Global Population Growth Will Expand Offshore Drilling Prospects

Key Takeaways

• Rising offshore drilling demand and focus on deepwater projects position Seadrill for long-term revenue and margin growth as energy needs increase.
  
• Strategic emphasis on advanced technology and cost efficiency boosts contract wins, earnings visibility, and future shareholder returns amid industry underinvestment.
  
• Structural demand pressures, regulatory risks, financial uncertainties, market oversupply, and customer concentration all threaten Seadrill’s revenue stability and long-term earnings outlook.

Catalysts

Provides offshore drilling services to the oil and gas industry worldwide.

• Seadrill is positioned to benefit from a resurgence in offshore drilling demand as global population growth and middle-class expansion in emerging markets drive increased long-term energy needs, supporting higher contract activity, backlog, and revenue growth from 2026 onward.
  
• The slow pace of the global energy transition means hydrocarbons remain central in the energy mix, resulting in ongoing demand for deepwater oil and gas projects; this is already translating into long-term contract awards and premium dayrates for Seadrill’s modern rig fleet, which will positively impact both revenue and EBITDA margins.
  
• Geopolitical volatility and an increased focus on national energy security have prompted operators to secure stable, diverse offshore supplies, leading to a ramp-up in project final investments and a higher likelihood of multi-year contract wins for Seadrill, enhancing visibility around future earnings.
  
• Seadrill’s strategic shift to a pure-play floater business with an increasingly active role in technologically complex projects and next-generation managed pressure drilling systems positions it to win contracts for more technically demanding and higher-margin wells, supporting higher net margins and customer retention over the medium to long term.
  
• Industry wide, persistent underinvestment has led to tightening supply, and Seadrill’s industry-leading operational performance and cost efficiency measures, alongside ongoing balance sheet deleveraging, make it highly sensitive to the expected upcycle in dayrates and utilization from 2026, supporting significant growth in earnings and potential for enhanced shareholder returns.

Seadrill Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Seadrill compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Seadrill's revenue will grow by 10.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 28.9% today to 19.8% in 3 years time.
• The bullish analysts expect earnings to reach $343.7 million (and earnings per share of $5.61) by about July 2028, down from $372.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.4x on those 2028 earnings, up from 4.9x today. This future PE is greater than the current PE for the US Energy Services industry at 11.3x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.58%, as per the Simply Wall St company report.

Seadrill Future Earnings Per Share Growth

Risks

• Accelerating global energy transition and the adoption of renewables are putting structural pressure on offshore oil demand, which could lead to reduced backlog visibility and declining core revenues for Seadrill over time.
  
• Regulatory risk is increasing, as seen with recent and extended rig downtime in Brazil due to evolving regulatory interpretation, potentially driving up compliance costs, increasing non-productive days, and negatively impacting net margins and earnings.
  
• Ongoing legal disputes and potential penalties, such as the $213 million claim from Petrobras and the recent $48 million Norwegian court award, present significant financial uncertainty and could result in material negative impacts to net earnings and available cash flow.
  
• Softening near-term market with an oversupply of offshore rigs, declining utilization, and increased competition driving lower day rates, represents a threat to revenue and can delay or dampen earnings recovery for Seadrill.
  
• Dependence on a concentrated customer base, particularly Petrobras and a handful of majors, elevates counterparty and revenue concentration risk, which could amplify volatility in revenues if key customers pull back or if capital discipline limits contract opportunities.

Valuation

• The assumed bullish price target for Seadrill is $73.95, which represents two standard deviations above the consensus price target of $42.71. This valuation is based on what can be assumed as the expectations of Seadrill's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $80.0, and the most bearish reporting a price target of just $32.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $343.7 million, and it would be trading on a PE ratio of 13.4x, assuming you use a discount rate of 7.6%.
• Given the current share price of $29.42, the bullish analyst price target of $73.95 is 60.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.