Seadrill is seeing better contract coverage and rising revenue visibility, but profitability and cash conversion remain uneven. The stock looks like a Hold as backlog growth offsets a volatile earnings profile.
Investment thesis: Seadrill Limited (SDRL) is a cyclical deepwater drilling recovery story with improving contract coverage, but its earnings record and cash conversion still require discipline. First-quarter 2026 revenue reached $358M, adjusted EBITDA reached $97M, and management raised full-year 2026 revenue guidance to $1.43B to $1.48B and adjusted EBITDA guidance to $370M to $420M. Contract backlog stood at approximately $3.1B on May 11, 2026.
The operating catalyst is tangible. Seadrill added approximately $860M to backlog, contracted West Neptune and West Vela in the U.S. Gulf, extended West Polaris with Petrobras for three years, and extended the Sonangol Quenguela into July 2028. West Jupiter and West Capella also started work after projects completed ahead of schedule and on budget. These awards improve revenue visibility into 2027 and give Seadrill more exposure to rising dayrates.
The counterweight is financial volatility. Seadrill posted a $77M net loss in 2025, operating cash flow was negative $28M, and quarterly free cash flow was negative $35M in the first quarter of 2026. The forward P/E screen shows 1,111.1x, while the trailing EPS figure is negative $1.12. A Hold recommendation fits a moderate-risk investor because the backlog and market recovery are attractive, while profitability still depends on execution and contract repricing.
Seadrill Limited is a Houston-based offshore drilling contractor incorporated in 2005. The company has approximately 3,000 employees and operates worldwide in oil and gas drilling. Its customers include oil super-majors, state-owned national oil companies, and independent exploration and production companies.
The business owns and operates floaters, primarily drillships and semi-submersible rigs, for shallow-water and ultra-deepwater work in benign and harsh environments. Seadrill also provides jackup rigs, management services, and contracted drilling units. Its Sonadrill joint venture in Angola adds management-fee exposure alongside direct dayrate revenue.
The model is asset intensive. Seadrill earns revenue when rigs operate under dayrate contracts, so utilization, contract duration, dayrate levels, mobilization costs, and maintenance spending drive results. The company’s fleet page identifies long-dated contracts for assets such as West Polaris, West Saturn, West Tellus, and West Jupiter, with coverage extending into 2029 through 2031.
Seadrill’s first-quarter 2026 revenue streams were contract drilling revenue of $277M, management contract revenue of $63M, reimbursable revenue of $10M, and leasing revenue of $8M. Contract drilling represented the economic core of the quarter and rose from $248M in the first quarter of 2025.
Management contract revenue declined $2M sequentially to $63M because of the timing of add-on services. Leasing revenue remained at $8M. Reimbursable revenue declined alongside reimbursable expenses, limiting its effect on operating profit. The mix makes the contract drilling line the clearest measure of fleet health.
Commercial activity was broad across regions. West Neptune and West Vela added approximately $260M in U.S. Gulf backlog through contracts with LLOG, now a Harbour Energy subsidiary. West Polaris added approximately $480M through a Petrobras extension in Brazil. Sonangol Quenguela received an estimated 480-day extension with TotalEnergies in Angola, committing the rig into July 2028.
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Seadrill’s flagship product is the high-specification deepwater floater. These assets are not interchangeable with ordinary land rigs. A modern drillship combines dynamic positioning, deepwater drilling capability, specialized crew expertise, and a multiyear safety and operating record. The economic product is reliable well delivery at an acceptable dayrate.
West Jupiter began a new Petrobras contract in late March 2026 after reacceptance testing. West Capella completed reactivation and started operations late in the quarter. West Tellus entered reacceptance testing after completing its prior contract in mid-March. Completing the West Capella and West Jupiter projects ahead of schedule and on budget converted idle or transitional assets into revenue-generating units.
West Carina is the most visible repricing opportunity. Management said the rig was expected to remain on contract until mid-June and described the opportunity to reprice it at current market rates as a source of earnings and free cash flow growth in 2027. The asset also gives Seadrill flexibility to pursue work in Brazil, South America, or other markets.
Seadrill’s competitive advantage rests on asset quality, operational execution, and scarce high-specification floater capacity. Management emphasizes procedures, risk management, uptime, and applying lessons across the fleet. The first-quarter results provide a direct operating proof point: West Tellus and West Capella projects finished ahead of schedule and on budget.
The company is investing in technological upgrades across its fleet, but management also avoids extravagant efficiency claims. In the first-quarter call, CEO Samir Ali said he did not expect a 40% or 50% step change in efficiency from existing technology. That restraint matters: Seadrill’s moat is operational reliability and rig scarcity, not a software story disguised as an oilfield service.
Customer relationships reinforce the asset advantage. Repeat work from Petrobras, TotalEnergies, and LLOG reflects the value of proven performance in high-cost offshore environments. The company’s $3.1B backlog also gives those relationships financial weight, although each contract remains exposed to customer schedules and commodity-linked capital budgets.
First-quarter operating expenses were $334M, including $181M of vessel and rig operating expenses, $71M of depreciation and amortization, $46M of management contract expenses, and $25M of SG&A. The quarter’s adjusted EBITDA margin excluding reimbursables was 27.9%, up from 25.4% in the prior quarter.
Cash use in the first quarter reflected West Capella reactivation, West Jupiter reacceptance testing, West Tellus preparation, and working-capital timing. Management expects approximately $70M of Petrobras cash receipts over the following two quarters for lump-sum mobilization revenue tied to West Jupiter and West Tellus. Full-year capital expenditure guidance remains $200M to $240M.
The supply chain is mainly a project-execution system rather than a traditional manufacturing chain. Mobilization, reacceptance, maintenance, crew deployment, and offshore logistics determine when a rig begins earning. Seadrill’s early contract commencements in the first quarter demonstrate strong execution, while the $13M of first-quarter capital expenditures and $38M of long-term maintenance recorded in operating activities show the cash intensity of the model.
Seadrill operates in the deepwater and ultra-deepwater portion of the offshore drilling market. Research and Markets estimates that the deepwater and ultra-deepwater drilling market was $15.9B in 2024 and reaches $19.8B by 2030, a 3.8% compound annual growth rate. A broader offshore drilling estimate places the market at $39.27B in 2026 and $53.63B in 2030, an 8.1% compound annual growth rate.
The market is tightening selectively rather than uniformly. Baker Hughes reported 1,079 international rigs in January 2026, down 20 rigs year over year, while offshore rigs declined by 13. The U.S. offshore rig count was 17 in February 2026, up three year over year. Those figures support a market where premium assets can improve pricing even without a broad increase in total rig count.
Management cited more than 71 years of contracted industry term awarded over the prior three to four months, which it described as the strongest backlog cycle since 2012. Seadrill also identified opportunities in Indonesia, Namibia, Nigeria, Suriname, and the U.S. Gulf. The commercial evidence supports a constructive 2027 market, although dayrate improvement still depends on customer awards and fleet utilization.
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Seadrill serves three principal customer groups: international oil companies, national oil companies, and independent producers. The current contract portfolio shows meaningful exposure to large, technically demanding operators. Petrobras anchors several Brazil programs, TotalEnergies supports the Angola business, and LLOG provides U.S. Gulf work.
Customer purchasing decisions are shifting toward direct exploration and conventional resource development. Management cited planned investment in regions such as Namibia, Angola, and Mozambique, alongside activity in Indonesia, West Africa, and the U.S. Gulf. Exploration wells generally require more geographic dispersion than repeat development drilling, adding vessel demand when operators commit capital.
The customer base also creates bargaining pressure. Large operators can choose between regions, rigs, and contract structures, while a drilling contractor bears the cost of idle time and reactivation. Seadrill’s decision to pursue accretive M&A only and to require customer funding for reactivating stacked harsh-environment semis reflects an effort to protect shareholder returns from aggressive capital deployment.
The closest public competitors are Transocean (RIG), Noble Corporation (NE), and Valaris (VAL). Transocean reported 27 mobile offshore drilling units at December 31, 2025, including 20 ultra-deepwater drillships. Noble reported $7.5B of backlog at year-end 2025 and 64% marketed fleet utilization in the fourth quarter. Valaris reported approximately $4.7B of backlog after adding about $900M in the fourth quarter.
Transocean’s reported $7.2B backlog in July 2025 and fourth-quarter fixtures at a weighted average dayrate of $417,000 demonstrate the scale and pricing reference provided by larger peers. Seadrill’s approximately $3.1B backlog is smaller, but its focused floater exposure gives it a direct position in the part of the market where high-specification assets are scarce.
Seadrill’s advantage is specialization rather than scale. Its risk is the reverse: a smaller fleet leaves less room to absorb a single contract gap, maintenance event, or delayed mobilization. The company’s recent awards reduce that exposure, but the earnings history shows why utilization remains the central operating metric.
Seadrill’s macro case is tied to oil and gas replacement spending. Management said major operators are addressing natural field decline, the maturation of onshore plays, and underinvestment in exploration. Recent discoveries cited by management include activity by Eni in Indonesia, Egypt, and Libya, Petrobras in Brazil and Colombia, and Occidental Petroleum in the U.S. Gulf.
Management linked geopolitical tension involving Iran to higher commodity prices and a stronger focus on domestically anchored supply. It also cited India’s initiative to drill approximately 150 wells over seven years amid sanctions on Russian crude. These developments support offshore exploration, but they also underline the geopolitical sensitivity of energy markets.
The principal macro risk is a fall in oil prices or a reduction in operator capital spending. Offshore projects require long planning cycles and large budgets, so a weaker commodity backdrop can delay tenders even when long-term resource demand remains intact. Seadrill’s backlog provides contract protection, not immunity from the cycle.
Seadrill ended the period with $3.1B of backlog and a B+ balance sheet grade, but the company still has to prove that contract wins can translate into steadier cash generation.
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Get Full Access →First-quarter 2026 revenue rose to $358M and adjusted EBITDA reached $97M, yet the company still posted a $77M net loss in 2025 and negative operating cash flow of $28M.
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Get Full Access →Management raised 2026 revenue guidance to $1.43B-$1.48B and adjusted EBITDA guidance to $370M-$420M, signaling better visibility after roughly $860M of new backlog.
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Get Full Access →A 1,111.1x forward P/E and negative trailing EPS of $1.12 make the valuation look stretched despite the improving offshore drilling backdrop.
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Get Full Access →The report’s fair value sits at $55, with upside tied to contract repricing and execution on rigs like West Carina, West Jupiter, and West Polaris.
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Get Full Access →Seadrill has moved from balance-sheet repair toward operating leverage. Cash was $339M at year-end 2025, debt was $613M, liquidity reached $482M including revolver capacity, and backlog climbed to approximately $3.1B after a series of multi-year awards. The balance sheet gives the company room to execute while the fleet transitions onto better contracts.
The investment case still turns on proof. First-quarter EBITDA improved to $97M, but free cash flow was negative $35M and the company reported a $7M net loss. The $70M of expected Petrobras receipts, the West Carina repricing opportunity, and the 2027 EPS estimate of $3.48 are the main bridges from recovery story to durable earnings.
For a medium-term, moderate-risk portfolio, Hold is the balanced position. Seadrill owns scarce deepwater assets and has secured meaningful contract coverage, but its valuation already reflects a substantial portion of the recovery thesis. The $55 fair value estimate rewards the backlog and market backdrop without pretending that offshore drilling has stopped being cyclical.
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Seadrill Limited (SDRL) gains after a detailed earnings beat, with EPS and revenue topping estimates and guidance rising for 2026. The deeper read points to stronger rig utilization, better day rates, a larger backlog, and improving free cash flow visibility into 2027.
Seadrill’s 2026 backlog and improving rig economics point to a stronger setup than its weak 2025 earnings suggest. The stock offers cyclical upside, but investors should expect volatility.
Seadrill Limited (SDRL) gains 1.6% after reporting earnings beats, lifting investor sentiment as the offshore drilling company tops expectations.