SEADRILL Ltd (SDRL)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1. "Financial Statements" of this Quarterly Report on Form 10-Q, as well as the Consolidated Financial Statements and related notes included in our 2025 10-K.

The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" in Part I, Item 1A. of our 2025 10-K and "Forward-Looking Statements" in this Quarterly Report on Form 10-Q.

Our Business

We are an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. Our primary business is the ownership and operation of drilling rigs for operations in shallow to ultra-deepwater in both benign and harsh environments. We contract our drilling units to drill wells for our customers on a dayrate basis. Our customers include oil super-majors, state-owned national oil companies and independent oil and gas companies. In addition, we provide management services to certain affiliated entities.

As of June 30, 2026, we owned a total of 15 drilling rigs. In addition to our owned assets, as of June 30, 2026, we managed two 7th generation drillships owned by Sonangol EP.

Significant Developments

Refinancing of Senior Notes

On June 30, 2026, Seadrill Finance issued $700 million in aggregate principal amount of 6.750% Senior Notes due 2034 in an offering conducted pursuant to Rule 144A and Regulation S under the Securities Act. The 2034 Notes are fully and unconditionally guaranteed, jointly and severally, by the Company and certain subsidiaries of the Company that are guarantors under the Credit Agreement, and in the future by certain subsidiaries of the Company that become borrowers or guarantors under the Credit Agreement or any other syndicated credit facility or capital markets debt in an aggregate principal amount in excess of a certain amount.

On June 30, 2026, in connection with the issuance of the 2034 Notes, Seadrill Finance satisfied and discharged the 2030 Notes Indenture in accordance with its terms.

Refer to "Liquidity and Capital Resources - Borrowing Activities" and Note 9 - "Debt" for additional information.

Revolving Credit Facility Amendment

On June 16, 2026, Seadrill Limited, along with its subsidiary, Seadrill Finance, entered into the Amendment to the Credit Agreement to, among other things, increase the commitments for revolving borrowings from $225 million to $300 million and extend the maturity date from 2028 to 2031. The Amendment became effective on June 30, 2026, and the commitments thereunder became effective and available to be borrowed, subject to customary borrowing conditions.

Refer to "Liquidity and Capital Resources - Capital allocation framework and Share repurchase program" and Note 9 - "Debt" for additional information.

Share Repurchase Program

On June 22, 2026, the Company's Board of Directors authorized an extension of the Share repurchase program to run through December 31, 2026.

During the three and six months ended June 30, 2026, the Company repurchased an aggregate of 511,078 Shares with a weighted average Share price of $38.66, amounting to approximately $20 million.

Refer to "Liquidity and Capital Resources - Capital allocation framework and Share repurchase program" and Note 12 - "Common shares" for additional information about the Share repurchase program.

Oil price volatility

The price of oil has experienced increased volatility and has risen in response to the ongoing conflicts in the Middle East, including the current conflict in Iran, which started on February 28, 2026, and the unprecedented blockades of the Strait of Hormuz resulting therefrom. The Brent oil price was $71 per barrel on February 27, 2026 and increased to an average price of approximately $103 per barrel for the second quarter of 2026. We continue to evaluate and monitor the impacts of the recent oil price volatility and the ongoing conflicts in the Middle East on our business and operations; however, it is not possible to predict the long-term impact, if any, of the disruptions to commodity prices, global energy supplies, energy markets and economic conditions, on our business and operations.

U.S. global trade policy changes

Ongoing and recently proposed changes to U.S. global trade policy, along with potential international retaliatory measures, have continued to cause high volatility in global markets and uncertainty around short- and long-term economic impacts in the U.S., including concerns over inflation, recession and slowing growth. We continue to evaluate and monitor the potential impacts of these changes and measures, including the imposition of tariffs and ongoing legal challenges to such tariffs, on our business and operations; however, it is not possible to predict the impact, if any, of any changes or proposed changes to the U.S. global trade policy, or any international retaliatory measures, on our business and operations.

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Contract Backlog

Contract backlog includes all firm contracts at the contractual operating dayrate multiplied by the number of days remaining in the firm contract period. For contracts which include a market indexed rate mechanism, we utilize the current applicable dayrate multiplied by the number of days remaining in the firm contract period. Contract backlog includes management contract revenues and leasing revenues from bareboat charter arrangements, denoted as "other" in the tables below. Contract backlog excludes revenues for mobilization, demobilization and contract preparation or other incentive provisions and excludes backlog relating to non-consolidated entities.

The contract backlog for our fleet was as follows as of the dates specified:

Our contract backlog includes only firm commitments represented by signed drilling contracts. The full contractual operating dayrate may differ from the actual dayrate we ultimately receive. For example, an alternative contractual dayrate, such as a waiting‑on‑weather rate, repair rate, standby rate or force majeure rate, may apply under certain circumstances. The contractual operating dayrate may also differ from the actual dayrate we ultimately receive because of several other factors, including rig downtime or suspension of operations. In certain contracts, the dayrate may be reduced to zero if, for example, repairs extend beyond a stated period.

We estimate the June 30, 2026 contract backlog to be realized over the following periods:

(1) Remainder of 2026.

The actual amount of revenues earned and the actual periods during which revenues are earned will differ from the amounts and periods shown in the tables above due to various factors, including shipyard and maintenance, surveys, upgrades and regulatory projects, unplanned downtime and other factors that result in a lower applicable dayrate than the full contractual operating dayrate. Additional factors that could affect the amount and timing of actual revenue to be recognized include customer liquidity issues and contract terminations, which are available to our customers under certain circumstances.

Business Environment

The table below shows the average oil price for the six months ended June 30, 2026 and year ended December 31, 2025. The Brent oil price as of August 6, 2026 was $82/bbl.

Source: Bloomberg

In recent years, oil prices have generally remained at levels that support offshore exploration and development activity, where global rig demand has been steady. This level of demand was sustained by the combination of commodity prices, heightened focus on energy security, and relative attractiveness of offshore plays with respect to both cost and carbon emissions. Recently, however, the ongoing conflict in Iran and the unprecedented closure of the Strait of Hormuz have caused significant disruption in the normal flow of oil, refined petroleum products, and related commodities, resulting in higher oil prices.

The price of Brent oil averaged $88 per barrel during the six months ended June 30, 2026 up from an average of $70 per barrel in 2025, driven primarily by ongoing conflicts in the Middle East that disrupted global oil supply during the first half of 2026.

Uncertainty persists in the market, particularly in light of concerns over global economic conditions (including the current conflict in Iran), government trade policies and output increases by the Organization of the Petroleum Exporting Countries and other major international producers. In addition, inflationary pressures may impact the cost base in our industry, including personnel costs and the prices of goods and services required to reactivate or operate rigs.

As global tendering activity accelerates, we see signs that point towards a market recovery in 2027. In addition, we believe oil majors are calling for renewed focus on large-scale exploration and investment, and there is also growing consensus that U.S. shale production is plateauing. As a result, with projections of growing oil and gas demand and the lagging energy transition, operators are pivoting back towards deepwater exploration in order to replace reserves and sustain production growth.

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The table below shows the global number of rigs on contract and marketed utilization for the six months ended June 30, 2026 and year ended December 31, 2025:

Source: RigLogix

Global benign-environment floaters

Marketed utilization and the number of contracted rigs remained relatively consistent in the six months ended June 30, 2026 compared to the year ended December 31, 2025.

Global harsh environment units

Marketed utilization for harsh environment floaters improved in the six months ended June 30, 2026 compared to the year ended December 31, 2025, whereas utilization for harsh environment jackups remained relatively consistent over the same periods, reflecting continued demand for high-specification assets.

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Results of operations

Results for the three months ended June 30, 2026 and June 30, 2025

The tables included below set out financial information for the three months ended June 30, 2026 and June 30, 2025:

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

In this section, we present management’s discussion and analysis of results of operations and financial condition. It should be read in conjunction with our Consolidated Financial Statements and accompanying notes thereto included in this annual report for the year ended December 31, 2025. You should also carefully read the following sections of this annual report entitled "Forward-Looking Statements," Part I, Item 1, "Business" and Part I, Item 1A, "Risk Factors".

The discussion of our results of operations and liquidity in this section includes comparisons for the years ended December 31, 2025 and December 31, 2024. For a similar discussion, including comparisons for the years ended December 31, 2024 and December 31, 2023, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 27, 2025.

Introduction

Seadrill Limited (along with any one or more of its consolidated subsidiaries, or to all such entities, referred to as "Seadrill", "we", "us", "our", and "the Company") is an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. Our primary business is the ownership and operation of drillships and semi-submersible rigs for operations in shallow to ultra-deepwater in both benign and harsh environments. We contract our drilling units to drill wells for our customers on a dayrate basis. Our customers include oil super-majors, state-owned national oil companies, and independent oil and gas companies. In addition, we provide management services to certain affiliated entities.

As of December 31, 2025, we owned a total of 15 drilling units, of which 10 were operating, one was undergoing capital upgrade projects for a contract commencing in the second quarter of 2026, one was undergoing repairs and maintenance projects and three were cold stacked. The 10 operating units include nine benign floaters (comprising six 7th generation drillships, two 6th generation drillships and one benign environment semi-submersible) and one harsh environment jackup. In addition to our owned assets, as of December 31, 2025, we managed two drilling units owned by Sonangol.

For a detailed description of our business, please read Part I, Item 1, "Business".

Significant Developments

U.S. global trade policy changes

Ongoing and recently proposed changes to U.S. global trade policy, along with potential international retaliatory measures, have continued to cause high volatility in global markets and uncertainty around short- and long-term economic impacts in the U.S., including concerns over inflation, recession and slowing growth. We continue to evaluate and monitor the potential impacts of these changes and measures, including the imposition of tariffs and any legal challenges to such tariffs, on our business and operations; however, it is not possible to predict the impact, if any, of any changes or proposed changes to the U.S. global trade policy, or any international retaliatory measures, on our business and operations.

Market Overview and Trends

The below table shows the average annual oil price over the period from 2021 to 2025. The Brent oil price on February 20, 2026 was $72.23.

Source: Bloomberg

In recent years, oil prices have generally remained at levels that support offshore exploration and development activity, where global rig demand has been steady. This level of demand was sustained by the combination of commodity prices, heightened focus on energy security, and relative attractiveness of offshore plays with respect to both cost and carbon emissions.

The price of Brent oil averaged $68 per barrel in 2025, down from $80 per barrel in 2024. Global growth in oil production and slower growth in demand have put downward pressure on prices.

Uncertainty persists in the market, particularly in light of concerns over global economic conditions, government trade policies and output increases by the OPEC and other major international producers. This has led to the continued deferral of offshore capital expenditures and contracting of offshore drilling services and could have a negative impact on near-term future demand for offshore drilling services. In addition, inflationary pressures may impact the cost base in our industry, including personnel costs and the prices of goods and services required to reactivate or operate rigs. 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. In addition, we believe oil majors are calling for renewed focus on large-scale exploration and investment, and there is also growing consensus that U.S. shale production is plateauing. As a result, with projections of growing oil and gas demand and the lagging energy transition, operators are pivoting back towards deepwater exploration in order to replace reserves and sustain production growth.

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The below table shows the global number of rigs on contract and marketed utilization for the years ended December 31, 2025 and December 31, 2024:

Source: RigLogix

Global benign environment floaters

Marketed utilization decreased in 2025 compared to the prior year, mainly due to fewer contracted floaters, which were primarily benign environment semi-submersibles.

Global harsh environment units

Marketed utilization for harsh environment floaters and jackups declined in 2025 compared to the prior year, primarily reflecting reduced capital spending on drilling activities.

Changes to our fleet

The below table shows the number of owned drilling units included in our fleet for each of the periods covered by this report:

The decrease in benign environment jackup rigs during 2024 was due to the disposal of the West Castor, West Tucana, West Telesto and West Prospero.

The below table shows the number of managed drilling units included in our fleet for each of the periods covered by this report:

Contract backlog

Contract backlog includes all firm contracts at the contractual operating dayrate multiplied by the number of days remaining in the firm contract period. For contracts which include a market indexed rate mechanism, we utilize the current applicable dayrate multiplied by the number of days remaining in the firm contract period. Contract backlog includes management contract revenues and leasing revenues from bareboat charter arrangements, denoted as "other" in the tables below. Contract backlog excludes revenues for mobilization, demobilization and contract preparation or other incentive provisions and excludes backlog relating to non-consolidated entities.

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The contract backlog for our fleet was as follows as of the dates specified:

Our contract backlog includes only firm commitments represented by signed drilling contracts. The full contractual operating dayrate may differ from the actual dayrate we ultimately receive. For example, an alternative contractual dayrate, such as a waiting‑on‑weather rate, repair rate, standby rate or force majeure rate, may apply under certain circumstances. The contractual operating dayrate may also differ from the actual dayrate we ultimately receive because of several other factors, including rig downtime or suspension of operations. In certain contracts, the dayrate may be reduced to zero if, for example, repairs extend beyond a stated period.

We estimate the December 31, 2025 contract backlog to be realized over the following periods:

The actual amounts of revenues earned and the actual periods during which revenues are earned will differ from the amounts and periods shown in the tables above due to various factors, including shipyard and maintenance, survey, upgrade and regulatory projects, unplanned downtime and other factors that result in lower applicable dayrates than the full contractual operating dayrate. Additional factors that could affect the amount and timing of actual revenue to be recognized include customer liquidity issues and contract terminations, which are available to our customers under certain circumstances.

RESULTS OF OPERATIONS

The tables included below set out financial information for the years ended December 31, 2025 and December 31, 2024.

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1) Operating revenues

Operating revenues consist of contract revenues, reimbursable revenues, management contract revenues, leasing revenues and other revenues.

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