10-K: Seadrill Reports 2025 Net Loss Amid Market Volatility

Seadrill Limited reported a net loss of $77 million for the fiscal year ended December 31, 2025, a significant decline from the prior year's net income, driven by increased operating expenses and an impairment charge.

Summary

• A net loss of $77 million was reported for the fiscal year ended December 31, 2025, a substantial decrease from the net income of $446 million in 2024.
• Total operating revenues increased by 4% to $1,437 million in 2025 from $1,385 million in 2024.
• Operating expenses rose by 12% to $1,369 million in 2025 from $1,223 million in 2024, leading to an 89% decrease in operating profit to $47 million.
• The average number of rigs on contract increased to 10 in 2025 from 9 in 2024, and the average contractual dayrate increased to $326 thousand from $296 thousand.
• Economic utilization decreased to 90% in 2025 from 95% in 2024, primarily due to unplanned downtime on several rigs.
• Contract backlog as of December 31, 2025, was approximately $2.38 billion, down from $3.18 billion in 2024.
• An impairment loss of $22 million was recognized on the West Eclipse due to a sustained lack of future utilization plans.
• Cash and cash equivalents decreased to $339 million at December 31, 2025, from $478 million at December 31, 2024, with total available liquidity falling to $524 million from $703 million.
• The company remained in compliance with all financial covenants as of December 31, 2025.
• A NOK403 million (approximately $40 million) guarantee was issued under the Revolving Credit Facility related to a legal claim, reducing available borrowings to $185 million.
• Bermuda enacted a 15% corporate income tax effective January 1, 2025, which Seadrill and its Bermuda subsidiaries are now subject to.
• Unrecognized tax benefits totaled $37 million (excluding interest and penalties) as of December 31, 2025.
• Merger and integration related expenses significantly decreased to $2 million in 2025 from $24 million in 2024.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a challenging period for Seadrill, marked by a substantial net loss and a sharp decline in operating profit, alongside a reduced contract backlog and significant legal and tax contingencies. While operational metrics like dayrates improved, overall financial performance deteriorated, indicating underlying pressures.

Positives

• Total operating revenues increased by 4% year-over-year to $1,437 million.
• The average number of rigs on contract increased to 10 in 2025 from 9 in 2024.
• The average contractual dayrate increased to $326 thousand in 2025 from $296 thousand in 2024.
• The Brazilian collective bargaining agreement was successfully negotiated for the period from September 2025 to August 2026.
• Capital upgrade projects for the West Auriga and West Polaris were completed, leading to increased operating days for these rigs.
• Economic utilization improved on the West Neptune, West Saturn, and West Jupiter compared to the prior year.
• Merger and integration related expenses saw a significant reduction of $22 million.
• The company maintained compliance with all financial covenants as of December 31, 2025.
• A strong liquidity position is targeted with a minimum cash-on-hand of $250 million and a net leverage target of less than 1.0x under current market conditions.
• Uncertain tax positions for Ghana were resolved in 2025.
• The Total Recordable Incident Rate (TRIR) was 0.17, which is below the IADC average of 0.34 for the areas of operation, indicating strong safety performance.

Negatives

• A net loss of $77 million was reported in 2025, a significant decline from the $446 million net income in 2024.
• Operating profit decreased by 89% to $47 million in 2025.
• Total operating expenses increased by 12%, primarily due to higher vessel and rig operating expenses and management contract expenses.
• Economic utilization decreased to 90% from 95%, mainly due to unplanned downtime on the West Tellus, West Polaris, West Auriga, West Elara, West Carina, and Sevan Louisiana.
• Contract backlog decreased significantly to $2.38 billion from $3.18 billion.
• An impairment loss of $22 million was recognized on the West Eclipse due to a sustained lack of future utilization plans.
• Cash and cash equivalents decreased by $139 million, and total available liquidity decreased by $179 million.
• Income tax expense increased by $139 million, reflecting the resolution of significant uncertain tax positions in 2024 and changes in valuation allowances.
• Management contract expenses increased by $57 million due to estimated damages following an unfavorable court judgment related to Sonadrill joint venture fees.
• An unfavorable court judgment in the SFL Hercules Ltd. case ordered the company to pay approximately $37 million, plus $11 million in interest and legal costs.
• An unfavorable High Court judgment in the Sonadrill fees claim resulted in an estimated aggregate liability of up to $61 million, with the first tranche of approximately $43 million already paid.
• Brazilian tax authorities issued income tax assessments totaling approximately $144 million (including interest and penalties) for years up to 2017, with litigation ongoing for 2009 and 2010.
• Mexican tax authorities issued assessments totaling approximately $125 million for years up to 2014, which are being contested.
• Petrobras is asserting 'delay penalties' of approximately $213 million related to the Sete Brazil Project, with potential for further significant penalties.
• The U.S. withdrawal from the Paris Agreement effective January 27, 2026, and other executive orders by the Trump Administration signal a shift in U.S. energy and climate change policies, creating uncertainty.
• 2025 was marked by softer utilization and increased competition, placing downward pressure on near-term dayrates.

Risks

• Business depends on the volatile oil and gas industry, with adverse developments (e.g., decline in oil/gas prices, reduced demand, increased regulation) potentially having a material adverse effect.
• The offshore drilling industry is highly competitive and cyclical, with intense price competition and volatility.
• Consolidation in the industry may impact operating results by creating larger competitors and potentially reducing capital spending by customers.
• Upgrades, refurbishment, repair, and surveying of rigs are subject to risks, including delays and cost overruns, which could adversely impact cash resources and results of operations.
• Compliance with, and breach of, complex international trade laws and regulations could be costly and expose the company to liability, with policy changes (e.g., tariffs) adversely affecting operations.
• Changing sentiments regarding environmental, social, and governance (ESG) matters and climate change may impact access to capital and reputation.
• Aspirations, goals, and initiatives related to sustainability, including emissions reduction, and public statements regarding them, expose the company to numerous risks, including failure to achieve goals or meet stakeholder expectations.
• Failure to obtain or retain highly skilled personnel, and to ensure correct visas and permits, could adversely affect operations.
• Customers may seek to cancel or renegotiate contracts to include unfavorable terms, particularly if operations are suspended or interrupted, potentially leading to lower revenue or inadequate termination fees.
• Inability to renew or obtain new and favorable contracts for drilling units could lead to idle rigs or substantially lower dayrates.
• Contract backlog for the fleet may not be fully realized due to various factors, including shipyard and maintenance projects, downtime, and customer issues.
• Operations involve numerous operating hazards (e.g., blowouts, pollution, severe weather), and increasing contractual risk in customer contracts may not be adequately covered by insurance.
• A substantial portion of business is dependent on a few major customers (Petrobras, Sonadrill, Talos, LLOG) and geographic areas (Brazil, United States, Angola), making it vulnerable to disruptions.
• Operating and maintenance costs of rigs may be significant and may not correspond to revenue earned.
• Inflation has adversely affected, and may continue to adversely affect, operating results and increase costs.
• Reliance on third-party suppliers, manufacturers, and service providers exposes the company to risks of sub-standard performance, non-performance, production disruptions, quality issues, labor availability, and price increases.
• Risks associated with mergers, acquisitions, or dispositions of businesses or assets or other strategic transactions, including integration difficulties, unforeseen liabilities, and diversion of management's attention.
• The fleet is largely concentrated in benign floaters and drillships, which leaves the company vulnerable to risks related to lack of diversification if these markets decline.
• The international nature of operations involves additional risks, including political/governmental risks, terrorism, piracy, and local content requirements.
• Subject to complex environmental laws and regulations that can adversely affect the company through costly compliance, liabilities, and operational restrictions.
• Failure to adequately protect sensitive information, operational technology systems, and critical data from cybersecurity threats could have a material adverse effect.
• Incorporating artificial intelligence technologies into processes may present business, compliance, and reputational risks.
• Any violation of anti-bribery, anti-corruption, anti-fraud, or ethical business practice laws and regulations could have a negative impact.
• Drilling units located in or connected to countries subject to economic sanctions, export restrictions, or other operating restrictions could adversely affect reputation and market for debt/shares.
• Losses may be suffered through investments in other companies in the offshore drilling and oilfield services industry (e.g., joint ventures).
• Labor costs and operating restrictions could increase following collective bargaining negotiations and changes in labor laws and regulations.
• The physical effects of, and regulations and disclosure requirements with respect to, greenhouse gas emissions and climate change could have a negative impact on business.
• Drilling contracts with national oil companies may expose the company to greater risks than with non-governmental customers.
• Control of oil and natural gas reserves by national oil companies may affect demand for services and products and create additional operational risks.
• No assurance that the use of drilling units will not infringe the intellectual property rights of others.
• Imposition of laws, executive actions, or regulatory initiatives to restrict, delay, or cancel leasing, permitting, or drilling activities in deepwaters of the United States or foreign countries may reduce demand for services.
• Significant amount of debt and ability to incur substantially more debt in the future, with debt service obligations potentially adversely affecting the company.
• Agreements governing debt contain various covenants that impose restrictions on the company and certain subsidiaries.
• Inability to meet the capital allocation framework goal of returning at least 50% of Free Cash Flow to shareholders through dividends and share repurchases.
• As a holding company, dependence on cash flow from subsidiaries and joint ventures to meet obligations.
• Potential for recognition of impairments on long-lived assets and intangible assets or equity method investments.
• Fluctuations in exchange rates and the non-convertibility of currencies could result in losses.
• A change in tax laws in any country of operation could result in higher tax expense.
• A loss of a major tax dispute or a successful tax challenge to the operating structure, intercompany pricing policies, or taxable presence of subsidiaries could result in higher taxes.
• Issuance of share-based awards may dilute investors' holdings, and substantial sales of or trading in shares could adversely affect the share price.
• As a foreign corporation, shareholders may not have the same rights as in a U.S. corporation.
• Bye-Laws limit shareholders' ability to bring legal action against officers and directors.
• Legislation enacted in Bermuda as to Economic Substance may affect operations.
• Subject to litigation, arbitration, other proceedings, and regulatory investigations that could have an adverse effect.
• Loss of foreign private issuer status could result in additional cost.

Future Outlook

The company anticipates a market recovery in 2027, driven by accelerating global tendering activity and a renewed focus by oil majors on large-scale deepwater exploration as U.S. shale production plateaus. The strategy includes maintaining a net leverage target of less than 1.0x under current market conditions and a strong liquidity position with a minimum cash-on-hand of $250 million. The company will also evaluate potential for accretive additions to its core asset categories and aims to return at least 50% of Free Cash Flow to shareholders through share repurchases or dividends, subject to meeting financial targets.

Management Comments

• Our vision is to set the standard in deepwater oil and gas drilling, and we deliver this vision through the four pillars of our strategy: Operational excellence, Fleet and portfolio strength, Customer partnership and growth, and People and performance.
• We are recognized for providing high quality operations, in some of the most challenging sectors of offshore drilling and have worldwide operations based on where activities are conducted in the global oil and gas industry.
• We believe that the combination of quality drilling units and a highly skilled workforce allows us to provide our customers with safe, efficient and reliable operations.
• We are dedicated to establishing a secure work environment where effective barriers to control the hazards in our operations manage risk and everyone's well-being is prioritized.
• We continue to evaluate and monitor the potential impacts of changes and proposed changes to U.S. global trade policy, or any international retaliatory measures, on our business and operations, but it is not possible to predict the impact.
• As anticipated, 2025 was a year marked by softer utilization and a corresponding increase in competition, placing downward pressure on near-term dayrates; however, as global tendering activity accelerates, we see signs that point towards a market recovery in 2027.

Industry Context

StockSavvy.ai notes that the offshore drilling industry remains highly competitive and cyclical, with 2025 experiencing softer utilization and increased competition, leading to downward pressure on dayrates. However, the company anticipates a market recovery in 2027, aligning with broader industry expectations of renewed focus on large-scale deepwater exploration as U.S. shale production plateaus and global oil and gas demand continues. The average Brent oil price of $68 per barrel in 2025, down from $80 in 2024, reflects global growth in oil production and slower demand growth, contributing to market uncertainty.

Comparison to Industry Standards

• The Total Recordable Incident Rate (TRIR) of 0.17 for 2025 is below the IADC average of 0.34 for the areas in which the company operates, indicating superior safety performance.
• The decline in global benign environment floater marketed utilization (86% in 2025 vs 87% in 2024) and harsh environment unit utilization (floaters 93% vs 95%, jackups 97% vs 99%) reflects a broader industry trend of reduced capital spending on drilling activities and increased competition, as observed in RigLogix data.

Management Changes

Corporate Governance

Legal Proceedings

• SFL Hercules Ltd. Claim: Oslo District Court ordered Seadrill to pay SFL approximately $37 million, plus $11 million in interest and legal costs. Seadrill filed an appeal in March 2025, with proceedings scheduled for April 7, 2026. A guarantee of NOK574 million (approximately $57 million) was issued.
• Sonadrill Fees Claim: The High Court of Justice, England and Wales, rendered judgment in favor of a claimant for breach of contract and unjust enrichment related to Sonadrill joint venture fees. The estimated aggregate liability is up to $61 million (including interest and legal fees). Seadrill paid the first tranche of damages (approximately $43 million) in October 2025. Permission for an appeal was not granted.
• Nigerian Cabotage Act Litigation: The Nigerian Maritime Administration and Safety Agency (NMASA) issued a detention for the rig West Capella for failure to pay a 2% Cabotage fee on contract revenue. The Federal High Court of Nigeria ruled drilling operations fall under 'Coastal Trade' and rigs are 'Vessels,' directing SMUNL to remit approximately $69 million. SMUNL filed an appeal, which is pending.
• Sete Brazil Claim: Petrobras asserted 'delay penalties' of approximately $213 million against Seadrill Brazil related to three drillships under the Sete Brazil Project, with potential for further significant penalties. Petrobras indicated potential set-off rights against amounts payable to Seadrill Brazil. Seadrill disputes liability and is in voluntary mediation with Petrobras, which could commence in Q3 2026.
• Brazil Tax Assessments: Seadrill Brazil has a dispute with Brazil's tax authority for income tax, penalties, and interest for 2009 and 2010, totaling approximately $78 million. An appeal is filed in Brazil's Superior Court of Justice. Administrative appeals for 2012, 2016, and 2017 assessments totaling approximately $84 million are also ongoing.
• Mexico Tax Assessments: Mexican tax authorities issued assessments totaling approximately $125 million for years up to 2014, which Seadrill is robustly contesting.

Related Party Transactions

• Sonadrill Joint Venture: Seadrill owns a 50% stake and manages three drillships (Libongos, Quenguela, West Gemini). Management fee revenues were $242 million in 2025, add-on services revenues were $12 million, and reimbursable revenues were $30 million. Leasing revenues from the West Gemini to Sonadrill were $33 million in 2025. Sonadrill prepaid management fees to Seadrill of $3 million as of December 31, 2025.
• Gulfdrill Joint Venture: Seadrill previously held a 50% stake and sold its interest along with three jackup rigs in June 2024 for $338 million, recognizing a gain of $203 million. Leasing revenues from these rigs to Gulfdrill were $54 million in 2024 prior to disposal.

Stakeholder Impact

• Shareholders: The net loss and reduced contract backlog could negatively impact shareholder value. The share repurchase program aims to return capital, but its continuation is at the Board's discretion. Dilution risk exists from share-based awards. Bye-Laws limit legal action against officers/directors.
• Employees: The company faces competition for skilled personnel, and there is potential for increased labor costs due to collective bargaining agreements. The company emphasizes training and safety.
• Customers: While dayrates improved for some rigs, overall softer utilization and increased competition could lead to contract renegotiations or terminations. The company's reliance on a few major customers creates concentration risk.
• Creditors: Compliance with debt covenants has been maintained. However, significant debt levels and ongoing legal/tax disputes could pose risks to creditors.
• Suppliers: Reliance on third-party providers exposes the company to supply chain disruptions, price increases, and quality issues, which could impact operational continuity and costs.

Next Steps

• Appeal proceedings for the SFL Hercules Ltd. claim are scheduled to commence on April 7, 2026.
• Continue to vigorously contest the SFL Hercules Ltd. judgment.
• Continue to make submissions to the High Court on the quantum of damages for the second tranche of the Sonadrill fees claim.
• Vigorously pursue the appeal in the Nigerian Cabotage Act litigation.
• Participate in voluntary mediation with Petrobras regarding the Sete Brazil Project claims, potentially commencing in Q3 2026.
• Evaluate legal options and assert counterclaims against Petrobras in Brazilian courts if necessary.
• Continue to defend tax positions in Brazil and Mexico.
• Monitor the impact of the Bermuda Corporate Income Tax Act and future developments under the GloBE model rules.
• Continue to evaluate the impact of the U.S. Inflation Reduction Act and OBBBA.
• Continue share repurchases pursuant to the Current Repurchase Program at the Board's discretion, with $208 million remaining authorized.
• The West Aquarius is undergoing capital upgrade projects for a contract commencing in the second quarter of 2026.
• Five owned drilling units are expected to become available before the end of 2026.

Key Dates

Recommendation

Seadrill faces significant headwinds, including a net loss, sharply reduced operating profit, and a declining contract backlog, coupled with substantial legal and tax contingencies. While dayrates have improved for some rigs and a market recovery is anticipated in 2027, the near-term financial performance and ongoing disputes create considerable uncertainty. The company's strong liquidity and conservative capital structure provide some resilience, but the current environment suggests a 'hold' position until there is clearer evidence of sustained financial improvement and resolution of major liabilities.

Keywords

Offshore drilling, Seadrill, Drillships, Semi-submersible rigs, Oil and gas, SEC filing, Financial results, Contract backlog, Dayrates, Capital expenditures, Debt, Share repurchase, Bermuda tax, ESG, Cybersecurity, Legal proceedings, Risk management