Seadrill: Buying the Dip in a Deepwater Recovery

The offshore drilling sector is at a crossroads. While near-term headwinds have spooked investors, few companies are as positioned to capitalize on the structural recovery in deepwater exploration as Seadrill Limited (SDRL). Despite a mixed Q1 2025 report that sent shares tumbling, the company’s reaffirmed guidance, fortress-like backlog, and strategic advantages make it a prime candidate to buy the dip. Here’s why the skepticism is misplaced—and how investors can profit from it.

The Q1 Dip: A Buying Opportunity, Not a Write-Off

Seadrill’s Q1 2025 results were a study in contrasts. Revenue of $274 million missed estimates by 16.8%, driven by operational hiccups like a 50-day downtime on its West Taurus rig in Brazil and non-revenue days at the start of the year. Yet EPS soared to $1.33, crushing forecasts by $1.74 and underscoring management’s relentless focus on cost discipline and contractual execution.

The stock price reacted sharply, falling 5.5% the day after the report—a classic case of short-term noise overshadowing long-term signal. But here’s what the market is missing:

The dip presents a rare chance to buy a company with $3 billion in contracted backlog through 2028–2029 at a 50% discount to its $46.50 analyst target. Analysts’ average price target implies a 104% upside from recent lows, while bulls like BWS Financial see $80—a 240% gain.

Why the Backlog Matters: Securing Growth in a Volatile Market

Seadrill’s crown jewel is its deepwater fleet, which accounts for 85% of its revenue. This segment is critical as oil majors pivot to untapped reserves in Brazil’s pre-salt fields and West Africa’s prolific basins. With $1 billion in new Brazil contracts secured in late 2024, Seadrill’s backlog is 90% covered for 2025—far outpacing peers.

The company’s cost leadership further shields it from volatility. Even with Q1’s revenue miss, it maintained a 34.95% net margin—double the sector average—thanks to aggressive debt reduction (net debt down to $120 million) and a $792 million share repurchase program that cut its issued shares by 22% since 2023.

Catalysts Igniting the Recovery

1. Paul Singer’s Stamp of Approval

Elliott Management, run by billionaire Paul Singer, remains a $144 million stakeholder—ranking Seadrill as its second-largest energy holding. While Elliott trimmed its position slightly in 2024, it’s no coincidence they’ve held firm through the Q1 dip. Their bet: Seadrill’s $1.36 billion revenue guidance for 2025 is achievable, and its 2026 EPS target of $6.24 (up 209% from 2025 estimates) is within reach.

2. The Aquadrill Play

Seadrill’s 2023 acquisition of Aquadrill—a specialist in harsh-environment drilling—paid off. The deal added four high-specification rigs, now underpinning $400 million in incremental backlog. With Aquadrill’s expertise, Seadrill is now the only driller with a fleet capable of operating in both shallow and ultra-deepwater environments, a unique moat in an industry fragmented by specialization.

3. Valuation: A Bargain at $23

At a forward P/E of 10.66 versus the sector’s 15.99, Seadrill is cheap. Its enterprise value-to-EBITDA multiple of 5.2x is half that of Transocean (RIG), despite superior backlog visibility. Bulls argue the stock is pricing in a worst-case scenario—a view that ignores the $100+ crude oil environment driving renewed offshore investment.

Addressing the Risks: Regs vs. Demand

Bearish arguments center on regulatory hurdles in Brazil and litigation with Petrobras ($213 million claim pending). While these are valid concerns, they’re outweighed by secular tailwinds:
- Oil majors’ capital spending: Exxon, Chevron, and TotalEnergies are allocating 25–30% of budgets to deepwater projects through 2030.
- Brazil’s pre-salt boom: By 2026, Petrobras aims to double deepwater production to 1.5 million barrels/day—requiring Seadrill’s rigs.

Even a worst-case scenario—say, a 10% day-rate dip—would shave just $0.50 off 2026 EPS, per analysts. Meanwhile, the 425% EPS beat in Q1 shows management can navigate headwinds.

The Bottom Line: Buy the Dip, Hold for the Surge

Seadrill’s Q1 stumble is a blip, not a trend. With $3 billion in contracted cash flows, a fleet unmatched in complexity, and a valuation that ignores its backlog dominance, this is a once-in-a-cycle opportunity.

For investors willing to look past quarterly noise, buying SDRL near $23—50% below its target—offers asymmetric upside. The offshore drilling recovery isn’t just coming; it’s here. Seadrill is positioned to lead it.

Act now: Seadrill’s dip is a buy—don’t let skepticism sink your returns.