Seadrill (SDRL) Q2 FY26 earnings call: guidance and Q&A

Seadrill reported strong Q2 FY26 financial results, with total operating revenues of $449 million and adjusted EBITDA of $144 million, exceeding expectations. This performance was primarily driven by increased operating days and an improving average day rate, particularly from the West Capella and West Jupiter commencing new, higher-rate contracts. The company achieved 96% economic utilization and successfully completed the West Telus reacceptance on schedule and budget, positioning it for higher revenue generation in the second half of the year.

The company resumed shareholder returns, repurchasing $20 million of shares in June under an extended $208 million authorization, valid through the end of the current calendar year. This was supported by a strengthened financial position following a successful refinancing in June, which included issuing $700 million of 6.75% senior notes due 2034 and increasing the revolving credit facility to $300 million, extending its maturity to 2031. Management emphasized a focus on generating free cash flow and disciplined capital deployment.

Seadrill added approximately $200 million to its backlog since the May call, including a 12-month contract for the West Telus in the U.S. Gulf worth $161 million, extending operations into June 2027. The West Capella also secured a 75-day extension in Malaysia. These successes demonstrate the company's ability to capture upside and strengthen revenue visibility into 2027, with total year-to-date backlog added in the U.S. Gulf reaching nearly $0.5 billion.

The broader deepwater market continues to tighten, supported by improving fundamentals and rising offshore investment. The current tender pipeline suggests drillship utilization could reach the mid-90% range by 2027. The U.S. Gulf is in transition but expected to improve in 2027, while Brazil remains a core, well-contracted market with 25 drillships currently engaged. Southeast Asia is showing growing demand momentum, and West Africa is expected to absorb significant rig capacity from upcoming FIDs and tenders.

Seadrill is strategically positioning its fleet, with the West Neptune contracted into late 2027 and the Sevan Louisiana performing well in the U.S. Gulf. The West Carina, having completed its Brazil contract, has been mobilized to Walvis Bay, providing flexibility to pursue opportunities in both West Africa and Southeast Asia, where near-term work is expected to commence in H1 2027. The company's commercial approach focuses on direct continuation work and maximizing total economic value, including mobilization fees and favorable terms.

Management noted that the current market tightening feels reminiscent of previous upcycles, such as 2008, but with a key difference: the supply of high-specification drillships is relatively inelastic, as there are no significant newbuilds on the sidelines. This inelastic supply combined with increasing demand suggests an even more favorable environment than past cycles, with expectations for continued day rate momentum driven by utilization.