Seadrill (SDRL)

Offshore drilling contractor Seadrill (NYSE:SDRL) announced better-than-expected revenue in Q4 CY2025, with sales up 25.3% year on year to $362 million. Its non-GAAP loss of $0.07 per share was significantly below analysts’ consensus estimates.

Company Overview

Operating in water depths reaching 12,000 feet below the surface, Seadrill (NYSE:SDRL) owns and operates drillships and semi-submersible rigs that drill oil and gas wells in deepwater offshore locations.

This category includes smaller or niche E&P companies operating in specialized basins, geographies, or resource types outside major classifications. These firms may target unconventional resources, frontier regions, or specific commodity niches. Tailwinds include potential for outsized returns from successful exploration, acquisition opportunities during industry downturns, and specialized expertise commanding premium valuations. Headwinds include higher operational and geological risks, limited scale reducing negotiating power and cost efficiencies, and constrained capital market access during challenging commodity environments. Regulatory risks and ESG concerns may disproportionately affect smaller operators with fewer resources for compliance.

Seadrill competes with other offshore drilling contractors including Transocean (NYSE:RIG), Valaris (NYSE:VAL), Noble Corporation (NYSE:NE), and Borr Drilling (NYSE:BORR).

The scale of a company’s revenue base is an important lens through which to view the topline, as it signals whether a producer has gone from a vulnerable commodity taker into a durable operating platform. Larger producers generate revenue across many wells, pads, takeaway routes, and geographies rather than relying on a single field or drilling program. Seadrill’s $1.44 billion of revenue in the last year is pretty small for the industry, suggesting the type of diversification that reduces operational risk. is a small company in an industry where scale matters.

Cyclical sectors like Energy often flatter weaker operators during favorable price environments, but a longer-term lens separates those from businesses that can consistently perform across market cycles. Regrettably, Seadrill’s sales grew at a sluggish 4.1% compounded annual growth rate over the last five years. This was below our standard for the energy upstream and integrated energy sector and is a poor baseline for our analysis.

Within Energy, a singular timeframe, even if it’s quite long-term, only sheds light on how well a company rode the last commodity cycle. To better assess whether a company compounds through cycles, we validate our view with an even longer, ten-year view. Seadrill’s performance shows it grew in the past five-year but relinquished its gains over the last ten years, as its revenue fell by 10.5% annually.

While looking at revenue is important, it can also introduce noise around commodity prices and M&A. Analyzing drivers of revenue, on the other hand, highlights what is happening inside the asset base and whether the economic footprint of a company is expanding. Over the last two years, Seadrill’s total oil volume per day - Upstream averaged 5.4% year-on-year growth.

This quarter, Seadrill reported robust year-on-year revenue growth of 25.3%, and its $362 million of revenue topped Wall Street estimates by 7%. This quarter, Seadrill’s production grew by 10.1% year on year to 1 Mboe (thousand barrels of oil equivalent) but fell short of Wall Street’s estimates.

While energy gross margins can be distorted by commodity prices, hedging, and short-term cost swings, sustained margins across a full cycle reflect a producer’s underlying asset quality, infrastructure position, and cost structure.

Seadrill, which averaged 34% gross margin over the last five years, exhibits poor unit economics in the sector. It means the company will struggle more at lower commodity prices than peers with better gross margins.

In Q4, Seadrill produced a 36.2% gross profit margin , marking a 10.6 percentage point increase from 25.6% in the same quarter last year. Note that energy margins can be volatile due to commodity price changes.

Seadrill was profitable over the last five years but held back by its large cost base. Its average EBITDA margin of 23% was weak for an upstream and integrated energy business.

On the plus side, Seadrill’s EBITDA margin rose by 18 percentage points over the last year.

In Q4, Seadrill generated an EBITDA margin profit margin of 24.3%, up 17.6 percentage points year on year. This increase was a welcome development and shows it was more efficient. This adjusted EBITDA beat Wall Street’s estimates by 13.2%.

Adjusted EBITDA shows how profitable a company’s existing wells are before financing and reinvestment decisions, but free cash flow shows how much value remains after paying the cost of replacing those wells. In upstream energy, production naturally declines over time, so companies must continuously reinvest just to stand still. A producer can report strong EBITDA margins yet generate little or no free cash flow if its wells decline quickly or if new drilling is expensive. Free cash flow therefore captures not only how efficiently a company produces hydrocarbons today, but also how costly it is to sustain that production into the future.

Seadrill’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 5.4%, meaning it lit $5.42 of cash on fire for every $100 in revenue.

Absolute FCF margin levels matter but so does stability of free cash flow. All else equal, we’d prefer a 25.0% average free cash flow margin that is quite steady no matter how commodity prices behave rather than extremely high margins when times are good and negative ones when they’re tough.

Seadrill’s ratio of quarterly free cash flow volatility to WTI crude price volatility over the past five years was 19.2 (lower is better), indicating that its cash generation is far more sensitive to commodity-price swings than most peers. This elevated volatility limits its access to capital in downturns and makes it unlikely to act as a consolidator when weaker competitors come under pressure.

You may be asking why we wait until the free cash flow line to perform this stability analysis versus commodity prices. Why not compare revenue or EBITDA to WTI in the case of Seadrill? Because what ultimately matters is not how much revenue or profit you earn when prices are high but how much cash you can generate when prices are low. Free cash flow is the superior metric because it includes everything from hedging prowess to growth and maintenance capex to management behavior during good times and bad.

Seadrill burned through $63 million of cash in Q4, equivalent to a negative 17.4% margin. The company’s cash burn increased from $31 million of lost cash in the same quarter last year.

Free cash flow shows how much money a producer generated, while ROIC shows how efficiently that money was earned. ROIC measures the operating profit produced for each dollar of capital invested, whether from debt or equity. Cash generation measures quantity while ROIC measures the quality of value creation.

We at StockStory like to look at ROIC over a ten-year period because energy investment cycles can involve up to five years of ramping production and another five years of harvesting. A decade view captures buying, extracting, and monetizing rather than just part of that picture. Seadrill historically did a mediocre job investing in profitable growth initiatives. Its ten-year average ROIC was 2.4%, lower than the typical cost of capital (how much it costs to raise money) for energy upstream and integrated energy companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Seadrill’s ROIC averaged 1.9 percentage point increases each year over the last few years. This is a good sign, and we hope the company can continue improving.

Seadrill reported $365 million of cash and $615 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $329.8 million of EBITDA over the last 12 months, we view Seadrill’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $47 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Seadrill blew past analysts’ revenue expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, its EPS missed and its production fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock traded up 3.2% to $43.37 immediately following the results.

Updated: March 13, 2026 at 1:11 AM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Seadrill.

Seadrill falls short of our quality standards. To begin with, its revenue growth over the last five years was bottom-tier for the sector, and analysts expect its demand to deteriorate over the next 12 months. While its expanding EBITDA margin shows the business has become more efficient, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its free cash flow volatility compared to commodity price volatility is bottom-tier in the sector, leading to highly volatile free cash flow.

Seadrill’s P/E ratio based on the next 12 months is 196.3x. At this valuation, there’s a lot of good news priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $50.71 on the company (compared to the current share price of $42.08).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.