Seadrill Limited — FY2020 Form 20-F
Reporting period: Year ended December 31, 2020; filed March 19, 2021. This is an annual report, not a standalone Q4 report, and the filing does not provide a clear standalone fourth-quarter income statement. Figures are in U.S. dollars unless stated otherwise. Financial statements use U.S. GAAP.
Business context
Seadrill provides offshore contract drilling services worldwide, operating drillships, semi-submersible rigs and jack-ups for oil and gas customers. At year-end it owned 34 rigs and reported managing and operating 20 rigs for affiliated or joint-venture entities. The offshore market remained depressed amid COVID-19, lower oil demand and oversupply of drilling units.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Operating revenue | $1.059 billion | $1.388 billion |
| Operating loss | $4.482 billion | $295 million |
| Net loss | $4.663 billion | $1.222 billion |
| Basic and diluted loss per share | $46.43 | $12.18 |
| Cash flow from operations | $(420) million | $(256) million |
| Capital expenditures | $148 million | $162 million |
| Cash and restricted cash at year-end | $723 million | $1.357 billion |
| Interest-bearing debt principal | $6.177 billion | $6.759 billion |
| Total assets | $3.961 billion | $9.279 billion |
| Total equity/(deficit) | $(3.140) billion | $1.793 billion |
Revenue fell about 24% year over year. The company recorded $4.087 billion of impairment charges on drilling units and a further $21 million impairment of intangible assets. Reported operating and net margins were heavily distorted by these charges; the filing does not present a comparable adjusted margin or EBITDA measure in the supplied text. Operating cash outflow increased, and cash including restricted balances declined by $634 million during the year. Of year-end cash, $526 million was unrestricted.
All $6.177 billion of debt principal was classified as due within one year at December 31, 2020 following defaults and cross-defaults. Current liabilities were $6.545 billion against current assets of $1.062 billion. The filing states that available resources would not have been sufficient to repay debt if called. The company reported a $3.140 billion equity deficit.
Changes versus FY2019
- Revenue declined by $329 million, primarily reflecting fewer rigs on contract, especially in the floater and jack-up segments. Contract revenue decreased from $997 million to $703 million.
- Operating loss widened from $295 million to $4.482 billion, principally because of the $4.087 billion rig impairment. Net loss widened to $4.663 billion.
- Operating cash outflow rose from $256 million to $420 million; year-end cash and restricted cash fell by $634 million.
- Contract backlog declined from $2.544 billion to $1.857 billion, approximately 27%.
- Seadrill sold the cold-stacked West Epsilon for $12 million, with proceeds applied directly to debt, and acquired the remaining 33.76% of AOD for $31 million.
- The company deconsolidated the Ship Finance special-purpose entities holding West Taurus, West Hercules and West Linus. Re-measurement of the related lease liability generated a non-cash gain of $509 million.
- Seadrill Partners filed for Chapter 11 in December 2020; Seadrill fully impaired its remaining investment in that entity and ceased accounting for it as an equity-method investment.
Outlook, risks and unusual items
- Subsequent Chapter 11 filing: Seadrill and most subsidiaries filed for Chapter 11 protection in February 2021; certain entities were excluded. The filing says first-day court relief allowed operations to continue. Management expected a comprehensive restructuring, likely involving significant debt-for-equity conversion and material reductions to existing shareholders’ positions; the company stated current shareholders could receive minimal or no recovery. A going-concern uncertainty was identified by management and the auditor.
- Liquidity and debt: Seadrill reported missed interest payments in 2020 and January 2021, debt defaults and forbearance arrangements. Management believed available liquidity could support operations through a 12-month restructuring period, but noted substantial uncertainty and no assurance of an acceptable, court-confirmed plan. No DIP facility had been arranged as described in the filing.
- Industry outlook: Management anticipated some market recovery by mid-2022, while warning that oversupply would continue to pressure utilization and dayrates in 2021. Brent crude was $52 per barrel at December 31, 2020; the filing cites a $9 April 2020 low. These are expectations, not assurances.
- Operations and customer exposure: Five largest customers accounted for about 49% of FY2020 revenue. At year-end, Seadrill reported 12 operating units, five warm-stacked units (three future-contracted) and 17 cold-stacked units. Backlog is subject to downtime, contract changes or termination, and customer credit risk.
- Related-party credit risk: Related-party receivables were $477 million net of allowances; the company recorded a $166 million FY2020 credit-loss expense and adopted CECL with a $143 million opening allowance. The filing also discloses a $142 million receivable exposure to Northern Ocean before allowances.
- Other contingencies and risks: Disclosed matters include Brazilian and Nigerian tax assessments, Dalian newbuild arbitration/insolvency claims, a Brazilian cabotage appeal and other litigation. The company cited COVID-19, oil-price volatility, environmental regulation, sanctions, operating hazards and refinancing as material risks.
- Trading and distributions: Seadrill voluntarily delisted from the NYSE in June 2020; shares continued to trade on the Oslo Stock Exchange and OTCQX. No dividends had been paid since 2014, and the company said little or no dividends were expected for the foreseeable future.
Most important facts for investors to verify
- The status and confirmed terms of the Chapter 11 plan, including the treatment and likely recovery of existing common shares.
- Available unrestricted cash, cash collateral restrictions, actual restructuring cash needs and the timing or availability of any new financing.
- The amount, priority, collateral and ultimate treatment of debt and Ship Finance lease obligations, including the West Taurus handover and related rig consequences.
- Whether the $1.857 billion contract backlog converts to revenue and cash, given contract termination rights, downtime and customer credit quality.
- The assumptions supporting the $4.087 billion asset impairment and any further impairment or asset-disposal needs.
- Recoverability of related-party receivables and the outcome of tax claims, guarantees and material legal proceedings.