4. Seadrill Ltd. (NYSE:SDRL)
Market Capitalization as of April 23: $1.25 billion
Number of Hedge Fund Holders: 42
Average Upside Potential as of April 23: 126.03%
Seadrill Ltd. (NYSE:SDRL) provides offshore drilling services to the oil and gas industry worldwide. It owns and operates drill ships and semi-submersible rigs for operations in shallow and ultra-deep water in benign and harsh environments. It serves oil super-majors, state-owned national oil companies, and independent oil and gas companies.
Seadrill Ltd. (NYSE:SDRL) secured two significant long-term contract awards in Brazil in December 2024, which are to commence in 2026. These added $1 billion to the backlog and included a mobilization fee exceeding $70 million. These awards for the West Jupiter and the West Telus are for 3-year terms each with Petrobras.
At the end of 2024, the company reported a $1.3 billion contracted backlog, which saw a net increase of $700 million during the period. This backlog provides revenue visibility, which extends meaningfully through 2028 and into 2029, with ~90% of the midpoint of the 2025 revenue guidance ($1.3 to $1.36 billion) already secured within this backlog.
Despite broader energy sector headwinds, Patient Capital Management is positive on the company and stated the following regarding Seadrill Limited (NYSE:SDRL) in its Q3 2024 investor letter:
“Energy names disappointed in the quarter following commodity prices lower throughout the period. We took the opportunity to add to our highest conviction ideas. We look to names that have idiosyncratic opportunities and are attractive in a variety of different commodity price environments. Many see risk to energy prices over the next year as supply is expected to outstrip demand by 1.3mb/d even before assuming any incremental OPEC supply comes onto the market. With commodities, consensus is rarely right. We assess companies on through cycle returns and normalized prices. From this perspective, we see a handful of attractive opportunities, including Energy Transfer (ET), Seadrill Limited (NYSE:SDRL) and Kosmos (KOS).
Seadrill benefits from a consolidated industry, with more rational players, and an emerging supply and demand imbalance. We think over time as offshore drilling plays a bigger role as the marginal producer, Seadrill will benefit from more attractive contract prices.
Seadrill Limited (SDRL) is the fourth largest pure play deepwater drilling specialist. The company emerged from bankruptcy in February 2022 with a net cash position. The company is set to benefit from limited supply and increasing demand in the deepwater drilling rig market. Nearly half of all deepwater drilling rigs in the world were scrapped during the last decade. In addition, player consolidation puts the industry in a more rational position than we have seen historically. As land-based oil production growth comes under pressure, offshore production is receiving renewed interest. With a highly specialized rig base, the company is benefiting from increasing prices which are leading to strong FCF yields given the limited need for CAPEX. The company has committed to returning 50% of free cash flow to shareholders via dividends and buybacks. Over the last 12-months, the company has reduced shares outstanding by 17%. As old contracts roll-over and new contracts are signed at the higher day rates, operating profit and FCF are expected to expand dramatically. Seadrill could either consolidate the space or be acquired.”
