Seadrill Limited (SDRL) Earnings

Management highlights

- Core Operational Priorities & Safety * Achieved 96% economic utilization across the fleet for Q2 2026, with all three rigs in the West Africa Sanro Drill Joint Venture delivering over 99% technical uptime * Successfully completed the West TELUS re-acceptance project on schedule and on budget, the second of three legacy day rate rigs transitioned to substantially higher contract rates * Maintains safety as the top priority, with ongoing investment in training, leadership development, and stop-work authority for all crew members - Contracting & Backlog Growth * Added approximately $200 million in new backlog since the May 2026 earnings call, including new contracts and extensions for three rigs in the U.S. Gulf and Malaysia * Secured a 12-month extension for the Westfella (U.S. Gulf) with Talos starting June 2027, adding $161 million to backlog; the Savon, Louisiana secured a short campaign with Harbor Energy starting late July 2026, meaning Harbor Energy has contracted all of Cedral's U.S. Gulf fleet in 2026 * A customer exercised a 75-day extension option for the West Capella in Malaysia, extending operations into H2 2027 - Financial & Capital Structure Updates * Completed a refinancing in June 2026 that strengthened financial flexibility, extended debt maturities to 2031 (revolver) and 2034 (senior notes), and increased the revolving credit facility from $225 million to $300 million * Ended Q2 2026 with $360 million in total cash; the board extended the remaining $208 million share repurchase authorization through the end of 2026, and the company opportunistically repurchased $20 million of shares in late June 2026 - Market & Regional Outlook * Management expects deepwater drill ship utilization to reach the mid-90% range by 2027, driven by growing offshore investment and exploration activity; Wood Mackenzie projects offshore project final investment decisions (FIDs) will reach $165 billion in 2027, a 132% increase from 2025 * U.S. Gulf: The region is in transition, but Cedral has secured nearly $500 million in year-to-date backlog; the West Vela is contracted for 365 days at leading-edge rates, and the West Neptune is contracted into late 2027, with management expecting improving supply-demand balance in 2027 * Brazil: Remains a core deepwater market, with only three drill ships expected to be available by the end of 2027; the West Carina completed its contract in June 2026 and was mobilized outside Brazil, with advanced ongoing discussions for work starting H1 2027 * Southeast Asia: Demand momentum is building, with customers already securing rigs at leading-edge rates for 2028 commencement, indicating tightening supply-demand; the West Capella is well positioned to capture upside * West Africa: All joint venture rigs delivered strong operational performance; the West Gemini is due to roll off contract later in 2026, with upcoming FIDs and tenders across the region expected to absorb available capacity

Guidance

- This is the second consecutive upward guidance revision for full-year 2026, driven by stronger-than-expected operational execution and utilization - Updated full-year 2026 operating revenue guidance is $1.5 billion to $1.55 billion (excluding $50 million in reimbursable revenue), up from prior guidance ranges - Updated full-year 2026 adjusted EBITDA guidance is $420 million to $450 million; guidance accounts for lower visibility for the Savon, Louisiana in H2 2026 and higher expected repair and maintenance expenses in the second half of the year - Full-year 2026 capital expenditure guidance is maintained at $200 million to $240 million - Management expects free cash flow to strengthen meaningfully in H2 2026, as major project outflows are complete and cash benefits from the three repriced rig contracts (West Capella, West Jupiter, West TELUS) are realized, including a $40 million West TELUS mobilization fee expected to be collected in Q3 2026

Segment performance

C-Drill (Cedral) reports total operating revenue of $449 million and adjusted EBITDA of $144 million for Q2 2026, with an adjusted EBITDA margin (excluding reimbursables) of 33.5%. Revenue growth was driven by full-quarter contributions from the West Capella (Malaysia) and West Jupiter (Brazil) after they started new higher-rate contracts in late March 2026, plus increased activity from the Savon, Louisiana in the U.S. Gulf. These gains were partially offset by fewer operating days for the West TELUS during its scheduled re-acceptance. The West Jupiter and West TELUS now operate at materially higher rates, delivering a combined $400,000 per day step-up in revenue compared to their legacy contracts. Management contract revenue also increased after a retroactive daily fee hike for the Sonadrol joint venture effective January 1, 2026. Total operating expenses were $377 million, up $43 million quarter-over-quarter, primarily due to the two rigs returning to full operations.

Risks & headwinds

- Limited near-term visibility for the Savon, Louisiana in the U.S. Gulf for the remainder of 2026, which introduces uncertainty to H2 2026 results - While the offshore cycle is improving, there has not yet been a wholesale shift in customer behavior to lock in long-term contracts far in advance, leaving some near-term contracting uncertainty - Reactivation of the two stacked harsh environment semi-submersibles (Aquarius and Phoenix) would require over $100 million in investment, dependent on securing economically viable contract terms to justify the expenditure - General inflation on labor and materials is impacting operating costs, though most fuel cost exposure is passed through to clients per contract terms - Forward-looking statements are inherently uncertain, and actual results may differ materially from projections due to market and operational risks, as detailed in the company's SEC filings

Analyst Q&A

• Q: With the share repurchase program restarted, what is the framework for the scale and pace of buybacks after the H2 2026 free cash flow inflection, and will the full remaining authorization be used this year?

  A: Management prioritizes maximizing free cash flow first, and assesses buybacks based on current cash position, projected future cash flow, and alternative capital deployment options. The recent buyback was executed when the share price traded in the 30s, which management viewed as an accretive use of capital. Whether the full remaining $208 million authorization will be used this year is to be determined, with regular ongoing reviews with the board of directors based on market and cash conditions.

• Q: What drove the two consecutive full-year guidance raises, and what factors could prevent leading-edge day rates from continuing to rise from current mid-$400,000 levels in 2027?

  A: The primary drivers of guidance upside were stronger-than-expected operational execution on key rig projects, longer operating time for the West Carina than initially planned, and more activity for the Savon, Louisiana in H1 2026 than forecast. Management expects day rates to continue rising as utilization improves, but focuses on maximizing total contract value (including mobilization fees and contract terms) rather than chasing just the highest day rate.

• Q: For rigs rolling off contract in H2 2027, have you started securing new contracts, and how do you weigh the tradeoff between near-term visible work versus holding out for higher future upside?

  A: Management prioritizes minimizing idle gaps between contracts, as gaps waste time and money, and focuses on swift payback for capital. If the West Carina secures near-term work, other available rigs like the West Gemini will be positioned to capture future upside as utilization tightens. The company's core strategy prioritizes direct continuation work to avoid gaps wherever possible.

• Q: Have you observed any change in customer behavior as the market tightens into 2027, and what contract terms would be required to justify reactivating the two stacked harsh environment rigs?

  A: There has only been marginal change so far, with only a small number of customers locking in rigs for 2028 or later starts, no wholesale shift in behavior. Reactivating the two stacked harsh environment semis would cost over $100 million, and any reactivation will only proceed if the full contract economics (regardless of contract length) justify the investment, rather than requiring a specific long-term term.