Seadrill

In recent months, we’ve been revisiting the offshore drilling industry — a sector we covered extensively back in summer 2020, when it was in the middle of a wave of bankruptcies. At the time, we approached it from a distressed debt perspective, as most companies ended up filing for Chapter 11, and there was real money to be made by properly valuing their liquidation assets.

For those who are not familiar with it, Offshore Drillers (Transocean, Valaris, Noble, Seadrill, Borr, Shelf Drilling, Odfjell Drilling, etc.) are service companies to the O&G industry. They earn revenue by offering drilling services for offshore oil and gas projects. But it’s important to understand that this is an extremely cyclical industry that can deliver huge returns due to the gap between valuations and earnings potential during the upcycle, but you need to stay grounded, have realistic expectations, and bear in mind how the market is likely to value them even at the peak.

One of the companies that filed for Chapter 11 in 2021 was Seadrill—an offshore driller with a fleet of 9 drillships (+3 managed), 4 semisubs, and one jackup—that practically eliminated all its debt during this process. Since being relisted in 2022, it has maintained a clean balance sheet to this day (it is practically net cash and has no debt maturities until August 2030). In fact, what has characterized the industry in recent years is its discipline in asset allocation, as companies are taking advantage of the high day rates in 2023 and 2024 to do buybacks instead of ordering new rigs (there are practically no new drillships under construction, and the total number of units in the global fleet continues to decline).

Seadrill is also known for being a very active player in M&A (the industry is expected to continue consolidating over the coming months). Last year, they acquired Aquadrill (keeping the drillships and selling the jackups) for $1 billion in an all-stock deal. It is expected that either on the buyer’s side (several smaller drillers will struggle in 2025 due to falling rates and lower utilization without the cash reserves of the industry leaders) or the seller’s side (there were rumors of Transocean’s interest in acquiring them, and the CEO frequently states that they want the industry to consolidate in the coming months and that Seadrill could be on either side of the negotiation table).

As we discussed in our industry analysis (Parts I and II) published in June, there are several companies in very interesting positions to benefit from what is expected to be a significant CapEx investment cycle by the O&G industry (hiring offshore drillers), which is expected to start in the second half of 2026 / 2027. For this, Seadrill is a company with no short-term maturities, a modern drillship fleet, and a mix of long-term contracts (mainly in Brazil) and shorter-term contracts ending in 2025/2026, allowing it to potentially capitalize on the anticipated cycle (though not without the risk of delays).

Today, we review in detail:

• The different assets in their fleet
• The Petrobras claim
• The industry situation and outlook
• Financials & capital allocation
• Their valuation (using two different methods)
• Our perspective on Seadrill’s situation