It anticipated it might lose foreign-private-issuer status as of June 30, 2024, potentially requiring additional U.S. reporting and governance compliance from 2025. Management reported effective disclosure controls and internal control over financial reporting; the auditor issued an unqualified opinion on both the financial statements and internal controls.
Important facts for investors to verify
- Whether backlog converts to revenue at expected dayrates and timing, particularly the $1.226 billion scheduled for 2024, and how availability of rigs affects utilization.
- Cash generation after maintenance and capital spending, the company’s progress toward liquidity and leverage targets, and any revolver borrowing or covenant developments.
- Resolution and potential cash impact of the Brazil, Nigeria and Mexico tax matters and the disclosed litigation and guarantees.
- Whether the Qatar fleet and Gulfdrill interest are sold, on what terms, and how any proceeds are allocated.
- Actual buybacks and any dividends against the discretionary capital allocation framework, while accounting for share dilution and the convertible bond.
- Effects of Aquadrill integration, acquired contract economics and fair-value estimates, and Seadrill’s anticipated reporting-status transition.