With offshore drilling industry making strides, Seadrill rig fleet positioned for ‘growth and enhanced performance’

Offshore drilling contractor Seadrill has tucked “excellent” operational and strong financial performance under its belt during 2022 while expanding its rig fleet thanks to the recent acquisition of Aquadrill. As a result, the Bermuda-headquartered player is anticipating further improvements in the future, as the demand for offshore drilling services continues its growth trajectory within the oil and gas market.

In the aftermath of the global energy crisis, which became a household name in 2022, energy security took centre stage while countries and companies also embarked on a net-zero journey by pursuing a ramp-up in renewable and low-carbon power developments. With energy security at the helm, global oil and gas players recorded all-time-high profits in 2022.

With price volatility, tight supply, and high energy demand, many countries opted to fast-track some energy projects, including oil and gas ones, while exploration activities for new hydrocarbon resources have been bolstered, bringing more business to the offshore drilling market. As a result, the demand for rigs continues to grow while day rates get a boost.

The rise in rig demand and day rates is demonstrated by the results for the fourth quarter and full-year 2022 announced by Seadrill’s rivals, such as Vantage, and Shelf Drilling, which had a contract backlog of $2.7 billion on 31 December 2022 across 35 contracted rigs, representing a marketed utilisation of 97 per cent.

In line with this, Diamond Offshore’s fleet revenue efficiency was 96.4 per cent during 4Q 2022 and just under 94 per cent for full-year 2022 with approximately $1.8 billion, or 17.6 rig years of backlog, while Noble’s marketed fleet utilisation was 88 per cent in the three months that ended on 31 December 2022 and its backlog stood at $3.9 billion.

On the other hand, Transocean secured $4 billion in incremental backlog in 2022 with a total fleet average revenue efficiency of 98 per cent in 4Q 2022 and 96.4 per cent for the full-year 2022 while Valaris achieved revenue efficiency of 98 per cent in the fourth quarter of 2022 with a contract backlog of more than $400 million. The firm’s revenue efficiency was 97 per cent for the full-year 2022.

Within its results for the fourth quarter and full-year 2022 released on Wednesday, 5 April 2023, Seadrill reported that its total operating revenues for 4Q 2022 were $228 million, compared to $269 million in 3Q 2022, a decrease of $41 million, primarily due to decreased rig operating days resulting from the West Tellus drillship moving to the shipyard for upgrades before its upcoming contract with Petrobras and completion of leasing arrangements for the West Hercules semi-submersible rig and the West Linus jack-up rig.

The Bermuda-based firm explained that the decline was partially offset by the start of new contracts for the West Carina, West Saturn, and West Jupiter drillships in Brazil, as well as a one-time sale of inventories to Gulf Drilling International, its joint venture partner for Gulfdrill. The company’s total operating revenues for the full-year 2022 were over $1 billion, compared to $907 million for the full-year 2021.

Furthermore, Seadrill’s total operating expenses for 4Q 2022 were a loss of $236 million, compared to a loss of $250 million in the third quarter of 2022, a decrease of $14 million primarily attributed to fewer operating days in the quarter, partly offset by increased costs on the rigs starting new contracts in Brazil. On the other hand, the firm’s total operating expenses for the full-year 2022 were a loss of $943 million, compared to a loss of more than $1 billion for the twelve months that ended on 31 December 2021.

Seadrill’s total adjusted EBITDA was $41 million in the fourth quarter of 2022, compared to $71 million in the third quarter of 2022. This delivered a total adjusted EBITDA margin of 17 per cent in 4Q 2022, compared to 23 per cent in 3Q 2022. The total adjusted EBITDA for the full-year 2022 was $265 million, at the top end of Seadrill’s 2022 financial guidance range.

The total adjusted EBITDA in Q4 2022 was also in line with expectations and previous guidance, but lower than the prior quarter primarily as a result of the idle time for the West Tellus rig, which completed upgrades for its upcoming long-term campaign with Petrobras that began in early January 2023; fewer rig operating days for the West Hercules rig, which concluded its operations in Canada and subsequently demobilised to Norway; and not benefiting from a full quarter of operating results with respect to the rigs sold in October 2022.

As a reminder, Seadrill completed the sale of the legal entities that own and operate seven jack-up rigs – AOD I, AOD II, AOD III, West Callisto, West Ariel, West Cressida and West Leda – in the Kingdom of Saudi Arabia on 18 October 2022, which triggered a mandatory payment of $204 million – inclusive of principal, accrued interest and exit fee – under the firm’s secured second lien debt facility, thus, the company made a voluntary payment of $269 million on 14 November 2022.

Moreover, Seadrill’s cash and cash equivalents, which excludes restricted cash, as of 31 December 2022 was $480 million, primarily driven by proceeds from the jack-up sale, partly offset by debt payments made under the second lien facility. Additionally, the firm’s net profit from continuing and discontinued operations for 4Q 2022 was $249 million, compared to a net loss of $16 million in 3Q 2022 while the company’s net profit was $3.9 billion for the full-year 2022, compared to a loss of $587 million for 2021.

Regarding its rig activity, Seadrill’s floaters achieved a technical and economic utilisation of 93 per cent and 92 per cent, respectively, during 4Q 2022 while one floater was idle and another one got a future contract. The company’s two harsh-environment rigs recorded a technical and economic utilisation of 97 per cent and 88 per cent, respectively, during the same period. As three jack-ups were carrying out operations and one was idle in 4Q 2022, Seadrill’s total technical utilisation was 95 per cent and its total economic utilisation was 91 per cent with 11 rigs in operation, two idle and one contracted for a future campaign.

Simon Johnson, Seadrill’s President & CEO, commented: “2022 was an extraordinary year of transformation for Seadrill that began with our successful emergence from restructuring in February. We later completed the sale of our seven jack-ups in the Kingdom of Saudi Arabia which enabled us to reshape our capital structure through substantial debt prepayments. To conclude the year, we announced the return of Aquadrill to the Seadrill family.

“This transaction completed on 3 April 2023, and coupled with our other strategic initiatives over the course of 2022, we believe we have a solid platform for growth and enhanced performance in the future that will deliver value to our shareholders. We continued our excellent operational performance in 2022 and in turn delivered strong financial performance within our 2022 guidance.”

The offshore drilling contractor highlighted that it recorded a consistent operational performance in 4Q 2022, while adding about $187 million of order backlog during the quarter, bringing the total as of 31 December 2022 to approximately $2.3 billion.

“Our strong operational record and continued commercial success is down to our staff, whose hard work has been instrumental in driving Seadrill’s development. As the industry continues its realignment, we look forward to continuing to play an active role through 2023,” underlined Johnson.

Meanwhile, Seadrill outlines that it remains “encouraged by the fundamentals underpinning the oil and gas sector,” despite recent market turmoil, as energy security will remain “a key topic” going forward, with strong global demand for affordable and reliable energy sources.

The firm’s expectations are fuelled by the signs of increased capital expenditure to bring newly sanctioned projects online, which oil and gas companies are showing, as well as an increase in exploration activity, pointing to “heightened demand” for the services of the offshore drilling sector over the coming years.

While the company sees demand as a key driver, it also believes that the lack of available supply of rigs, driven by significant scrapping over the last eight years, to be “a critical component” of the market’s continued positive momentum and trajectory through 2023 and beyond, as the benign ultra-deepwater floater market continues to show strength with day rates and utilisation steadily increasing.

The drilling contractor emphasises that the Golden Triangle remains the focal point of this growth and is expected to be the geographical base of the majority of the longer-term contracts, largely driven by Petrobras in Brazil and operators in West Africa. The firm further underscores that the utilisation of drillships is at a level which is resulting in the day rate spread between seventh-generation and sixth-generation rigs tightening significantly.

Bearing this in mind, Seadrill expects the demand to steadily outstrip supply through 2023 and 2024, with very little spare capacity on the sidelines ready to work in the near term, leading to continued improvements in contract economics. Even though the harsh environment market is still subdued, the company is feeling “increasingly optimistic” regarding the outlook in the medium term.

As the temporary tax scheme put in place in Norway saw a new record of PDOs submitted in 2022, the firm believes this will translate into greater rig demand over time. With a number of units exiting the region for work in benign waters, Seadrill expects to see an alignment of supply and demand resulting in an inflexion point and further demand in 2024.

“With our renewed and enhanced rig portfolio following the successful completion of the Aquadrill transaction, we are well-positioned to capitalise on new opportunities, with one of the youngest and most technologically-advanced fleets,” concluded Seadrill.