Seadrill Ltd (SDRL)·Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 revenue declined 18% sequentially to $289 million as operating days fell; adjusted EBITDA dropped to $28 million (9.7% margin) while diluted EPS rose to $1.54, driven by a $133 million income tax benefit .
• Management secured two 3‑year Petrobras drillship awards (West Jupiter, West Tellus) adding ~$1.0 billion backlog and lifted total order backlog to ~$3.0 billion; 2025 marketed fleet is ~75% contracted .
• Q4 cash and equivalents were $505 million vs. gross principal debt of $625 million (net debt ~$120 million); free cash flow was negative $31 million on heavy maintenance and upgrades; the company repurchased $100 million in shares in Q4, bringing total buybacks to ~$792 million since Sept 2023 (~22% share count reduction) .
• 2025 guidance: revenue $1.30–$1.36 billion (excludes ~$35 million reimbursables), adjusted EBITDA $320–$380 million, CapEx $250–$300 million; management flagged ~$55 million EBITDA headwind from early‑2025 operational items but emphasized durable backlog into 2029 .

What Went Well and What Went Wrong

What Went Well

• Secured long-term Petrobras contracts for West Jupiter and West Tellus (~1,095 days each), adding ~$1 billion in backlog and supporting utilization into 2029; backlog reached ~$3.0 billion and ~75% of 2025 rig days are contracted .
• Delivered the first next‑generation managed pressure drilling (MPD) system to Petrobras on West Polaris and upgraded power management/DPS, reinforcing technology leadership; management highlighted strong interest from clients .
• Capital returns and balance sheet resilience: Q4 buybacks of $100 million; cumulative ~$792 million repurchased since program inception (22% share reduction); cash $505 million and net debt ~$120 million .
• Quote: “With a strong balance sheet, and durable backlog that extends meaningfully into 2029, we are well‑positioned to navigate any market volatility.” — CEO Simon Johnson .

What Went Wrong

• Operating revenues fell to $289 million (‑18% QoQ) as contract revenues declined 22% to $204 million on fewer operating days (West Phoenix/West Capella completions; West Neptune out-of-service) .
• Total operating expenses rose 5% QoQ to $323 million on higher merger/integration, management contract and SG&A expenses; adjusted EBITDA fell to $28 million (from $93 million) .
• Regulatory and operational disruptions: West Tellus incurred ~50 days of downtime in Q1 2025 due to regulatory interpretations in Brazil; West Neptune schedule was affected by vendor issues and adverse weather .
• Emerging legal risk: Petrobras asserted ~$213 million in delayed penalties tied to the 2012 Seche Brazil project; management will defend vigorously; separate Norwegian court ruling on Hercules redelivery awarded ~$48 million against Seadrill (appeal planned) .

Financial Results

Quarterly Performance vs Prior Two Quarters

EPS and Net Income

Note: The press release highlights section also lists Q3 diluted EPS at $0.49, which differs from the consolidated statements ($0.95). We anchor on the consolidated statements and flag the discrepancy for investor awareness .

Revenue Composition

Operational KPIs

Balance Sheet and Cash Flow Highlights (Q4 2024)

• Cash and cash equivalents: $478 million; restricted cash: $27 million (total $505 million) .
• Gross principal debt: $625 million; net debt: ~$120 million .
• Net cash from operating activities: $7 million; Free Cash Flow: −$31 million .
• Capital expenditures: $132 million (contract prep for West Auriga/West Polaris; West Neptune survey/upgrades) .
• Share repurchases: ~$100 million completed in Q4; cumulative ~$792 million since Sept 2023 (~22% share reduction) .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Strategic positioning: “We are well‑positioned to navigate the downside and capitalize on the upside… our marketed fleet is 75% contracted for calendar year 2025… backlog… extends meaningfully through 2028 and into 2029.” — Simon Johnson .
• Technology leadership: “Delivered the first next‑generation managed pressure drilling system to Petrobras… seeing strong interest… upgraded power management and dynamic positioning system… closing the gap with seventh generation drillship capabilities.” — Simon Johnson .
• Financial outlook clarity: “We anticipate total operating revenues between $1.3 billion and $1.36 billion… adjusted EBITDA in the range of $320 million to $380 million… CapEx $250 million to $300 million.” — Grant Creed .
• Cost discipline and stacking: “To the extent we don’t have clear work, we’re going to stack [Capella]… stacking costs one‑off $6–$10 million… run rate ~$5,000 per day.” — Grant Creed and Simon Johnson .
• Regulatory dynamics: “The rules haven’t changed, but rather the regulator’s interpretation… getting clearance was a much more protracted process… we’re working… to understand and navigate these new regulatory expectations.” — Simon Johnson .

Q&A Highlights

• Brazil downtime and regulator: Management confirmed ~50 days downtime on West Tellus tied to regulator interpretation shifts; expects to adapt to new focus areas as they become clear .
• Litigation updates: Petrobras penalty notices ($213 million) related to the 2012 Seche project; contracts cap aggregate penalties at 10% of contract value; company intends to defend vigorously; Hercules ruling ($48 million) to be appealed .
• OpEx cadence and KPI: Drillship per‑day operating expense KPI ~$150,000 (ex SG&A and integrated services); EBITDA progression expected softer Q1 then improving Q2, with upside if Capella/Louisiana secure work .
• Stacking economics: Capella stacking one‑off $6–$10 million and ~$5,000/day run rate if no clear line of sight; Seadrill remains disciplined on reactivations and return thresholds .
• Buybacks framework: Active discussion with Board; finance policy targets ~1x net leverage and accretive uses (CapEx vs buybacks) while conserving cash amid uncertainty .

Estimates Context

• Wall Street consensus via S&P Global was unavailable at time of request, preventing direct comparisons to estimates for Q4 2024, Q3 2024, and Q2 2024 (API limit reached). Values retrieved from S&P Global were unavailable for inclusion; as a result, we cannot quantify beats/misses versus consensus this quarter [GetEstimates error].
• Context for future estimates: Management’s 2025 guidance (revenue $1.30–$1.36B; EBITDA $320–$380M) and disclosure of ~$55M EBITDA headwind in early 2025 should be incorporated into models; unusual Q4 EPS includes $133M tax benefit that lifted net income/ EPS despite lower revenues .

Key Takeaways for Investors

• Near‑term softness but durable positioning: Revenue decline and lower activity in Q4 were expected; backlog (~$3B) and ~75% 2025 contracted days provide cushion amid softer market utilization in 2025 .
• Technology differentiation matters: MPD deployment and DPS/power upgrades on West Polaris bolster premium capability, supporting future dayrate/term discussions in Brazil and beyond .
• Watch Brazil regulatory and legal headlines: Regulatory downtime risk and Petrobras penalty notices are the main incremental overhangs; monitor developments and potential set‑offs against receivables .
• Capital discipline continues: Expect stacking decisions where economics don’t pencil; per‑day OpEx KPI (~$150k) and clear stacking cost disclosure guide cash burn considerations .
• 2025 setup: Guidance implies a recovery path after Q1 headwinds; incremental work on Capella/Louisiana could drive upside vs guidance midpoint; backlog repricing benefits begin in 2026 .
• Shareholder returns remain in focus: $100M Q4 buyback within $500M authorization and cumulative ~$792M repurchases since 2023 highlight continued capital return discipline subject to liquidity/leverage policy and market conditions .
• Narrative drivers: Contract wins, technology deployment, regulatory/legal clarity, and 2025 contract coverage will likely be the catalysts moving the stock through 2025 .