Seadrill Limited — Form 6-K Summary
Reporting period: First quarter ended March 31, 2024. The Form 6-K was furnished on May 14, 2024 and includes unaudited consolidated financial statements and first-quarter results.
Business Context and Financial Results
Seadrill is an offshore drilling contractor operating a technologically advanced fleet across shallow- to ultra-deepwater markets. Management described the quarter as a strong start to 2024, supported by safe operations, improved economic utilization, a cycle-high contract dayrate, and continued shareholder returns.
| Metric | Q1 2024 | Prior comparable period |
|---|---|---|
| Total operating revenues | $367 million | $266 million in Q1 2023; $408 million in Q4 2023 |
| Contract revenues | $275 million | $186 million in Q1 2023; $315 million in Q4 2023 |
| Operating profit | $80 million | $51 million in Q1 2023; $52 million in Q4 2023 |
| Net income | $60 million | $43 million in Q1 2023 |
| Diluted EPS | $0.81 | $0.83 in Q1 2023; $0.95 in Q4 2023 |
| Adjusted EBITDA | $124 million | $100 million in Q4 2023 |
| Adjusted EBITDA margin | 33.8% | 24.5% in Q4 2023 |
Revenue declined sequentially by $41 million, primarily because of fewer operating days for the Sevan Louisiana, West Polaris, and West Auriga, partially offset by improved economic utilization. Q1 2024 economic utilization was 97.1%, compared with 92.4% in Q4 2023. The average number of rigs on contract declined to 10 from 12, while average contractual dayrates increased to approximately $300,000 from $298,000.
Operating expenses were $303 million, compared with $356 million in Q4 2023. Rig operating expenses declined by $40 million, partly due to repair and maintenance timing and $15 million of non-cash accruals recorded in Q4 2023. Q1 SG&A was $25 million and included $4 million of non-recurring costs related to closing the London office and consolidating corporate offices in Houston. Other operating income included a $16 million benefit from recovering historical import duties through tax credits.
Cash Flow, Debt, Liquidity, and Capital Allocation
- Cash flow from operating activities was $29 million, after $29 million of long-term maintenance capital expenditures.
- Capital additions to drilling units and equipment were $23 million, producing reported Free Cash Flow of $6 million.
- Q4 2023 operating cash flow and Free Cash Flow were $140 million and $92 million, respectively.
- Share repurchases totaled $119 million in Q1 2024. As of May 10, 2024, cumulative shareholder returns were $442 million, with $58 million remaining under the current repurchase authorization.
- Since September 2023, Seadrill had repurchased 9.9 million shares, representing 12.4% of the issued share count.
- At March 31, 2024, gross principal debt was $625 million, cash and cash equivalents were $584 million, restricted cash was $28 million, and available borrowings under the undrawn senior secured revolving credit facility were $225 million.
- Cash and restricted cash declined from $728 million at December 31, 2023 to $612 million at March 31, 2024, principally reflecting share repurchases, capital additions, and operating cash flow.
Material Changes and Commercial Activity
- Order backlog was approximately $2.8 billion as of May 14, 2024, including approximately $108 million of contract additions since February 28, 2024.
- The West Capella secured an approximately 40-day, one-well contract in South Korea valued at approximately $32 million, including an approximately $10 million mobilization fee. The contract is expected to begin in December 2024.
- The West Neptune secured a six-month extension in the U.S. Gulf of Mexico valued at approximately $86 million, excluding additional services, beginning in the third quarter of 2025 in direct continuation of its current contract.
- The Sevan Louisiana began a 45-day well-intervention contract in the U.S. Gulf of Mexico in mid-April 2024.
- The West Polaris and West Auriga completed contracts in January and February 2024, respectively, were returned to Seadrill’s fleet after termination of third-party management agreements, and began preparations for Brazilian contracts scheduled to start in the fourth quarter of 2024.
- The Sevan Louisiana underwent a special periodic survey and related maintenance during Q1 2024.
Guidance, Outlook, Risks, and Unusual Items
Seadrill reaffirmed 2024 guidance for revenue of $1.47 billion to $1.52 billion, Adjusted EBITDA of $400 million to $450 million, and capital expenditures of $400 million to $450 million. Management stated that the year was progressing in line with expectations and highlighted fleet competitiveness, focused market positioning, balance sheet strength, earnings durability, and capital returns.
The reported results include a $16 million historical import-duty tax-credit benefit, $4 million of non-recurring office-consolidation costs, and $2 million of merger and integration-related expenses. Adjusted EBITDA and Free Cash Flow are non-GAAP measures.
Key disclosed risks include offshore drilling market conditions, dayrates, customer drilling programs, contract awards and cancellations, rig mobilization, maintenance and shipyard costs, rig performance, customer payment disputes, financing access and loan-covenant compliance, oil-price and macroeconomic volatility, competition, geopolitical conflicts and sanctions, tax and regulatory matters, litigation and contingencies, cybersecurity incidents, climate and decarbonization regulation, personnel availability, and the adequacy of liquidity and cash flows. The filing also identifies risks related to integrating Aquadrill and maintaining exchange-listing requirements.
Important Facts for Investors to Verify
- Whether the approximately $2.8 billion backlog converts into revenue as scheduled and whether any contracts are canceled or delayed.
- The timing and execution of Brazilian work for the West Polaris and West Auriga and the impact of the Sevan Louisiana maintenance period.
- Progress toward the reaffirmed revenue, Adjusted EBITDA, and capital expenditure guidance ranges.
- The sustainability of the 97.1% economic utilization rate and the cycle-high $545,000 clean dayrate achieved on a one-well contract.
- Cash generation after maintenance and capital expenditures, particularly in light of the $6 million Q1 Free Cash Flow and continued share repurchases.
- Remaining share-repurchase authorization, liquidity availability, debt terms, and compliance with financing covenants.
- The effect of the $16 million tax-credit benefit and other unusual items on the comparability of operating performance.