Seadrill (SDRL) Q3 2026 earnings review
Seadrill cash flow rebounds, but a legal charge brings a loss
Offshore oil driller Seadrill turned its growing contract backlog into cash while locking in higher rates for 2027. Revenue excluding reimbursable pass-through costs rose 15% from a year ago, and free cash flow reached $179 million as customers paid start-up fees and overdue bills. Chief executive Samir Ali raised the full-year outlook for a third time, though by our math the plan points to fourth-quarter operating profit before depreciation falling by a quarter while rigs sit between jobs.
| Operating revenue excluding reimbursables | $404M +15% from a year ago |
|---|---|
| Free cash flow | $179M -$43M last quarter |
| Contract backlog | $3.3B +32% from a year ago |
| Full-year Adjusted EBITDA outlook | Raised $15M middle of the range: $450M |
⚖️ Verdict: 🟢 Bullish
The story got better because the company solved its biggest 2027 contract gap and proved its cash flow recovery. Winning a $420 million Indonesian deal for the West Carina completes the repricing of three legacy rigs and lifts contracted drillship days above 85% for next year. One caution: a new legal provision pushed the company into a $30 million net loss, and idle time between contracts is still squeezing margins this year.
The question now is whether the fourth-quarter profit drop implied by the full-year plan is another cautious target or the real cost of idle rigs before 2027 contracts begin. Optimists see a pattern of three consecutive outlook raises, while skeptics point to the West Carina sitting idle until next year and short US Gulf work. Fourth-quarter results and the 2027 outlook in February will settle it.
🐂 Bull Case
West Carina Contract Locks In 2027 Repricing
Seadrill operates deepwater oil and gas drilling rigs and has worked to replace three old, low-priced contracts in Brazil with higher market rates. "The West Carina award secures the third and final repricing of three legacy contracts, with the improved dayrate effective in 2027," chief executive Samir Ali said. Demand in Southeast Asia and West Africa absorbed available vessels, lifting total contract backlog—future revenue from signed contracts—to $3.3 billion.
- West Carina in Indonesia: $420 million firm contract value over 880 days, or about $477,000 per day by our math, starting in the first half of 2027
- West Capella in Malaysia: 240 days of options exercised for $94 million, extending work through February 2028
- Sonangol Libongos in Angola: three-year option exercised at its 50:50 joint venture, committing the rig into 2030
- Contract backlog: $3.3 billion as of November 3, up from $2.9 billion in August and $2.5 billion a year ago
These awards matter because they remove the main contract gap for 2027 and prove that Asian and African operators are paying high-$400,000 daily rates. Ali noted that "Over 85% of available drillship days are now contracted in 2027, further enhancing visibility into next year’s earnings and cash flow."
What to watch: the exact start date for the West Carina in the first half of 2027. A start late in the second quarter would leave the rig earning nothing for almost a full year.
Customer Payments Turned Backlog Into $179M of Free Cash
During the first half of 2026, the offshore driller spent cash preparing rigs and waiting for customer payments, burning $78 million of free cash flow across the two quarters. "Seadrill generated $179 million of Free Cash Flow in the third quarter, delivering on our commitment to convert backlog into cash," Ali said.
Cash from operations swung from an $18 million outflow in the second quarter to a $195 million inflow in the third. It benefited from the "receipt of lump-sum mobilization revenue relating to the West Tellus and a working capital release" as accounts receivable dropped by $72 million to $239 million. Capital additions and long-term maintenance took $56 million, and management bought back $22 million of shares.
What to watch: fourth-quarter operating cash flow without the one-time West Tellus mobilization fee. Positive free cash flow next quarter would show the fleet can fund share buybacks from regular dayrates alone.
Third Outlook Raise Proves Second-Half Caution
Three months ago, the full-year outlook pointed to a steep drop in second-half earnings, implying $90 million to $105 million per quarter in Adjusted EBITDA—operating profit before depreciation, taxes, and non-operating items. In the third quarter, the Bermuda-based group delivered $121 million of Adjusted EBITDA and $404 million of revenue excluding reimbursable pass-through costs, beating what its prior plan implied by our math.
Because the West Tellus worked its first full quarter on a higher-priced contract, Seadrill raised its full-year revenue midpoint by $45 million and its Adjusted EBITDA midpoint by $15 million. That marks a third consecutive increase this year, proving that the earlier forecast was cautious rather than a collapse in contract earnings.
What to watch: fourth-quarter Adjusted EBITDA against the $88 million implied by the updated full-year midpoint. Another beat above the top of the range would confirm that management routinely sets conservative targets.
🐻 Bear Case
Idle Rig Gaps Cut Margin and Fourth-Quarter Plan
While Ali highlighted growing demand and visibility for 2027, idle time between jobs is hurting results right now. Total revenue fell 4.7% from the second quarter to $428 million because the West Carina finished its prior job in June, alongside "time between contracts for the West Vela, West Elara, and Sevan Louisiana". Average rigs on contract dropped from 10 to 9, and economic utilization—the share of contracted dayrate actually earned—slipped one point to 94.5%.
Because idle rigs still require crew and maintenance, vessel and rig operating expenses rose by 1.4 percentage points of revenue from last quarter to 49.3%, and management contract expenses rose 1.9 percentage points to 11.2%. Adjusted EBITDA margin excluding reimbursables fell 3.8 percentage points from the second quarter to 29.7%, and by our math the full-year plan implies Adjusted EBITDA will drop another 27% in the fourth quarter to $88 million.
What to watch: follow-on work for the Sevan Louisiana in the US Gulf after its 25-day and 60-day jobs end in early 2027. Further idle gaps would keep operating costs high relative to revenue.
New Legal Charge Pushed Seadrill Into a Net Loss
Seadrill carries several legacy legal disputes from past restructurings and joint ventures, including a ~$48 million judgment involving the SFL Hercules rig and delay claims in Brazil. In the third quarter, the driller swung from a $29 million net profit in the prior quarter to a $30 million net loss, or $0.49 per share, which "includes the impact of a legal provision booked in the third quarter".
Other financial and non-operating expense jumped to $48 million, up from $4 million a year ago and $23 million last quarter. Without that $48 million charge, the business would have earned $18 million in net profit by our math. The press release did not name which dispute triggered the provision, leaving investors waiting for the quarterly filing.
What to watch: the legal contingencies footnote in the upcoming third-quarter Form 10-Q filing. It will show whether the charge resolves the SFL Hercules appeal or signals a costly settlement in Brazil.
Risks this quarter didn't answer
Four standing risks from prior quarters received no new details in the third-quarter earnings release, including whether energy-security oil demand will hold up or reverse and defer open tenders.
- Sete Brazil mediation with Petrobras: no update in the release on the ~$213 million delay-penalty claim; the 10-Q legal footnote will show if mediation progressed.
- West Gemini contract roll-off: unlike its sister rig Sonangol Libongos, no extension was announced in Angola; the fleet status report will show its availability.
- Petrobras fleet reductions and customer concentration: no customer revenue breakdown in the release; the 10-Q segment footnote will show Petrobras's share of revenue.
- Oil-price sensitivity for uncontracted 2027 days: the release did not discuss oil price assumptions; conference call commentary on the tender pipeline will test operator budgets.
💲 Other KPIs
Net debt—gross principal debt of $750 million minus $506 million of total cash—fell 37.4% from $390 million at the end of the second quarter. Cash collection from the West Tellus mobilization fee and lower receivables rebuilt the cash balance after first-half rig preparation spending.
Issued share count dropped 1.7% from 62.5 million in the second quarter. Management repurchased $22 million of stock during the third quarter, following $20 million in late June, bringing nine-month buybacks on the cash flow statement to $42 million.
Non-cash charges for wear on drilling rigs rose 32.8% from $58 million a year ago and 6.9% from $72 million in the second quarter. The increase follows completed capital upgrades and contract preparation work on vessels entering long-term service.
🔮 Guidance
Raised. The midpoint rose $45 million to $1.57 billion, or 13.9% growth from a year ago. By our math, that leaves $388 million for the fourth quarter, down 4.0% from the third quarter and up 12.1% from a year ago. It is the third raise this year: +$30M, +$70M, +$45M. Expected reimbursable revenues also rose to $90 million from $50 million.
Raised. The middle of the range moved up $15 million to $450 million, up 27.5% from 2025. By our math, that leaves $88 million for the fourth quarter—flat with a year ago and down 27.3% from the third quarter as the West Carina sits idle. It is the third raise this year: +$20M, +$40M, +$15M.
Unchanged at the midpoint. Seadrill narrowed the range around the same $220 million middle, which is down 31.9% from $323 million in 2025 after major rig upgrades finished in the first half. With $164 million spent across the first nine months, the plan leaves $56 million for the fourth quarter by our math, matching third-quarter spending.
❓ Key Questions
Which dispute caused the third-quarter legal provision?
Non-operating expense jumped to $48 million because of a legal provision booked in the quarter, pushing the company into a $30 million net loss. Investors need to know whether this reflects the SFL Hercules appeal or the larger Sete Brazil dispute with Petrobras.
What drives the implied fourth-quarter profit drop?
By our math, the full-year outlook implies fourth-quarter Adjusted EBITDA of $88 million, down from $121 million in the third quarter. Management has not quantified how much of that drop comes from West Carina idle costs versus routine maintenance.
When in the first half of 2027 will West Carina start?
The West Carina won a $420 million contract in Indonesia starting in the first half of 2027, plus mobilization fees. Whether operations begin in January or June determines almost two quarters of 2027 revenue and mobilization costs.
What is the contract status of the West Gemini in Angola?
While the Sonangol Libongos received a three-year extension into 2030, the press release did not mention the West Gemini, which was scheduled to roll off contract late in 2026.