Seadrill (NYSE:SDRL) announced its first-quarter results before the market opened this morning. The company reported earnings of $3.094 billion, or $6.54 per share. However, its results were greatly affected by deconsolidating the financial results of Seadrill Partners (NYSE:SDLP) from its results.

A closer proxy for Seadrill's underlying earnings is its reported net operating income. For the first quarter the company reported $890 million in net operating income, which was well above the $534 million that analysts were expecting. It was also much higher than the $552 million the company delivered in last year's first quarter. However, operating income was partially affected by the gain on the sale of the ultra-deepwater drillship West Auriga to Seadrill Partners. Overall, Seadrill delivered a strong quarter as cash flow in the quarter totaled $912 million, which was $168 million higher than last quarter.

This higher cash flow, when combined with the company's solid operating results and strong long-term prospects enabled Seadrill to once again raise its dividend to investors. The company is increasing its quarterly dividend by $0.02 per share to a quarterly total of $1.00 per share.

While there were a number of positives in Seadrill's first quarter, the company does see near-term challenges ahead in the ultra-deepwater market. The company noted that just seven ultra-deepwater rigs were contracted in the first quarter, which is the lowest quarter of activity since the financial crisis in 2009. Because of this, Seadrill has curtailed ordering any additional units. Instead, the company plans to be proactive to take advantage of any distressed assets that may come available if weaker rivals struggle. 

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Matt DiLallo owns shares of Seadrill. The Motley Fool recommends Seadrill. The Motley Fool owns shares of Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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