West Neptune drillship; Source: Seadrill

Two Seadrill drillships land more work in Gulf of Mexico

Offshore drilling contractor Seadrill has tucked under its belt additional assignments for two drillships in its rig fleet. Thanks to this, both rigs will continue to carry out drilling operations in the U.S. Gulf of Mexico.

West Neptune drillship; Source: Seadrill

The West Neptune and West Vela drillships secured jobs in the U.S. Gulf of Mexico, with the West Vela slated to transition to Seadrill from the current third-party manager before undertaking the new contract. This drillship, which Diamond Offshore currently manages on behalf of Seadrill (former Aquadrill), finished operations with BP in the Gulf of Mexico in August 2023 and resumed its contract with Beacon which is expected to run until March 2024.

The West Vela drillship won a short-term campaign in the U.S. Gulf of Mexico with QuarterNorth Energy. This campaign is expected to start after the 2013-built rig completes its current contract with Beacon Offshore in the first quarter and transitions to Seadrill from Diamond Offshore. The new contract added $41 million to Seadrill’s backlog. The West Vela is a seventh-generation ultra-deepwater dual
activity Samsung 12,000 drillship with a maximum water depth capacity of 12,000 ft and a maximum drilling depth capacity of 37,500 ft.

On the other hand, the West Neptune drillship’s additional work is with LLOG, which extended the rig’s contract in direct continuation of the existing term. This extension is expected to continue until the second quarter of 2025 and adds a total of $76 million to the backlog. The West Neptune is a seventh-generation ultra-deepwater Samsung 12,000 drillship, which is capable of operating in water depths of 12,000 ft. The rig’s maximum drilling depth is 37,500 ft.

Simon Johnson, Seadrill’s President and Chief Executive Officer, commented: “We delivered another strong quarter for our stakeholders, and today we announce an increase in our full year 2023 adjusted EBITDA guidance. We have secured an extension for the West Neptune with LLOG and been awarded a short-term campaign by QuarterNorth Energy for the West Vela. This will mark the return to Seadrill of the second of four drillships that we acquired earlier this year. We remain on track with synergy capture arising from the Aquadrill transaction.”

What is happening with other rigs?

According to Seadrill, its West Polaris drillship is now anticipated to conclude its operations under its existing contract in January 2024 due to a revised well schedule. The 2008-built rig is working for ONGC in India. The well schedule for the company’s West Auriga drillship has also been revised, thus, the 2013-built rig is now expected to conclude its operations in the U.S. Gulf of Mexico under its existing contract with BP in May 2024.

Furthermore, two drillships Seadrill manages, Quenguela and Libongos, are also seeing updates to their well schedules. As a result, the 2019-built Quenguela is set to finish its contract in Angola with TotalEnergies in February 2025 while the 2019-built Libongos is slated to wrap up its assignment in Angola with an undisclosed operator in May 2025.

Another floater experiencing a revised well schedule is Sevan Louisiana, which is now anticipated to conclude its operations in the U.S. Gulf of Mexico with Talos Energy under its existing contract in December 2023.

How did Seadrill fare during 3Q 2023?

The offshore drilling player generated $414 million in total operating revenues in the third quarter of 2023 – consistent with the prior quarter – and operated an average of 12 rigs at an economic utilization of 93%, compared to an average of 13 rigs, working at an economic utilization of 93% in the second quarter of 2023. This activity translated into contract revenues of $324 million, a decrease of $5 million, or 2%, from the prior quarter, primarily due to planned out-of-service days on the West Phoenix and the Sevan Louisiana rigs.

Furthermore, Seadrill generated $68 million in management contract revenues, largely related to the rigs managed under its 50:50 joint venture with Sonangol, and $22 million in reimbursable and other revenues. The firm incurred $304 million in operating expenses, a decrease of $4 million, or 1%, from the prior quarter, primarily due to one-time merger and integration-related expenses in the prior quarter. The company’s adjusted EBITDA was $151 million for the third quarter, a decrease of $8 million, or 5%, from the prior quarter. The adjusted EBITDA margin was 36.5% for the third quarter.

Based on Seadrill’s results, net cash provided by operating activities totaled $112 million in the third quarter of 2023, compared to $20 million in the prior quarter which was adversely impacted by one-off working capital movements. The company’s long-term maintenance costs of $33 million, included within operating activities, and $28 million of capital upgrades resulted in total capital expenditures of $61 million, as the firm incurred expenditures for upcoming special periodic surveys, including on associated long-lead items.

Moreover, the offshore drilling contractor refinanced its secured debt during 3Q 2023, issuing $575 million in aggregate principal amount of 8.375% senior secured second lien notes due 2030 and establishing a $225 million senior secured five-year revolving credit facility with an accordion feature of up to an additional $100 million. As of September 30, 2023, the firm had a gross principal debt of $625 million, comprising these notes and $50 million in senior unsecured convertible notes. The rig owner’s cash and cash equivalents were $869 million, including $32 million in restricted cash.

Seadrill reveals backlog of $2.2 billion

The offshore drilling player explained that its order backlog stood at $2.3 billion as of September 30, 2023, including approximately $76 million of contract additions on the West Neptune in the U.S. Gulf of Mexico during the quarter. Following the quarter-end, the firm secured a short-term campaign for the West Vela in the U.S. Gulf of Mexico with QuarterNorth Energy. Considering this, Seadrill’s order backlog stands at $2.2 billion as of November 27, 2023. In July, the firm completed the sale of its three tender-assist units to certain affiliates of Energy Drilling (Edrill) for aggregate cash proceeds of $84 million.

Johnson added: “In September, we initiated our $250 million share repurchase program and have made excellent progress to date. In our view, the price level at which we have executed the buyback is highly accretive. Market fundamentals remain robust and our positive view on the length and durability of this upcycle is unchanged. With this in mind and considering our strong financial position, Seadrill’s board of directors has authorized a further $250 million in share repurchases, taking the aggregate to $500 million. This enables us to continue to return capital to our shareholders that cannot be allocated more efficiently within the business.”

The rig owner explains that its full-year 2023 guidance for total revenues is expected in the range of around $1.5 billion to $1.52 billion and adjusted EBITDA within the range of $485 million to $505 million. This revised guidance is above the range previously communicated. In addition, the firm’s capital expenditures and long-term maintenance are expected to be within the range of $185 million to $205 million, which is below the range of previously announced figures for the full year 2023.