Seadrill (SDRL) Q2 2026 Earnings Call Transcript

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DATE

Monday, Aug. 10, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Vice President of Corporate Finance and Investor Relations - Kevin Smith
• President and Chief Executive Officer - Samir Ali
• Executive Vice President and Chief Financial Officer - Grant Creed
• Vice President, Commercial - Jacob Taylor

TAKEAWAYS

• Adjusted EBITDA -- $144 million in the second quarter, representing a sequential increase of $47 million due to higher operating days and improved day rates.
• Total Operating Revenues -- $449 million for the quarter, reflecting full quarters of activity for the West Capella and West Jupiter following their program commencements in late March.
• Full Year Revenue Guidance -- $1.5 billion to $1.55 billion, excluding $50 million of reimbursable revenues, representing an increase from prior expectations based on strong project execution.
• Full Year EBITDA Guidance -- $420 million to $450 million, supported by higher-than-anticipated utilization and disciplined operational delivery.
• Backlog Additions -- approximately $200 million added since May 2026, including contracts and extensions for three rigs in the U.S. Gulf and Malaysia.
• Economic Utilization -- 96% across the fleet during the second quarter, reflecting reliable technical performance.
• Share Repurchases -- $20 million of shares were opportunistically repurchased during the final week of June, with $208 million remaining under the current authorization.
• West Vela Contract -- approximately $161 million in added backlog from a 12-month extension in the U.S. Gulf with Talos starting in June 2027.
• Senior Notes Issuance -- $700 million of 6.75% senior notes due in 2034, which was used to refinance existing debt and extend maturities into the next decade.
• Debt Redemption -- $575 million of 8.375% senior secured second lien notes due in 2030 were redeemed using proceeds from the new notes issuance.
• Total Cash -- $360 million as of June 30, 2026, an increase of $31 million from the previous quarter.
• Capital Expenditures -- $57 million during the second quarter, with full year guidance maintained at $200 million to $240 million.
• EBITDA Margin -- 33.5% for the quarter when excluding reimbursables, driven by the repricing of legacy contracts to current market rates.
• Operating Expenses -- $377 million in the second quarter, up $43 million sequentially as more rigs returned to full-quarter operations.
• Revolving Credit Facility -- increased from $225 million to $300 million with the maturity extended by three years to 2031.
• Drillship Utilization Forecast -- mid-90% range expected by 2027, driven by a tightening global tender pipeline and rising offshore investment.
• Fleet Repricing Impact -- approximately $400,000 per day in additional revenue combined from the West Jupiter and West Tellus as they transition from legacy to higher-rate contracts.
• Mobilization Revenue -- $30 million lump sum received in the second quarter for the West Jupiter contract, with an additional mobilization fee for West Tellus expected in the third quarter.
• Amortization Expense -- $30 million noncash net expense related to mobilization costs and revenues anticipated for the full year, with $16 million recognized through June.
• Sonadrill Joint Venture -- achieved technical uptime above 99% across its three rigs during the second quarter in Angola.

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RISKS

• Creed stated, "The rest of this year is a little less clear," regarding the visibility of contract opportunities for the Sevan Louisiana semisubmersible following its high utilization in the first half of 2026.

SUMMARY

Management raised full year 2026 revenue and EBITDA guidance for the second time this year, citing strong project execution and favorable rig utilization. The company completed a $700 million debt refinancing to extend maturities and resumed shareholder returns through share repurchases. The transition of the fleet from legacy contracts to current market rates, specifically for the West Jupiter and West Tellus, is expected to drive higher cash flow generation in the second half of the year. Management stated the deepwater drilling market continues to tighten, with global drillship utilization projected to reach the mid-90% range by 2027 as offshore investment increases.

• CEO Ali noted that the current cycle lacks the surplus of newbuild drillships seen in previous upcycles, stating, "We are a relatively inelastic supply in an increasing demand environment."
• Management estimated that reactivating the stacked harsh-environment rigs, West Phoenix or West Aquarius, would require an investment of "probably over $100 million" each.
• Vice President Taylor highlighted the potential for 6th-generation rigs to capture high rates, noting a previous instance where a 6th-generation unit secured a rate of $545,000 per day.
• The company projected offshore project Final Investment Decisions (FIDs) to rise to $165 billion in 2027, a 132% increase from 2025 levels.
• Brazil remains a key growth region with 25 drillships currently contracted, and management indicated that only three rigs are expected to become available before the end of 2027.
• CEO Ali emphasized a holistic approach to contracting, stating, "It's not about getting the highest day rate. It is getting the best potential contract for our rigs," including favorable terms and mobilization fees.
• The West Carina was mobilized from Brazil to West Africa to position the asset for emerging demand in both the Atlantic margin and Southeast Asia.

INDUSTRY GLOSSARY

• Adjusted EBITDA: A non-GAAP measure of earnings before interest, taxes, depreciation, and amortization, adjusted for specific non-recurring or non-cash items.
• Backlog: The total value of contracted work that has not yet been performed and recognized as revenue.
• Day Rate: The daily fee paid by a customer to a drilling contractor for the use of a rig and its crew.
• Economic Utilization: A measure of the actual revenue earned as a percentage of the maximum potential revenue a rig could earn while under contract.
• FID (Final Investment Decision): The stage in a project's lifecycle where the company commits the capital necessary to move forward with development.
• MPD (Managed Pressure Drilling): An adaptive drilling process used to more precisely control the annular pressure profile throughout the wellbore.
• Reacceptance: The process of a rig returning to work after a maintenance period or contract transition, requiring customer approval of operational standards.
• SPS (Special Periodic Survey): A comprehensive hull and machinery inspection required every five years to maintain a rig's class certification.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the Seadrill Second Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Kevin Smith. Please go ahead.

Kevin Smith: 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.

Samir Ali: 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. 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 3 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 2, 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 3, 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 3 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 Harbour 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 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 price, 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. 25 drillships are currently contracted in the region, with only 3 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 3 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.

Grant Creed: 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 2 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 3 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 3 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 2 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 3 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.

Samir Ali: 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.

Operator: [Operator Instructions] Your first question from the line of Doug Becker with Capital One Securities.

Doug Becker: Samir, you extended the share repurchase program through December. We actually saw the restart of buybacks with about 20 million shares 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?

Samir Ali: 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 kind of speak through the mechanics of how we're thinking about it.

Grant Creed: Yes. Thanks. Doug, and just to add to that, look, 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 the 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.

Doug Becker: 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?

Grant Creed: 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. Yes. 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.

Operator: Your next question comes from the line of Eddie Kim with Barclays.

Edward Kim: 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 2 quarters would be great.

Grant Creed: 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.

Edward Kim: Understood. And then my follow-up is just more broadly. I mean, 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 Western 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 just given tightness in the market? And if not, what would you say are the potential headwinds or roadblocks that might prevent that from happening?

Samir Ali: Eddie, so look, the day rate progression is purely driven by utilization, right? So we continue to expect utilization to improve. I mean it is a global market and here rigs are going to continue to move from kind of Western Hemisphere into Eastern Hemisphere. So that should drive kind of day rate momentum. But the other thing I'd say, at least for Seadrill, we look at it holistically. It's not just day rate, right? It is the full contract value. It is mobilization fees. It's Ts and Cs. How do we make sure that we are maximizing the cash out of that contract, not just -- we don't have a huge ego around here.

It's not about getting the highest day rate. It is getting the best potential contract for our rigs. But that's how I'd say we holistically look at it. It's definitely not just day rate driven for us.

Operator: The next question is from the line of Fredrik Stene with Clarksons Securities.

Fredrik Stene: 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. So -- and 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 kind of 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.

Jacob Taylor: Fredrik, Jacob here. I'll go ahead and take that one. For us, I mean, going back to what Samir said, we are heavily focused on our capital discipline, cash management and swift payback period is the highest priority. Rates will increase as utilization tightens. And the way we look at it right now is if we are successful in securing work for, say, the Carina, then we have assets like the Gemini, potentially even the Auriga to play for the upside. So we'll continue just to monitor the opportunities as they come.

But if we start seeing the utilization tighten or squeeze to above 95%, I think it's just inherent that we're going to see rates pushing up to the higher 400s.

Samir Ali: And Fredrik, the only thing I'd add to that is, look, you saw with Vela, we've got direct continuation work. Our team's focus is minimizing as many gaps as humanly possible, right? For us, gaps are wasted money and wasted time. So whatever we can do to close those will be very important to us.

Fredrik Stene: All right. Very helpful. And then just maybe 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. I was hoping that given the working capital build in the second quarter, in particular, as new contracts start up, are you able to kind of help us quantify a bit how you think maybe like 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, et cetera?

Grant Creed: Yes, sure. I think now you can think of the -- so the build in accounts receivable this quarter was primarily Jupiter and Capella. Remember, they started contracts late March. And so they start collecting revenue then in Q2 -- in Q3 rather. So I'd think about them then on a normalized working capital rate. So don't expect any sort of reversal or inflow, but I'd consider them at a normal level, so no outflow beyond that.

Then on the Tellus, I guess, is going to be the interesting rig to look at from a working capital perspective in Q3 because she will then have a working capital build on accounts receivable, just as we experienced in Jupiter and Capella, but we will also enjoy the mobilization receipt from Petrobras of $40 million in Q3. I think as far as working capital is concerned, that's the one to watch in Q3 really, Fredrik. And once that's behind us, we really then should be on a sort of a normal basis.

Operator: Your next question comes from the line of Gregory Lewis with BTIG.

Gregory Lewis: Samir, kind of curious on your views, I guess, kind of dovetails on Fredrik's question. Clearly, there's opportunities in Asia for rigs, obviously, all over the world, right, West Africa as well, Golden Triangle. But as we think about Asia, we think about India, I know the last rig you guys had in India was the Polaris. That was a 6th-gen rig. The Capella operated in Asia is 6th gen. How do you think about the opportunity set for 7th gen rigs in Asia, just given that historically, maybe that part of the world has been maybe a lower on average pricing market for, I guess, we'll call them leading-edge, high-quality drillships.

Samir Ali: Yes. So I'd start with our 6th-generation rigs, yes, they're 6s, but they're dual activity. The Capella has MPD on it, the Polaris has MPD on it. So I'd say they're better than your average 6th-gen rig working in those markets. So yes, there's a bit of a difference, but not as much as you would think. And if we look at the Carina, we positioned her -- she's currently in Walvis Bay. So she's got access to both Africa and Asia as a potential. And as we look at the Asian market, it's back to look at the whole contract value. Your OpEx is a little lower out there. So can you get still good return.

But I'll let Jacob kind of speak to the opportunity specifically.

Jacob Taylor: Well, I think one thing I would add to that is in 2024, we saw one of our 6th-gen units kind of in a niche position, and we are opportunistic about that, and we got a rate of $545,000 a day. And so there could be a scenario where the 7th gens get scooped up early on in the cycle and what's left are the 6th gens to play for the upside. So we look at both parts of our fleet as opportunity. We're not just focused on kind of the higher end rates for the 7th gen units.

Gregory Lewis: Okay. Super helpful. And then realize it's still the middle of 2026. But just since we did kick the buyback back on, I guess I'll just ask it this way. Are there any kind of -- as we look out in 2027, are there any special surveys that are coming? Are there any kind of rig upgrades we're thinking about kind of on, I guess, you'd say, out of the normal operations that we should be thinking about just as we think about -- as we start to try to kind of pencil in what a CapEx could look like in '27. Not asking for guidance, just asking any special surveys, any kind of upgrade-type things.

Grant Creed: Yes. Craig, No. The short answer is no significant SPS projects or reacceptance projects. I think, of course, you look at the rig activity schedule and any rigs that are coming up for new contracts to the extent the contract is signed that has specific requirements, we would have to take that. But like Samir said, we assess our opportunities on an all-in cash basis and would look to be compensated through the terms of that contract.

Jacob Taylor: Yes, Greg, I would just add -- sorry, I would just add that commercially, our strategy is to ensure that if there are any major mobilizations or sizable upgrades to the rigs, then there would be a meaningful mobilization upfront fee that from our customers in order to help cover the cost of that.

Operator: Your next question comes from the line of Keith Beckmann with Pickering Energy Partners.

Keith Beckmann: I'm just wondering if you guys are seeing any change in customer behavior at all here as the market starts to look like it's going to tighten here into 2027. I mean, are you seeing any customers look to lock in rates further out for longer term, sort of maybe what we saw with the Vela here for kind of a year in the Gulf into mid-'28? Just any thoughts around that and operator behavior changing?

Samir Ali: Not really, to be honest. You're seeing maybe on the margins, you're seeing a bit here and there. You saw a client secure a rig in Southeast Asia for a '28 start, which is a bit further out there. There are some tenders that are for ' 28, '29 starts. So maybe on the margins, you're seeing it, but would I say it's a wholesale change yet? No. I would say, look, our clients are probably have some more free cash flow coming into their doors given the higher commodity price.

So as they enter budgeting season, that maybe puts a wind at their backs of, hey, maybe we want to go spend a bit more and kind of develop a few more fields. But I wouldn't say we've seen a wholesale change just yet, but hopefully, it will come.

Keith Beckmann: Okay. Perfect. That's very helpful. And then my second question, maybe just thinking a little bit longer term here, probably not in the near term, but you guys still kind of have the 2 stacked harsh environment. Semis, I believe the Aquarius and the Phoenix and that market has gotten a little bit tighter here if we continue to see tightness. My question is really just around what could the potential reactivation costs be on those? Do you have any sense of that? And then what would the contract terms kind of need to look like to make that make sense for you guys maybe longer term?

Samir Ali: Yes, sure. So yes, I'd say, look, the harsh environment floater space is almost 100% utilized right now, and it's something that we would love to grow our fleet into. We've got a presence in Norway. We've got one asset working there. We've been very deliberate and vocal about our strategy to cluster rigs. So we would love to add a few more rigs into that market. In terms of reactivations for the Phoenix or the Aquarius, look, it's a meaningful number. It's probably over $100 million to reactivate those. In terms of what we're looking for is a contract that justifies that investment, right?

And for us, and this is a bit hyperbole, would I take a short contract to $2 million a day that covers that cost? Absolutely. right? So it doesn't need to be a long contract. It really comes down to the economics of the whole contract. And is it a mobilization fee? Is it longer term? What's the day rate? We throw all of that into the pot and kind of say, look, does this make economic sense for Seadrill or not?

Operator: Your next question comes from the line of Hamed Khorsand with BWS Financial.

Hamed Khorsand: Could you just expand on your commentary on the Carina? It looks like you've shifted it to West Africa already. What your expectations are that you've already completed that mobilization?

Jacob Taylor: Yes. I think for the Carina, the reason we shifted it over to West Africa is because we feel based off of our outlook that, that gives us the closest proximity to near-term work in the regions. So it gives us the flexibility to pursue prospects both in West Africa and in Southeast Asia because that's where we're seeing the largest amount of demand at the moment. And it's also -- we get synergies from our presence out there in the region already, we're able to continue to maintain that rig and have it ready for the next campaign.

Hamed Khorsand: Is there a timing of when we should expect some sort of contract activity there?

Jacob Taylor: Most of the campaigns we're seeing right now in the market are commencing probably in the first half of '27. So there is a bit of a lead time before commencement would happen. Awards, I would say, within the next quarter or 2.

Operator: Your next question comes from Noel Parks with Tuohy Brothers.

Noel Parks: I was also on the topic of sort of customer behavior. I just was wondering sort of maybe what negotiations might be like right now when, say, I don't know you have a customer that wants a rig for, say, midyear next year, you've got something coming available 6 months earlier, say, beginning of the year. I'm just kind of wondering what that back and forth looks like when -- I mean, is that something that just you would get reflected in price for the time difference? Or are situations like that kind of not so common still yet?

Jacob Taylor: Yes, I can go ahead and take that one. So I think for us, going back to what we've said in earlier statements, we're not going to invest in a major mobilization, reactivation or upgrade without a meaningful contribution from the customer. We also look at the cost of having that rig idle waiting for that opportunity. But it just depends on whether or not it's competing against an alternative prospect. For us, we're not solely focused on day rate. I think the terms and conditions drive a lot of value for our business. And so economic uptime is another lever that is really important with us for us that we like to play with.

And I think that with the market tightening, all of those factors are becoming more and more favorable.

Noel Parks: Terrific. I was also wondering, does what you see ahead for the next few years, is it in any way reminiscent of sort of where we were at any particular prior cycle and just thinking about sort of seeing tightening ahead after a bit of a slowdown. But then I'm also mindful that this time around, we do have that sort of gradual bounce back in exploration that maybe wasn't there in past cycles. So any thoughts there would be great.

Samir Ali: Absolutely. So look, it does feel kind of like the beginnings of upcycles you've seen in the past, kind of the '08 cycle, if you will. I think the fundamental difference this time around is there's not a whole bunch of newbuilds sitting on the sideline that can come back, right? We are a relatively inelastic supply in an increasing demand environment, right? So it does have some flavors of the previous cycle, but the last cycle, you had a bunch of drillships coming out of the shipyard still kind of from '08 to almost 2013, 2014 rigs were being delivered to kind of help take up some of that demand. That doesn't exist today.

Yes, there's a couple of rigs still out there, but the realities are inelastic supply with increasing demand. So it feels even better than the last cycle, if you will, in my opinion.

Operator: Your next question comes from Josh Jayne with Daniel Energy Partners.

Joshua Jayne: First one is just a bit of a follow-up on Greg's question. I was hoping you could touch on supply chain, how you're seeing the world. Are you seeing any issues getting equipment over the last couple of quarters? Do you see any issues moving forward? And just how are you potentially thinking about inflation in equipment cost or CapEx moving forward? Are you seeing anything material or not at all?

Samir Ali: Look, we're seeing some inflation that you would expect both on labor and material. Obviously, fuel has gone up probably the most, but most of our contracts, we don't take fuel exposure. It's provided by the client. So when we think about it is when we have kind of gaps between schedules back to our contracting strategy of not having -- trying to minimize our gaps so we don't have that fuel cost. But the rest of it, look, we're seeing your normal inflation across the board. And bringing back to what Jacob was talking about earlier in Ts and Cs, we're trying to pass that on to clients, right?

Wherever we can is better you know the whole contract is kind of how we think about it is can we pass some of those you know inflation costs back onto the day rate or into the contract value if you will.

Joshua Jayne: Understood. And then I just wanted to follow up on a rig-specific question. So the Louisiana has obviously continued to put together, string together number of short-term opportunities. Could you just could you speak to what's embedded in the guidance for the back half of this year surrounding that rig? And then as we think about it longer term, I guess, into '27, are there term opportunities for that rig in your view? Or do you view this as sort of continuing to put together shorter-term programs? I'm just curious how you and we should be thinking about the rig opportunities across '27?

Grant Creed: Yes. Sure, Josh. Thanks. And yes, so like I said in my -- in one of the answers in the Q&A, I said Louisiana end up working more than we anticipated in the first half of the year. But then I did also mention in my prepared remarks that the rest of this year is a little less clear. And I think as we look at guidance, we still apply the same principle as we typically apply to that rig, which is "The Show Me Rig." so when we secure the work, we'll start baking it into our forward-looking projections.

And so I guess that's a long way of saying it's not really -- we're not booking upside on that rig the remainder of this year. But then I'll hand over to Jacob for commentary on '27 and beyond.

Jacob Taylor: Yes. I would just add that it didn't just exceed our expectations. I think it's had 99% economic uptime so far this year. And a lot of that work was captured with a very short lead time. There's a diverse set of customers in the Gulf of America and even new ones such as Guardian, who we've recently worked with that love the versatility of that asset. She has a Trendsetter intervention system on board as well. And so it enables her to go do drilling, P&A, intervention, all the likes of it.

And we're having positive dialogue with customers who have some campaigns starting as early as towards the end of this year and then probably some longer-term prospects that are going to be maturing in Q2, Q3 of '27. So I think we're still very optimistic about the capabilities of that rig.

Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

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