Seadrill Ltd

NYSE:SDRL

Earnings Call Transcript 2023-Q1

[Simon Johnson, President and CEO]

Welcome all to our Second Quarterly Earnings Call this calendar year and the first call of the 2023 Financial Period. On the line today, Grant and I are joined by Leif Nelson, our Chief Operating and Technology Officer; and Samir Ali, our Chief Commercial Officer. Grant and I will shortly take you through our prepared remarks before we open up for a Q&A session. For further information regarding today's presentation on the first quarter earnings, I invite you to read the full earnings release published to the market earlier today, which is accessible on the Seadrill website.

On Slide 2, you'll find a disclaimer relating to today's presentation. This outlines important points around forward-looking statements made in the earnings report and to be discussed on this call, which are based on current expectations and are subject to certain risks and uncertainties. There are many factors that could cause actual performance and results to differ materially. For further information, please take the time after the call to read this disclaimer and refer to the full quarter earnings report as well as our other SEC filings.

In addition, please note that we'll be referencing non-GAAP measures on our call and a reconciliation of operating income to adjusted EBITDA can be found in today's full earnings release.

We've started this year strongly with adjusted EBITDA more than doubling on a quarter-on-quarter basis to $85 million. This represents a 32% EBITDA margin. The significant improvement in financial performance was mainly due to a full quarter of operations for our drillships operating in Brazil. As of today, Seadrill's backlog stands at approximately $2.6 billion, which is especially strong in the context of our fleet size. This backlog total includes a three month extension secured for the West Neptune, which added $39 million, reflecting our long-standing relationship with LLOG.

We ended the quarter with an adjusted net cash position of $133 million. Going forward, free cash flow generated by the enterprise will be a key metric. Across our own fleet, we had good operational performance, with technical utilization coming in at 96%, while our economic utilization was 95%. As Seadrill stands today, we have a fleet of 22 units, including 13 ultra-deepwater floaters. We're delighted that most floaters are contracted, including all of our 10 high-specification drillships, primarily deployed across the Golden Triangle.

Also in our fleet, our two harsh environment units continue operations on the NCS. We have three benign jackups operating through our Qatari joint venture and lastly, [Indiscernible] units operating in Thailand. Finally, we are proud to announce that we have received a B rating under the Carbon Disclosure Project framework, the eco highest rating amongst all offshore drillers, which reflects our commitments to minimizing our impact on the environment. I'll be covering ESG in a little more detail later in the presentation.

Moving to Slide 4, I will touch on the market backdrop. Despite some volatility recently, the price of Brent has generally remained above the $70 mark and oil and gas market fundamentals continue to be supportive for offshore drilling. Many analysts expect oil demand year-on-year to increase by around 1.5 million to 2 million barrels per day in 2023, whilst on the supply side, OPEC announced further production cuts earlier this year. Coupled with the healthy economics of offshore projects, this demand-supply balance has a positive read across for our activity in the sector.

Taking a closer look at offshore drilling in the benign ultra-deepwater floater segment, market utilization for drillships has remained around the 95% mark, while leading-edge dayrates continue to increase, with a recent fixture close to $500,000 per day. In our view, we expect to see a five handle fixture at the leading edge in the second half of the year as the market tightens further. Brazil continues to be the main driver of floater demand, with Petrobras in particular, moving to secure more capacity.

In the near term, we anticipate additional requirements from Brazil and results from ongoing Petrobras tenders, leading to more rigs mobilizing to the region from different geographies. We also forecast incremental floater demand offshore Africa, with active requirements for Angola, Nigeria, Namibia and Mozambique. To round off the Golden Triangle outlook, Gulf of Mexico demand visibility is typically limited with a lot of contracting activity undertaken via direct negotiations. However, this region is effectively sold out, and we remain positive about its utilization outlook.

With that all said, although demand is very important, we continue to believe that supply side discipline amongst drillers is the most salient factor as to how this upcycle progresses.

Turning to the harsh environment segment, we have one CJ70 jackup on long-term contract with ConocoPhillips and one floater at the West Phoenix operating with Vår Energi on the NCS that is currently estimated to roll off in the second half of 2024. On the supply front, we have seen a string of announcements about floaters exiting the North Sea for contracts outside the region, including notably Namibia and Australia, with more announcements to follow soon.

On the demand side, anticipated requirements in 2024 and 2025 are beginning to materialize. Furthermore, we are seeing interest in the West Phoenix for harsh environment operations outside the North Sea. Altogether, we view these dynamics as supportive for our re-contracting prospects next year. Overall, we are very optimistic about market developments in offshore drilling and continue to believe that we're in the constructive early stages of a multiyear upcycle.

I'll now hand over to Grant, who will outline our first quarter financials, then cover a few points on our capital structure and set out our guidance for the full year of 2023. Over to you, Grant.

[Grant Creed, EVP and CFO]

Thank you, Simon, and welcome again to everybody joining us today.

Before I jump into the figures, please note that our Q1 results do not include the effects of our Aquadrill acquisition that closed on April 3. The operating results and the assets and liabilities of Aquadrill will be consolidated from April 3 and presented as part of our next quarterly earnings. And our full year 2023 guidance, which I'll outline later in this presentation, includes the consolidation of Aquadrill for a period of nine months from the closing date to year-end.

Now to the key quarterly figures. Q1 revenue was $266 million, an increase quarter-on-quarter, primarily due to a full period of operations in respect of our four drillships offshore Brazil. We also benefited from a higher dayrate on the West Neptune and from the Sevan Louisiana achieving higher economic utilization. That was slightly offset by no further revenue from West Hercules, which demobilized and was returned to the rig owner in Q4.

Moving to OpEx, Q1 OpEx was $219 million, a reduction quarter-on-quarter, mainly driven by the demobilization and redelivery of the West Hercules to the rig owner, partly offset by a full period of operations for our drillships in Brazil. As a result of these movements, we recorded adjusted EBITDA of $85 million, which marked a substantial increase compared to Q4. Further, this translated to an adjusted EBITDA margin of approximately 32%, which screens well compared to our peer group.

On the balance sheet, unrestricted cash decreased to $376 million at the end of the period. This was largely driven by the settlement of liabilities for accrued expenditures in relation to our recent rig start-ups in Brazil and voluntary prepayments made under our second lien debt facility of $150 million. This was partly offset by the receipt of $43 million in net proceeds in respect of our sale of Paratus Energy Services, which closed in February.

Elsewhere on the balance sheet, the settlement of accrued expenditures and voluntary prepayments that I just outlined were the main drivers of the reduction in our current and noncurrent liabilities respectively.

I'll now take a moment to focus a bit more on our leverage and capital structure more broadly. Over the last year, we've been proactive in respect of our debt profile by making several mandatory and voluntary prepayments under our second lien debt facility, including those in Q1 that I highlighted on the previous slide. This put us in an adjusted net cash position of $133 million at the end of March, as mentioned by Simon earlier.

We are delighted that we have delevered our balance sheet, and in turn, reduced our interest expense in light of the prevailing economic climates. Nevertheless, as said in our prior earnings call, we are now focused on further optimizing and simplifying our capital structure, and we believe that we are well positioned following closing of the Aquadrill acquisition. We are in active discussions with our Board and capital market advisers as to the form this may take.

On Slide 7, you'll find our financial guidance for the full year of 2023, which includes the consolidation of Aquadrill into Seadrill from April 3. We anticipate total operating revenues to be between $1.435 billion and $1.485 billion. Our adjusted EBITDA range stands at $435 million to $485 million. And lastly, we expect CapEx and long-term maintenance to be between $210 million and $250 million. I'd like to draw your attention to a footnote in the earnings release, which essentially says our 2023 EBITDA guidance includes net $12 million of noncash costs related to the amortized mobilization revenues received and costs incurred prior to January 1, 2023.

I'll now hand the line back to Simon.

[Simon Johnson, President and CEO]

Thanks, Grant. On screen, you'll see Seadrill's ultra-deepwater floater fleet. During the last year, we pivoted strategically to the segment through two transformative M&A transactions in the belief that this part of the rig market will produce outsized growth and value for our shareholders.

Now taking a closer look at the fleet, all 13 floaters on screen are at least 10,000 foot capable in terms of water depth. We have 10 drillships that are ultra [ph] drill activity and seven that are of seventh generation design, which typically have better specification, require less maintenance spend and deliver superior contract economics as a result. Lastly, on managed pressure drilling, Seadrill is the trail blazer in this adaptive drilling technology, and we continue to be amongst the market leaders on this equipment with six units currently outfitted across our fleet.

We have contributed strongly to industry knowledge and technology in this important drilling approach, which will be increasingly vital for penetrating the deeper geologic horizons in our targeted ultra-deepwater markets.

Moving to the next slide, I want to focus on our ESG strategy, which has delivered our leading position as part of the Carbon Disclosure Project. As a major offshore driller, we have a critical role to play in the global energy transition. Our aim at Seadrill is to deliver oil and gas wells to our customers responsibly and with the best carbon footprint possible. In our latest sustainability report, we published Seadrill's ESG framework with its contributions towards the United Nations sustainable development goals.

I won't outline all of the elements here, but there are two of particular focus for us, which I'll explain in a little bit more detail. First, on the environmental front, we are committed to adopting greenhouse gas reducing technologies. In offshore drilling, Seadrill has developed the first methanol injection system for an offshore drilling rig, and we pioneered the introduction of mobile [ph] hybrid power technology.

More recently, we installed a closed bus-tier [ph] system on the West Saturn working for Equinor in Brazil, enabling the rig to position itself dynamically with fewer engines running, which is a substantially more efficient operating mode, reducing fuel burn and emissions. We've also deployed the first version of NIV's Duals [ph] technology, which enables remote operation of the mud system, and we continue to advance automation of the drilling process.

Second, I want to highlight our commitment to the development of our employees with the Seadrill Development Academy, which we rolled out earlier this year. The program uses an enhanced facility that is owned and managed by Seadrill complete with the state-of-the-art drilling simulator. Seadrill has a best-in-class workforce that is integral to the development of safe and efficient operations for our customers. And investments such as this one illustrate our commitment to operational excellence and also our employees' development and growth.

Furthermore, on the expanding business environment, our ability to train our own people will be critical to service delivery quality and cost control. To wrap up, we are very pleased with our start to the year, with a nearly fully utilized fleet and the closing of our Aquadrill acquisition in April on an accelerated time line. The offshore outlook is promising. And looking ahead into future quarters, we're focusing on further refining our fleet and enhancing our exposure to our core segments, including through organic transactions, if accretive, whilst optimizing our capital structure to enable the implementation of sustainable shareholder returns policy.

We have demonstrated during the past 12 months that our management team has a bias for action. And put simply, we fully intend to continue to deliver on what we promise.

That brings an end to today's presentation. I'll now hand the line back to the operator, who will handle the Q&A session to answer any questions that you may have for the management team.

[Operator]

[Operator Instructions] Our first question comes from Gregory Lewis from BTIG. Gregory, your line is now open. Please go ahead.

[Greg Lewis, BTIG]

Yeah, hi. Thank you and good afternoon, everybody. Simon, I realize the ink is barely dry on the Aquadrill acquisition, but all that being said, a lot of common questions thematic we continue to get from investors is around continued consolidation across the offshore drilling sector. Just kind of curious maybe how active the company is at this point, realizing we're still integrating Aquadrill?

And really, as you think about a bigger picture, do we think that there's still opportunities, whether it's Seadrill or others to help to continue to consolidate the market, realizing at this point, as I look at most publicly listed drillers, whether it was this year or last year or even over the last couple of years. Each one of you has kind of put a stake in the ground and done some M&A. Just kind of curious on your thoughts around that.

[Simon Johnson, President and CEO]

Yes. Thanks, Greg. Look I don't think the window is closed for consolidation. But obviously, as the community shrinks, it gets harder and harder to do interesting deals. So we believe there's still considerable market upside, and that's really the most important factor. There's a lot of work -- a lot of room for improvement with leading-edge dayrates. We're early in the business cycle, we believe.

We think that as people progress their refinancing efforts and the restrictive covenants that act as somewhat of a barrier to further consolidation, some of those will fall away. So that could be a catalyst for further combinations across the space. But I think the most deals will continue to largely be stock transactions. Few of us have enough cash consideration at this point to do outright cash deals today.

So we've been active in concentrating our asset base. There's an opportunity for some of our peers to do similar things. So I think it may not be sort of large-scale M&A necessarily, although there's probably room for some terminal transactions that certainly our larger peers, I think there's a possibility of people specializing and concentrating their asset base. So yes, no, I don't think it's behind us. I think there's still a lot of opportunities for people to choose the part of the market they want to play in and focus their asset acquisition and divestment activities around that.

[Greg Lewis, BTIG]

Okay. Great. Thank you. Thank you for those thoughts. And then I did want to touch on a couple of other rigs. The West Polaris, which is being managed -- it's being managed by a third-party manager. It's, I guess, September, you're going to be here before we know what. Unfortunately summer is going to fly by. But could you maybe talk a little bit about the outlook for that rig? And how we should be thinking about the continuation or termination of that management contract?

[Simon Johnson, President and CEO]

Yes, you bet. Greg, well, let me start and then I'll throw it to Samir, and he can give you the market color. So I mean when we announced the Aquadrill transaction, you'll recall that we anticipated realizing all of the synergies within the first two years. So as a practical matter, transition of management is still some time off. And we've only really started the conversations with the existing rig managers and the customers who would be affected. So there's not much to report at this time other than to let you know that we had started those conversations. But Samir can probably put a little bit more granularity around that.

[Samir Ali, EVP and Chief Commercial Officer]

Hey Greg. So I'd say we are in active dialogue with the current client that they have an open tender in the same region. So we think we're well-positioned. But in this business, it's not done until it's signed. So we are optimistic that we'll be able to keep her working where she is today. We are also looking at other opportunities for the rig, and we are bidding her around the world. But our working assumption right now is that she will stay in India and continue on with ONGC.

[Greg Lewis, BTIG]

Okay. That's kind of what I was curious about. And then Samir, while I have you, realizing that the bulk of the fleet is contracted out, but as we look out over the next 12 months, there are rigs that start to at least roll off their contracts.

Any kind of sense realizing that there's always a spot market in the U.S. Gulf of Mexico for short-term work, but as we look maybe West Africa, Brazil, Asia, how far ahead are customers at this point looking to fix out, i.e., we're in May of '23, is -- any way to characterize maybe on a quarterly forward basis as you're looking at the market, are we seeing tenders pop up for work next summer, next fall, next spring? How far out is it going just to kind of get a feel for how anxious maybe some customers are starting to get?

[Samir Ali, EVP and Chief Commercial Officer]

Sure. So at the sign of the market continuing to tighten, clients are looking for rigs further and further out. There's one data point where there's a client looking for rig in '26. So that's probably the outermost part of where clients are right now, but I'd say you are seeing it elongate out. Clients are starting to come to us earlier and saying, hey, can we talk about options that aren't due for a while? Or can we talk about rigs in '24, '25?

So you are seeing it as a reaction just to a tightening market. They're looking to secure supply, as they build out their drilling plans, we are seeing an elongation of the time before award and when customers are looking to secure rigs.

[Greg Lewis, BTIG]

Super helpful. Thank you all for the time.

[Simon Johnson, President and CEO]

Thanks, Greg.

[Operator]

Our next question comes from Fredrik Stene from Clarkson Securities. Fredrik, your line is now open. Please go ahead.

[Fredrik Stene, Clarksons Securities]

Hey, Simon and team. Hope you are well. And congratulations on the nice performance this quarter. I wanted to touch a bit more on the fleet here. You're mostly locked up for 2023 and a large part of '24 is also locked up. But then of course, as we touched upon, I think, last quarter as well, you have your stacked assets.

And first, since we spoke last time have anything kind of changed in your approach to those assets? Simon, you talked about supply discipline. So I guess my question is, have you changed anything in your requirement to take those rigs back? Or have you since then noticed a difference from your clients in terms of more opportunities or more active discussions for those rigs?

[Simon Johnson, President and CEO]

Hi, Fredrik, and good to hear your voice. Look, firstly, I'd say that we consider those assets to be fungible. And where it is possible, we may even divest them. But in so far as reactivating is concerned, I think we've been pretty forceful in our views that we require a full recovery of the capital upfront from any potential customer.

I'll pass to Samir to talk about the individual market opportunities, but nothing has changed in our position or in our approach in terms of what we require. And I think as we go further into this cycle, we're just going to be increasingly resolute in that stance. But Samir perhaps you'd care to add something to that.

[Samir Ali, EVP and Chief Commercial Officer]

Yes. So we're definitely looking at opportunities for our stacked fleet, but yeah, we're going to remain disciplined, right? I mean there is significant cost to reactivate these rigs. And given supply chain constraints, those costs aren't going down. They're actually going up. So for us, it's making sure that we can find the right job, the right opportunity to invest in the rig and bring her back out. So we're absolutely chasing opportunities for our stacked fleet, but we are going to be judicious about it. And we're going to make sure that we're getting a return on our capital, and we're not going to take it on our balance sheet just because--

[Fredrik Stene, Clarksons Securities]

Thanks, and a follow-up to the comment about potential divestments there. If you were to divest some of those stacked assets to other players, would you be willing to divest it to competitors? Or would you try to channel them into local or non-internationally competitive markets or owners, if you were to do that?

[Simon Johnson, President and CEO]

I think we look at every opportunity on its merit. So I don't think necessarily we would be averse to selling to a competitor whatever shape and form that may take. So yes, no, I think it's whatever would generate the best return for us, Fredrik. So we have an open mind.

[Fredrik Stene, Clarksons Securities]

Okay, thanks. And specifically on the West Phoenix, just turning away from the stacked fleet, you've got an extension now until August, if I remember correctly. But you said that, that rig was also being bid outside Norway or outside the Andean. So do you have any thoughts or comments around your preference in terms of keeping that rig in Norway?

I guess kind of in a way, you're right now, a bit subscale in that region. Would it be better if it actually worked elsewhere? Or do you think, based on your market view that the Andean has actually tightened quite significantly, '24 and '25, that you would like to keep it there still, even though you're exploring other opportunities.

[Samir Ali, EVP and Chief Commercial Officer]

Hey, Fredrik, it's Samir. So I'd say our preference is going to be to keep her in Norway, but that is from a cash flow perspective, right? Setting another shore base in another location, unless it's a region that we operate in, there is just that. So our preference is to maximize cash flow wherever that is. And the math would tell you that that's most likely Norway, but by no means are we married to keeping the rig in Norway. That is -- again, it is maximizing our return profile and our cash flow.

So if we can co-locate the rig, that does help us in the long term, but if we find the right opportunity outside of Norway, and I would say there are a number of opportunities outside of Norway for that rig now. The harsh environment market, you've seen some of our peers pull out rigs from that market. You're going to continue to probably see rigs leave that market, and the market is starting to tighten in Norway. So you're finding that perfect storm in '24 and '25 in the Norwegian market. So for us, we will maximize cash flow ideally in Norway, but we have no problems taking the rig outside.

[Fredrik Stene, Clarksons Securities]

Perfect. Thanks a bunch. Thank you so much all for the answers. I'll leave it at that. Have a good day.

[Operator]

Our next question comes from Hamed Khorsand from BWS. Hamed, your line is now open. Please go ahead.

[Hamed Khorsand, BWS Financial]

Hi. So the first question I had was about Aquadrill just given that you've only provided Q4 '22 numbers. Is there any operational enhancements or improvements since then? Or is that because they're fully operational rigs now that's going to be the operating kind of rate per quarter for them?

[Grant Creed, EVP and CFO]

So let me try to take it, Hamed. I'm not sure I fully understand the question. But the Q1 doesn't include any results from Aquadrill, right? So from a financial perspective, you don't see anything in there from Aquadrill. You'll start seeing that come through Q2. From a financial perspective, Q2 will of course, include Auriga, Vela and Polaris and some of Capella. Capella is just starting up now or has just recently started up, but you won't get a full quarter from Capella. From Q3 onwards, you'll get full run rate performance on the four Aquadrill drillships.

I hope that answered your question from a financial perspective. But if you're looking for more of an operational sort of technical asset type of answer, I can hand over to Leif or Simon.

[Hamed Khorsand, BWS Financial]

No, that was exactly what I was looking for. Thank you. And then as far as your fleet is concerned, just given the lockup trends right now with your fleet, is there much to do as far as contracting goes? I mean you're talking about customers looking out for '24 and '25, but you're pretty much locked in. Is there any advantage to getting in those conversations now just given the trajectory of dayrates?

[Simon Johnson, President and CEO]

Hamed, I think one of the -- part of the rationale for the Aquadrill transaction was to get more exposure to the spot market. And we had some opportunities there with the Polaris. There's one that's crystallized for the Capella here in the near term. So I think relative to the comments that Samir made about opportunities in the marketplace and how that's stretching out, we think that what you've mentioned may have been a weakness in our story maybe three, six months ago, but is increasingly irrelevant in terms of how we see the market developing going forward and the spread of availability of the units that are then rolling off contracts over the next couple of years or will be available. Samir, anything to add?

[Samir Ali, EVP and Chief Commercial Officer]

No, I think that's right. And I think as clients are starting to look further out, that's where we're spending our time and starting to layer in contracts and build a layered approach to our contract with some short-term duration and some long-term duration. I think that's what we're focused on kind of going forward for '25.

[Hamed Khorsand, BWS Financial]

Got it. And my last question was, are you seeing any customer conversations talking about bringing those cold stacked or warm stacked fleets online?

[Samir Ali, EVP and Chief Commercial Officer]

There's some conversation around that. So you've seen a few of the stranded assets get brought back into the market. The cost of bringing these things back is increasing. So we are having conversations with clients about our stacked fleet. But I'd say it's -- we haven't reached a point, obviously of where we can announce a contract and we feel comfortable bringing a rig back. I'd say we are progressing those conversations, but the market is not there yet in our view, given we just can't get that return profile where we need it to be.

But I'd say, if the market continues the way it is, we should be seeing some of those conversations materialize or kind of crystallize later this year or next year.

[Hamed Khorsand, BWS Financial]

Okay, great. Thank you.

[Operator]

[Operator Instructions] Our next question comes from Konstantin Chinarov from Aptior Capital. Konstantin, your line is now open. Please go ahead.

[Konstantin Chinarov, Aptior Capital LLP]

Hi, guys. Thanks so much for taking my questions. When I think about adjusted EBITDA guidance, so that range of $435 million to $485 million, could you please talk a bit more about what's behind that guidance? Is it basically just saying that you're going to execute the backlog that you've locked in for this year? Or there are some other assumptions behind that? And also curious if that guidance include any synergies from Aquadrill acquisition? That's my first question.

[Grant Creed, EVP and CFO]

Hey, Konstantin thanks. So I would break it down by looking at the old Seadrill legacy fleet, first of all, and I'd say that that's pretty clear. You saw Q1 for that fleet. And so that kind of gives you a good idea of what to expect from Seadrill for the rest of this year and that sort of -- I think it was a relatively good quarter. So the 80 to 85 region for the rest of the quarter on the Seadrill legacy fleet.

On the Aquadrill fleet, Auriga, Vela, they come into the 2023 results. Well all the Aquadrill fleet, I should say, comes in from April 3. Auriga, Vela of course, on contract for the full year, so you get the benefit of all of those. Like I said earlier to Hamed, Capella just started up recently.

And then Polaris would be any other variable then because she has a term ending end of August. So Q4, you do need to take a view on what the recontracting assumption is. And there's a range of possibilities and a range of outcomes, and that's what we've sort of taken into account when setting the guided range.

Final part of your question, I think, was whether there are any synergies coming in? And the answer to that is no for now. We said when announced the transaction, that will take some time. It will take a period of, well, at least up to the first two years to realize those synergies. So we just got to wait for those Aquadrill rigs to roll off their existing contracts.

[Simon Johnson, President and CEO]

And that answer, Konstantin, I should just add, that's in relation to the key synergy area of the MSAs. There are a smaller amount of synergies to be realized in respect to their overheads. We said that was $10 million per annum. We will start realizing those synergies sort of more late Q3, Q4. So there's a small element of that. It does take some time to start realizing those, but there'll be -- there will be an element, albeit small for that piece.

[Konstantin Chinarov, Aptior Capital LLP]

Got it. And you're still looking to get $70 million of run rate synergies out of Aquadrill transaction?

[Grant Creed, EVP and CFO]

That's right. On a recurring basis, yes, once the rig rolls [multiple speakers].

[Konstantin Chinarov, Aptior Capital LLP]

And that's from the 2024 or -- and is that from 2024 or from 2025?

[Grant Creed, EVP and CFO]

Well, we said two years. Yes. So I think 2025. We said two years from when the deal closed and allow the contracts to roll off.

[Konstantin Chinarov, Aptior Capital LLP]

Got it. I see. And do you have a sense of adjusted EBITDA number if you were to effectively deploy the whole fleet, including Aquadrill at the moment, at the current spot market? Just to get a sense of the earnings power of the combined business.

[Grant Creed, EVP and CFO]

We have a -- you'll see in our website an investor deck where we do an analysis like that, where we assume the entire fleet is contracted at spot, and then you take a view on what spot is. And so I encourage you to go and look at that deck, but it's more or less $1 billion EBITDA in that range when you start getting $450,000 to $500,000 a day. So it's $800 million to $1 billion when operating between that $450 million to $500 million for seventh gen.

[Konstantin Chinarov, Aptior Capital LLP]

Got it. And then if I look at Page 6, the capital structure, it looks somewhat deficient. So I guess some of your peers went out and took advantage of the high-yield market and raised debt. Are you looking to optimize the capital structure anytime soon, maybe return capital to shareholders? What's your latest thinking there?

[Grant Creed, EVP and CFO]

We are. So we see our existing debt facilities as in suboptimal, both in terms of pricing as well as the covenants contained in them. And so we are looking into what a refinancing would look like. We did take the view that the best approach was to complete the Aquadrill transaction so that we could go to market on a refinancing with a stronger collateral package. We've now done that, of course, in April and been working since then on the refinancing.

And like I said in the prepared remarks, we're in active discussions with our Board to discuss the pros and cons of the options we see in front of us.

[Konstantin Chinarov, Aptior Capital LLP]

And is the idea to run an unlevered balance sheet or you're happy because at the moment, net debt is actually zero, which is arguably suboptimal. So how do you think about sort of optimal leverage for the business? And then related to that, this year on unlevered basis, the business is going to be cash generative. So wondering what you're thinking to do with excess cash flow? Would you invest in the business, or you might buy back shares or whatever like what's your latest thinking there?

[Grant Creed, EVP and CFO]

So on the quantum of debt, like I said, we're in active discussions with the Board. So I don't want to get too far out in front of that discussion. But I can say at a high level we'd expect to have some debt on the balance sheet, but certainly not -- we're certainly going to maintain a prudent or conservative balance sheet. So talking about net leverage, certainly not exceeding the two times net leverage on a through-cycle basis. But like I said, those discussions are live with our Board. So I don't give too much for you at this stage. And then as it relates to what we do with the cash, let me hand over to Simon and he can give you some comments there.

[Simon Johnson, President and CEO]

Well, I think we mentioned earlier, Konstantin, that our loan terms currently prohibit the issuance of dividends. So as Grant said, we recognize that we have a need to refinance first, and that's an area of current focus. But we've been explicit through time on the need or the potential to return capital to shareholders, be it via dividends or buybacks, if we can't use those funds elsewhere within the enterprise. So you're going to be hearing something from us very soon on this. It's a topic of constant discussion and debate. But we do believe the dividend should be supported by a sound capital structure and strong cash flows, and we think we're well placed in that regard.

When we look at our peer group, we see a lot of people who are either highly leveraged who have low cash flows in the near term. And we think that's an area where Seadrill represents extremely good value compared to our competitors.

[Konstantin Chinarov, Aptior Capital LLP]

Got it. Makes sense. And finally, on the asset base, are there any assets that you're planning to retire anytime soon? Or are there any sort of noncore assets that you might consider selling, let's say, jackups or certain drillships, anything like that on the horizon?

[Simon Johnson, President and CEO]

Yes, sure. I think we've been pretty open, and there's some things that we've communicated in our 20-F. We're actively considering options to dispose noncore assets. We can't provide any specific comments at this time. We'll come back to you if we have any news in that regard. But I think, generally speaking, we want to be an important player in a smaller number of asset segments so that we can be more efficient and harness economies of scale across the cost base.

So we're focusing our asset base through time. So you should expect to see movement from us as we continually refocus and refine other parts of the market that we want to play in.

[Konstantin Chinarov, Aptior Capital LLP]

Got it. Okay, thanks for your comments.

[Operator]

We currently have no further questions. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.