Prepared remarks
Hello, everyone. Thank you for joining us, and welcome to the Seadrill Second Quarter 2026 Earnings Call. I will now hand the conference over to Kevin Smith. Please go ahead.
Hello, and welcome to Seadrill's Second Quarter 2026 Earnings Call. I'm Kevin Smith, Vice President of Corporate Finance and Investor Relations, and I'm joined today by Samir Ali, President and Chief Executive Officer; Grant Creed, Executive Vice President and Chief Financial Officer; and Jacob Taylor, Vice President, Commercial. Our call will include forward-looking statements that involve risks and uncertainty. Actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or year and we assume no obligation to update them, except as required by securities laws. Our filings with the U.S. Securities and Exchange Commission provide a more detailed discussion of our forward-looking statements and the risk factors affecting our business. During the call, we will also reference non-GAAP measures. Our earnings release furnished to the SEC and available on our website includes reconciliations with the nearest corresponding GAAP measures. Our use of the term EBITDA on today's call corresponds with the term adjusted EBITDA as defined in our earnings release. I'll now turn the call over to Samir.
Thank you Kevin. Welcome, everyone. Thank you for joining us. I'll begin with our second quarter highlights, including continued progress against our core priorities and our recent contracting successes. I'll then discuss the market backdrop and regional outlook before turning the call over to Grant to review our financial results and updated full year 2026 guidance. Second quarter financial performance was very strong, exceeding expectations. We delivered EBITDA of $144 million, underpinning our decision to raise full year revenue and EBITDA guidance. This marks our second guidance increase this year. The quarter also reflected continued execution against our core priorities: delivering safe, reliable operations, generating free cash flow and capturing the upside ahead of us. Let's start with our first priority, safe and reliable operations. We delivered another solid quarter, achieving economic utilization of 96%. We also successfully completed the West Tellus reacceptance on schedule and on budget. Seadrill's one team culture met all client expectations, and the rig has been successfully operating since mid-June. This is an important milestone. It marks the second of three rigs to roll off legacy day rate contracts and begin generating revenue at substantially higher rates. Safety remains our top priority. We are proud of the progress we've made, but we are never satisfied with standing still. By continuing to invest in training, knowledge sharing and leadership development, we are building an even stronger organization for the future. I want to take this moment to remind our dedicated crews: everyone has stop-work authority and no task is worth compromising our high safety standards. Priority two, free cash flow generation. We remain on track to generate meaningful free cash flow in the second half of 2026. With that visibility, we resumed shareholder returns during the second quarter, opportunistically repurchasing $20 million of shares under our repurchase program during the last week of June. Priority three, capturing the upside. Our recent contracting success strengthens 2027 revenue visibility and demonstrates Seadrill's ability to capture the upside ahead of us. Since our May call, we have added approximately $200 million of backlog, including new contracts and contract extensions on three rigs in the U.S. Gulf and Malaysia. In the U.S. Gulf, the West Vela secured a 12-month contract with Talos beginning in June 2027 in direct continuation of its current program. The award adds approximately $161 million to backlog, excluding additional services, and reflects the strength of our operational execution and customer relationships. We are pleased to extend our partnership with Talos and thank the crew of the West Vela for their superior performance that is the foundation for what's next. Staying in the U.S. Gulf, the Sevan Louisiana has worked steadily throughout the year. The rig is expected to wrap up its current program with Walter Oil & Gas later this week, following the successful completion of earlier campaigns with Guardian and LLOG in July. We also want to recognize Harbor and LLOG for their continued trust in Seadrill. Earlier this year, Harbor and LLOG extended the West Neptune once again and selected the West Vela for a 270-day campaign beginning later this year. Harbor also contracted the Sevan Louisiana for a short campaign at the end of July, meaning they will have had all of Seadrill's U.S. Gulf fleet under contract in 2026. We appreciate their confidence and remain focused on delivering safe, efficient and reliable operations across every rig. And in Malaysia, our customer recently exercised a priced option for approximately 75 days on the West Capella, extending operations into the second half of 2027. Turning to the broader market. The current tender pipeline points to a materially tighter environment in 2027. If these tenders convert into awards as expected, we believe drillship utilization could reach the mid-90% range by next year. Collectively, developments across strategic reserves, offshore investment and exploration activity support our view of growing demand for deepwater rigs. The U.S. Energy Information Administration's latest outlook shows OECD inventories falling to their lowest levels since at least 2003 as supply disruptions accelerate stock draws. Oil majors have also highlighted tightening supply conditions with Chevron noting that a supply crunch could soon be felt globally and ExxonMobil noting that the U.S. is approaching unheard of inventory levels. Wood Mackenzie forecasts offshore project FIDs to rise to $165 billion in 2027, representing a 132% increase from 2025, underscoring the strength of the offshore cycle. Further, we continue to see offshore exploration activity gaining momentum, driven by structurally higher oil prices, energy security coming back into vogue, slowing non-OPEC production growth and operators' need to rebuild reserve bases. Equinor validated this theme in its Capital Markets Day in June, guiding to an international exploration budget for the first time and highlighting plans to step up exploration along the Atlantic margin, supported by its view that oil and gas demand will remain higher for longer. Recent exploration announcements also reinforce this momentum with TotalEnergies securing offshore exploration agreements in Egypt and Syria, Chevron signing an early exploration deal offshore Guinea, Exxon applying for new exploration permits offshore Guyana and Repsol entering into an exploration agreement in Venezuela. Moving to the outlook for key regions where Seadrill operates. The U.S. Gulf remains in transition with several drillships expected to become available before year-end. Seadrill is ahead of the curve by recently securing a 365-day contract at leading-edge day rates for the West Vela, bringing total year-to-date backlog added in the region to nearly $0.5 billion. The West Neptune is already contracted into late 2027 and is well positioned for attractive follow-on opportunities. We remain confident that the supply-demand balance of drillships in the region will improve in 2027. Our semisubmersible, the Sevan Louisiana, is also favorably positioned as market conditions in the U.S. Gulf strengthen into 2027. While we have a strong track record of winning programs with short lead times, visibility for the balance of 2026 remains limited. We will continue to manage the asset with commercial discipline while preserving flexibility. Turning to Brazil. Seadrill remains well contracted in one of the industry's most important deepwater geographies. Recent multiyear awards and extensions reinforce our view that Brazil will remain a core source of drillship demand through the end of the decade. Twenty-five drillships are currently contracted in the region, with only three expected to become available before the end of 2027 if options on a couple of rigs are exercised. A recent Petrobras prequalification exercise may be an indication of tendering activity to come. We expect Brazil to remain balanced and competitive with opportunities favoring rigs that align closely with customer needs and basin requirements. Following the completion of the West Carina contract at the end of June, we mobilized the rig outside of Brazil, consistent with typical post-contract process in the country. We are in advanced discussions for follow-on opportunities and remain confident in our abilities to secure work commencing in the first half of 2027. In Southeast Asia, a region we have repeatedly identified as a source of growing demand, momentum is building. A recent leading edge fixture awarded for work commencing in mid-2028 is a positive data point. Customers' willingness to secure assets at leading-edge rates for future work is an indicator that the balance of supply and demand is expected to tighten. With limited drillship availability in the region, the West Capella is in a strong position to capture potential upside. In West Africa and particularly Angola, the Sonadrill joint venture continues to demonstrate the strength of our local partnership and the reliability of our operations, with all three rigs delivering technical uptime above 99% during the second quarter. Our near-term commercial focus is on the West Gemini, which is due to roll off contract later this year. While the rig is well positioned for future work in Angola, we continue to market it across West Africa. We expect upcoming FIDs and tenders in countries such as Angola, Ghana, Cote d'Ivoire, Nigeria and Namibia to absorb a meaningful share of available rig capacity. Bringing it all together, the broader deepwater market continues to tighten, supported by improving market fundamentals, rising offshore investment and exploration momentum. We remain encouraged by the outlook across our key regions and believe Seadrill is entering 2027 from a position of strength, well positioned to capitalize on the opportunities ahead. With that, I'll hand it over to Grant.
Thanks, Samir. I'll now discuss our second quarter 2026 financial results, recap the refinancing completed in June and then provide an update on our outlook for the balance of the year. Seadrill delivered strong second quarter financial performance with total operating revenues of $449 million and adjusted EBITDA of $144 million. The quarter-on-quarter increase was primarily driven by more operating days and an improving average day rate. In Malaysia and Brazil, the West Capella and West Jupiter contributed full quarters of revenue after commencing their new programs in late March, while increased activity on the Sevan Louisiana and the U.S. Gulf also supported revenue growth. This was partially offset by the impact of fewer operating days for the West Tellus, which underwent reacceptance testing before commencing its contract in Brazil as planned late in the second quarter. Importantly, both the West Jupiter and West Tellus have now commenced contracts at materially higher day rates, representing a meaningful step-up in revenue of roughly $400,000 per day between the two rigs compared with their prior contracts. Repricing these legacy contracts has long been a strategic objective and is now strengthening the cash generation from our active fleet as we move into the second half of the year and into 2027. Also contributing to second quarter revenue was an uplift in management contract revenues, reflecting an increase in the daily management fee Seadrill earns for providing management, operational and technical support to Sonadrill. The increase was applied retroactively from January 1, 2026. And now moving to operating expenses, which were $377 million in the second quarter, up $43 million from the prior quarter. The increase was primarily attributable to the West Capella and West Jupiter returning to operations for the full quarter. Resulting EBITDA was $144 million, a sequential increase of $47 million compared to the prior quarter, with an EBITDA margin, excluding reimbursables, of 33.5%. And now turning to the balance sheet and cash flow statement. I'll start by providing a recap of the refinancing completed in June. The refinancing strengthens our financial flexibility, extends debt maturities further into the next decade and reinforces our commitment to maintaining a resilient through-cycle capital structure. Seadrill issued $700 million of 6.75% senior notes due in 2034 and used part of the proceeds to redeem $575 million of 8.375% senior secured second lien notes due in 2030. We also increased the revolving credit facility from $225 million to $300 million and extended the maturity by three years to 2031. We ended the quarter with total cash of $360 million, a $31 million increase from the prior quarter. The net proceeds from the refinancing as well as a $30 million lump sum receipt for mobilization revenue related to the West Jupiter contract in Brazil were partially offset by $57 million of capital expenditures, a $16 million final payment for a legal judgment related to the Sonadrill joint venture as previously disclosed in 2025, an accelerated interest payment of $20 million relating to the redemption of the old notes and a build in accounts receivable primarily related to the commencement of West Jupiter and West Capella contracts, plus timing of receipts across the remainder of the fleet. Notably, we are entering a stronger phase of cash generation. Major project-related outflows are now behind us. With cash benefits from the West Capella, West Jupiter and West Heller contracts ahead of us, we expect cash flow to strengthen through the second half of the year, including the anticipated collection of the West Tellus mobilization fee in the third quarter. Seadrill remains focused on three financial priorities to enhance long-term shareholder value: generating free cash flow, disciplined capital deployment and maintaining a robust balance sheet. On June 22, the Board of Directors authorized an extension of the $208 million remaining on the share repurchase program through the end of the current calendar year. And during the last week of June, we repurchased $20 million worth of shares. And now turning to our outlook for the remainder of the year. Strong project execution and higher-than-anticipated utilization have driven the increase in the revenue and EBITDA guidance ranges set out in our press release. We now anticipate operating revenues of $1.5 billion to $1.55 billion, and that excludes $50 million of reimbursable revenues, and EBITDA of $420 million to $450 million. Our updated guidance ranges reflect two factors for the second half of the year: assumed utilization for the Sevan Louisiana, which was fully contracted in the second quarter but has less visibility for the remainder of 2026, and the timing of repair and maintenance expenses, which we expect to be higher over the balance of the year. Our EBITDA guidance includes a noncash net expense of $30 million related to the amortization of mobilization costs and revenues, of which $16 million has been recognized through the end of the second quarter. Full year capital expenditure guidance range is maintained at $200 million to $240 million. With three major projects delivered on time and on budget, a strengthened balance sheet and a supportive commercial backdrop, Seadrill is well positioned to generate meaningful free cash flow in the second half of the year and create long-term shareholder value. And with that, I'll hand back to Samir for his closing remarks.
Thanks, Grant. For Seadrill, the message is straightforward. Our commercial approach remains centered on winning direct continuation work and maximizing the total economic value of contracts. In the U.S. Gulf, we secured work for the West Vela at leading-edge day rates despite near-term oversupply. In Brazil, West Africa and Southeast Asia, our fleet remains well positioned for both established and emerging sources of deepwater demand. Across the rest of the world, the demand outlook continues to support our conviction that available high-specification floaters will become increasingly scarce as the cycle progresses. Taken together, Seadrill is well positioned to create long-term shareholder value through disciplined contracting, free cash flow generation and a relentless focus on safe and reliable operations. With that, I'll hand the call over for questions.
Questions and answers
Your first question is from Doug Becker with Capital One Securities.
Samir, you extended the share repurchase program through December. We actually saw the restart of buybacks with about $20 million in the second quarter. Just how would you frame the scale and the pace of buybacks once we see the free cash flow inflection in the second half of the year?
Sure. Doug, I'll start and I'll hand over to Grant. Holistically, our job at Seadrill as a management team is to maximize free cash flow. So every contract we look at, everything we're doing around here, we are hyper-focused on generating as much free cash flow as possible, but Grant can speak through the mechanics of how we're thinking about it.
Yes. Thanks. Doug, and just to add to that, when we think about the buyback, first thing we look at is our cash position. And of course, we had a very healthy cash position in June, and that was further supported by a successful refinancing that was executed in June. Then we look at forecast cash going forward. And as we discussed on our prepared remarks, we're at this inflection point that we've been looking forward to for some time, primarily related to the repricing off of legacy contracts on the spot rate contracts. So we're starting to enjoy the step-up in earnings. And we saw during Q2, as expected, we had some working capital build, but that's going to be behind us from Q3 onwards. So we're looking healthy in that perspective. And then deploying the capital is all about assessing the alternatives through a disciplined and deliberate lens — and then when the share price started trading in the 30s in June, it became apparent to us that a buyback was going to be a very accretive use of that capital. So that's a little bit of insight as to how we approach the buybacks. And yes, I hope that helps.
No, that's helpful context. Is the plan to kind of utilize the full remaining share authorization over the course of this year or just to be determined based on the parameters you just laid out?
Yes. Look, Doug, it's to be determined. We take those decisions at any point in time. And yes, we'll see how it goes the rest of the year. It's a discussion, obviously, we have with our Board on a regular basis. But coming back to it, the management team's focus is maximizing cash flow, and then we have in-depth discussion with the Board of how we want to deploy that capital.
Your next question comes from the line of Eddie Kim with Barclays.
So this is the second consecutive quarter where you've raised full year guidance, which is particularly notable as offshore drillers are more commonly known to lower full year guidance than to raise. So could you just talk about what has surprised you to the upside compared to when you first provided full year guidance at the beginning of the year? Is it contracts you secured that you didn't necessarily expect to or better operational performance or costs maybe getting pushed into 2027? Just some more color on the main drivers of the guidance raises the past two quarters would be great.
Ed, thanks. I'd say, first and foremost, operational execution has been great this year. So the operations team has done a fantastic job on executing work. The projects, we know that those projects are key to determining our results in any year, and we executed those very well for the Jupiter, Capella and Tellus. And then on the rig activity side, I'd say Carina ended up working longer than we anticipated at the beginning of the year. And then the — we call the Louisiana, the 'Show Me Rig', where we don't get too far ahead of ourselves in booking or estimating or forecasting revenue for that rig. She ended up working more in the first half of the year than we anticipated. On the expense side, I think it's more or less in line with how we are seeing expenses, but I would say that repairs and maintenance is skewed to the second half of the year. We see that quite often in our business that the first half of the year, we spend less on repairs and maintenance projects in particular, than in the second half.
Understood. And then my follow-up is just more broadly. The outlook you read out was pretty constructive with drillship utilization potentially reaching the mid-90s by next year. It feels like leading-edge day rates are now firmly in the mid-400s as indicated by the most recent contract you signed on the West Vela as well as other contracts industry-wide. Is there any reason to believe that leading-edge day rates shouldn't continue to move higher next year off of this current mid-400s level given tightness in the market? And if not, what would you say are the potential headwinds or roadblocks that might prevent that from happening?
Eddie, the day rate progression is primarily driven by utilization. We continue to expect utilization to improve. It is a global market and rigs are going to continue to move from the Western Hemisphere into the Eastern Hemisphere. That should drive day rate momentum. But for Seadrill, we look at it holistically. It's not just day rate; it is the full contract value. It is mobilization fees, terms and conditions. We make sure that we are maximizing the cash from a contract, not just chasing the highest day rate. It's getting the best potential contract for our rigs and maximizing total economic value.
The next question is from the line of Fredrik Stene with Clarksons Securities.
Congratulations on a very strong operational quarter. I wanted to — and thanks for actually providing quite detailed commentary on the regions already, but I wanted to be a bit more rig-specific maybe. Obviously, like the West Carina, the Gemini, I'm pretty sure that those are very high on your list in terms of getting recontracted. You seem relatively positive on the Carina maybe from the first half of next year. But maybe if you leave those aside and think about the rigs that are rolling off in the second half of next year, have you started progression on new contracts for those rigs? And I guess in the context of your market view expecting mid-90s utilization for drillships, how would you also think about locking in short versus long-term work as you work on extending those rigs, weighing visibility versus upside capture? Any color would be very helpful.
Fredrik, I'll take that. We're heavily focused on capital discipline, cash management and ensuring a swift payback period is the highest priority. Rates will increase as utilization tightens. The way we look at it now is if we secure work for, say, the Carina, then we have assets like the Gemini, potentially even the Auriga, to play for the upside. We'll continue to monitor opportunities as they come. If utilization tightens above 95%, we expect rates to push into the higher $400,000s.
Fredrik, to add, with the Vela award, we've got direct continuation work. Our team's focus is minimizing as many gaps as possible. For us, gaps are wasted money and wasted time. Closing those gaps will be very important.
Very helpful. And just one quick to Grant as well: you gave some commentary about the working capital and there were overarching comments that the second half would be better on free cash flow. Given the working capital build in the second quarter, in particular, as new contracts start up, are you able to help quantify how you think the working capital element in particular is going to be reversed in the second half as things normalize and as you start — or you get the mobilization fee from Petrobras, etc.?
Sure. The build in accounts receivable this quarter was primarily Jupiter and Capella. They started contracts late March, and so they start collecting revenue in Q3. Think of them at a normalized working capital rate; don't expect any reversal beyond that. The Tellus will be interesting in Q3 because it will have a working capital build on accounts receivable, but we will also enjoy the mobilization receipt from Petrobras of $40 million in Q3. That's the one to watch in Q3. Once that's behind us, we should be on a normal basis.
Your next question comes from the line of Gregory Lewis with BTIG.
Samir, curious on your views. This dovetails on Fredrik's question. Clearly, there are opportunities in Asia for rigs, and West Africa as well. As we think about Asia, we think about India; the last rig you guys had in India was the Polaris, a sixth-generation rig. The Capella operating in Asia is sixth generation. How do you think about the opportunity set for seventh-generation rigs in Asia, given that historically that part of the world has been a lower pricing market for leading-edge, high-quality drillships?
Our sixth-generation rigs are dual activity and have capabilities such as MPD, so they are often better than your average sixth-generation rig in those markets. The Capella has MPD; the Polaris has MPD. For the Carina, we positioned her in Walvis Bay so she has access to both Africa and Asia as potential markets. In Asia we look at the full contract value — OpEx can be lower there, and you can still get good returns. We consider the whole contract value, not just day rate.
To add, in 2024 we saw a sixth-generation unit in a niche position where we achieved $545,000 per day. There could be a scenario where seventh-generation units get scooped up early in the cycle and sixth-generation units then play for upside. We view both parts of our fleet as opportunity; we are not exclusively focused on the highest-end rates for the seventh-generation units.
Super helpful. And then, as we look out to 2027, are there any special surveys or rig upgrades coming that we should consider when thinking about potential CapEx in 2027? Not asking for guidance, just whether any special surveys or upgrade-type things are expected.
Short answer: no significant special periodic surveys (SPS) or reacceptance projects expected. Of course, if a rig is coming up for a new contract and the contract requires specific upgrades, we would have to take that into account. We assess opportunities on an all-in cash basis and would look to be compensated through the terms of that contract.
Commercially, our strategy is to ensure that if there are any major mobilizations or sizable upgrades to the rigs, there would be a meaningful mobilization upfront fee from customers to help cover the cost.
Your next question comes from the line of Keith Beckmann with Pickering Energy Partners.
I'm wondering if you guys are seeing any change in customer behavior as the market looks to tighten into 2027. Are you seeing customers lock in rates further out for longer term, similar to what we saw with the West Vela securing work into mid-2028? Any thoughts around customer behavior changing?
Not really, at least not wholesale. On the margins you do see some clients securing assets further out; for example, a client secured a rig in Southeast Asia for a 2028 start. Some tenders are for 2028–2029 starts. Clients may have more free cash flow given higher commodity prices and that can support increased spending. But I wouldn't say we've seen a wholesale change yet.
Okay, perfect. And then my second question is longer term. You still have the two stacked harsh-environment semis, the Aquarius and the Phoenix. That market has tightened. What could potential reactivation costs be on those, and what contract terms would make reactivation make sense for you longer term?
The harsh-environment floater space is nearly fully utilized right now and it's a market we'd love to grow into. We have a presence in Norway and are deliberate about clustering rigs. Reactivation costs for the Phoenix or Aquarius are meaningful — likely over $100 million to reactivate. We'd need a contract that justifies that investment. It doesn't necessarily have to be a long contract; a short contract at very high rates with an appropriate mobilization fee could justify it. It comes down to the economics: mobilization fee, day rate and contract length combined.
Your next question comes from the line of Hamed Khorsand with BWS Financial.
Could you expand on your commentary on the Carina? It looks like you've shifted it to West Africa already. Have you completed that mobilization and what are your expectations for contract activity there?
For the Carina, we shifted it to West Africa because that gives us closest proximity to near-term work in the region and flexibility to pursue opportunities in both West Africa and Southeast Asia where demand is largest. We get synergies from our existing presence in the region, enabling us to maintain the rig and have it ready for the next campaign.
Is there timing for when we should expect some sort of contract activity there?
Most of the campaigns we're seeing now in the market commence in the first half of 2027. Awards could occur within the next quarter or two.
Your next question comes from Noel Parks with Tuohy Brothers.
On customer behavior, if a customer wants a rig midyear next year but you have a rig available six months earlier, how do negotiations typically look? Is pricing adjusted for the time difference or are such situations uncommon?
We won't invest in a major mobilization, reactivation or upgrade without a meaningful contribution from the customer. We also consider the cost of having a rig idle waiting for an opportunity. It depends on whether it's competing against alternative prospects. We're not solely focused on day rate; terms and conditions and economic uptime drive a lot of value. With a tightening market, these factors are becoming more favorable.
Does what you see ahead for the next few years remind you of any prior cycle, considering this time there's a bounce back in exploration that's different from past cycles?
It does feel like the beginnings of an upcycle similar to prior cycles, but a key difference now is there aren't many newbuilds available to come back and relieve pressure. Supply is relatively inelastic while demand is increasing. That makes the outlook potentially stronger than some past cycles where many rigs were being delivered from shipyards.
Your next question comes from Josh Jayne with Daniel Energy Partners.
First, a follow-up on supply chain: Are you seeing any issues getting equipment over the last couple of quarters? Do you expect issues moving forward? And how are you thinking about inflation in equipment cost or CapEx?
We're seeing some inflation across labor and materials, and fuel has increased the most. Most of our contracts do not expose us to fuel cost since it's provided by the client. We focus on minimizing gaps between schedules to avoid bearing such costs. We're seeing normal inflation and, commercially, we try to pass that on to clients where possible through day rates or contract value.
Understood. Second, the Louisiana has put together a number of short-term opportunities. What's embedded in guidance for the back half of this year for that rig? And for 2027, do you view it as continuing shorter-term programs or are there term opportunities?
Josh, Louisiana worked more than we anticipated in the first half of the year. The remainder of this year is less clear. For guidance, we apply the same principle: 'The Show Me Rig.' We don't book upside for that rig unless work is secured. When work is secured, we'll include it in forward projections. So we're not booking upside for the remainder of this year on that rig.
The Louisiana has had 99% economic uptime this year and has captured a lot of work on short notice. It is versatile: it can do drilling, P&A, intervention, etc., and has features such as a Trendsetter intervention system. We're having positive dialogue with customers who have campaigns starting late this year and longer-term prospects maturing in Q2–Q3 of 2027. We're optimistic about the rig's capabilities and opportunities.
There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.