Revenues of $743 million for the third quarter (Q2 2016: $868 million) were down approximately 14% primarily due to six additional idle units and dayrate reductions. During the quarter, the West Orion, West Phoenix, West Alpha, West Pegasus and Sevan Driller became idle. The West Hercules, West Castor and West Prospero had a full quarter of idle time. The West Freedom operated the full quarter in flotel mode and two of our AOD rigs were extended at reduced dayrates. The reductions to revenue were partially offset by the agreement of a $17 million de-winterization payment for the West Alpha and the commencement of operations on the West Eclipse and West Vigilant.
Net operating income for the quarter was $247 million (Q2 2016: $364 million). The decrease primarily reflects lower revenues in the quarter, partially offset by lower operating and overhead costs.
Net financial and other items for the quarter resulted in an expense of $854 million (Q2 2016: expense of $32 million). The increase in the expense primarily relates to an impairment charge on investments in Seadrill Partners and Seamex and the absence of a gain on debt extinguishment recognized in the prior period, partially offset by the revaluation of the derivative hedge book.
Under US GAAP the Company is required to determine whether a decline in the value of its marketable securities and equity method investments represents an 'other than temporary impairment'. The Company has recognized $882 million of non-cash impairment charges related to its investments in Seadrill Partners and Seamex. $806 million of the non-cash impairment charge relates to our investment in Seadrill Partners with the balance relating to our investment in Seamex.
Income taxes for the third quarter were $49 million, (Q2 2016: $56 million) mainly reflecting the decrease in operating income, partly offset by additional deferred tax balances recognized in the quarter.
Net loss for the quarter was $656 million mainly attributable to the non-cash impairment charge (Q2 2016: net income of $276 million) resulting in basic and diluted loss per share of $1.29.
As of September 30, 2016, total assets were $22.0 billion (Q2 2016: $23.0 billion).
Total current assets were $2.9 billion (Q2 2016: $3.1 billion). The main movements during the quarter were a reduction in the value of our marketable securities related to Seadrill Partners and a reduction in accounts receivable as more rigs became idle.
Cash and cash equivalents decreased by $37 million, reflecting lower revenues for the quarter, partially offset by working capital movements.
Total non-current assets were $19.1 billion (Q2 2016: $20.0 billion). The main movements during the quarter were a decline in investments in associated companies related to non-cash impairment charges and a decline in the value of drilling units due to normal quarterly depreciation.
Total current liabilities were $4.9 billion (Q2 2016: $4.3 billion). The $600 million increase is mainly attributable to the reclassification from non-current to current of $843 million of debt maturing in September 2017, partially offset by a gain on derivatives, lower tax liabilities and some movements in related party payables.
Total non-current liabilities were $7.4 billion (Q2 2016: $8.4 billion). The main movement was related to the reclassification of $843 million in debt as noted above, and debt repayments of $232 million.
Over the course of the quarter total net interest bearing debt (including related party debt and net of cash and cash equivalents) was $8.9 billion (Q2 2016: $9.1 billion), reflecting normal quarterly installments.
Total equity was $9.8 billion as of September 30, 2016 (Q2 2016: $10.3 billion).
As of September 30, 2016, cash and cash equivalents were $1.3 billion (Q2 2016: $1.3 billion).
Net cash provided by operating activities for the three month period ended September 30, 2016 was $242 million, net cash used in investing activities was $4 million, and net cash used in financing activities was $274 million. Net cash provided by operating activities for the three month period ended June 30, 2016 was $303 million, net cash provided by investing activities was $259 million, and net cash used in financing activities was $366 million.
Operating costs for rigs in operation, including overhead, on our floater fleet have been reduced from $200k per day in 2014 to $145k per day currently, a 28% reduction. Operating costs for rigs in operation, including overhead, on our jack-up fleet have been reduced from $90k per day in 2014 to $63k per day today, a 29% reduction.
This year we have reduced headcount from 7,100 to 5,500 a 23% reduction. Onshore headcount has been reduced from 1,200 to 850 and offshore from 5,900 to 4,650.
G&A costs for full-year 2016 are projected to be approximately $220 million, down from $248 million in 2015 and $315 million in 2014.
We continue to make good progress on deferring newbuild deliveries. During the third quarter and for the fourth quarter to date we have concluded the following agreements:
Discussions continue to progress with the shipyards regarding further deferments.
Additionally, during the fourth quarter to date we have concluded the following commercial agreements:
Seadrill's order backlog as of November 22, 2016 is $3.0 billion, comprised of $2.2 billion for the floater fleet and $0.8 billion for the Jack-up fleet. The average contract duration is 16 months for floaters and 15 months for Jack-ups.
Commercial contract renegotiation discussions continue to advance with some customers and the Company continues to look toward finding commercial agreements that are beneficial to both parties in order to be better positioned for future contract awards.
While our long term view of the market for high specification drilling rigs remains positive, in the near term the offshore drilling sector remains extremely challenging. Oil prices remained in the $40-50 range during the third quarter, a level that is not sufficient to reverse the declines in oil companies' upstream spending. It is expected that upstream spending will again decline in 2017, albeit less than the reductions of approximately 27% in 2016 and 24% in 2015. While the forecasted decline in spending sets the stage for another challenging year in the offshore drilling industry, it is important to recognize that the resetting of costs across the value chain may facilitate increased activity with only a marginal increase in commodity prices.
Oil companies continue to be focused on preserving cash, in some cases consciously allowing the decline rate on producing fields to accelerate as a result of reduced infill drilling and well intervention. Based on the past years of underinvestment and the forecast for 2017, it is expected that decline rates will continue to accelerate. The longer the period of underinvestment and accelerated decline persists, the more new projects and infill drilling will be required to replace this lost production.
Offshore barrels continue to be competitive from a cost perspective with other sources of supply. Oil companies are highly invested in offshore and it is a matter of when, rather than if, offshore spending recovers. Although in the short run incremental oil company spending may be directed to short cycle barrels, including onshore, the full cycle economics of offshore is competitive and will be required to reverse the effects of the last two years of under investment and meet future production requirements.
The activity level in the floater market has increased, albeit primarily for short term work at extremely competitive dayrates. This improvement is from a very low base and utilization in the floater market is expected to get worse before it improves. Older units rolling off contract that are due for a periodic survey and / or require significant capital expenditure to return to the working fleet are likely to be cold stacked and ultimately scrapped. Since the beginning of this downturn 68 floaters have been scrapped and it is reasonable to expect that a significant portion of older units becoming idle over the next months are also ultimately destined for the scrap yard.
The combination of volume returning to the market at a measured pace and accelerated scrapping activity is expected to lead to a balanced market at some point. Based on the expected level of scrapping activity and the number of units that are anticipated to be cold stacked, a relatively small increase in spending could meaningfully tighten the floater market.
The market for high specification jack-ups is expected to bottom earlier than the floater market due to generally shorter contract durations, shorter contract lead times and shelf production being more oriented towards development drilling. Utilization continues to decline as more units roll off contract than are being contracted for new work, however there continues to be an active spot market centered around Southeast Asia and the Middle East.
Scrapping activity has been relatively modest since the beginning of the current downturn with approximately 5% of the fleet being retired. Over time many older inactive units may ultimately be scrapped however the low carrying cost of idle jack-ups does not compel many rig owners to scrap these units.
With an orderbook of over 100 units and muted scrapping activity, it may be take some time for the jack-up market to return to a healthy utilization level. Having premium rigs with strong customers is a differentiating factor that can lead to attractive pricing dynamics in some instances. Premium contractors with an installed base and a demonstrated operational track record are in a beneficial position relative to low specification operators and speculators without an operating history.
Good progress has been made on the overall terms and structure of an agreement with our banks that would re-profile all secured credit facilities to mature in the period from 2020 to 2023, reduce our fixed amortization obligations and amend financial covenants. We have initiated engagement with bond holders and potential providers of new capital on the other key elements of the plan.
In November 2016, we announced a maturity extension for the West Eminence credit facility from December 31, 2016 to April 30, 2017. This extension ensures no debt maturities until April 2017 and time to continue negotiations with banks, bondholders and new capital participants as well as time to implement the agreement.
With a number of our units coming off contract and the impact of lower day rates, EBITDA will be lower for the fourth quarter, at around $340 million. This is based on fourth quarter expected Operating Income of $146 million.
The following units are expected to have a full quarter of idle time during the fourth quarter:
These reductions will be partially offset by the expected contract commencement of the West Castor in December
Operationally, performance in the fourth quarter is strong with 98% utilization quarter to date.
This news release includes forward-looking statements. Such statements are generally not historical in nature, and specifically include statements about the Company's plans, strategies, business prospects, changes and trends in its business and the markets in which it operates. These statements are made based upon management's current plans, expectations, assumptions and beliefs concerning future events impacting the Company and therefore involve a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, which speak only as of the date of this news release. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to offshore drilling market conditions including supply and demand, day rates, customer drilling programs and effects of new rigs on the market, contract awards and rig mobilizations, contract backlog, dry-docking and other costs of maintenance of the drilling rigs in the Company's fleet, the cost and timing of shipyard and other capital projects, the performance of the drilling rigs in the Company's fleet, delay in payment or disputes with customers, our ability to successfully employ our drilling units, procure or have access to financing, ability to comply with loan covenants, liquidity and adequacy of cash flow from operations, fluctuations in the international price of oil, international financial market conditions changes in governmental regulations that affect the Company or the operations of the Company's fleet, increased competition in the offshore drilling industry, and general economic, political and business conditions globally. Consequently, no forward-looking statement can be guaranteed. When considering these forward-looking statements, you should keep in mind the risks described from time to time in the Company's filings with the SEC, including its Annual Report on Form 20-F.
The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, the Company cannot assess the impact of each such factors on its business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.
Questions should be directed to Seadrill Management Ltd. represented by:
Appendix - Reconciliation of certain underlying financial measures with the reported results
EBITDA is defined as 'Earnings Before Interest, Tax, Depreciation and Amortization' and has been calculated by taking operating income plus depreciation and amortization but excluding gains or losses on disposals and impairment charges against goodwill. Contingent consideration realized relates to Seadrill's ongoing residual interest in the West Vela and West Polaris customer contracts, and has been included within EBITDA. Additionally, in any given period the Company may have significant, unusual or non-recurring gains or losses which it may exclude from its Non GAAP earnings for that period. When applicable, these items would be fully disclosed and incorporated into the required reconciliations from US GAAP to Non GAAP measures.
Q3 2015 Underlying represents reported numbers adjusted for non-recurring items, for the purposes of comparability. The adjustments made are as follows:
See accompanying notes that are an integral part of these Consolidated Financial Statements.
See accompanying notes that are an integral part of these Consolidated Financial Statements.
See accompanying notes that are an integral part of these Consolidated Financial Statements.
See accompanying notes that are an integral part of these Consolidated Financial Statements.
See accompanying notes that are an integral part of these Consolidated Financial Statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – General information
Seadrill Limited is incorporated in Bermuda and is a publicly listed company on the New York Stock Exchange and the Oslo Stock Exchange. We provide offshore drilling services to the oil and gas industry. As of September 30, 2016 we owned and operated 38 offshore drilling units, had 13 units under construction and an additional unit classified as held for sale. Our fleet consists of drillships, jack-up rigs and semi-submersible rigs for operations in shallow and deepwater areas, as well as benign and harsh environments.
As used herein, and unless otherwise required by the context, the term "Seadrill" refers to Seadrill Limited and the terms "Company", "we", "Group", "our" and words of similar import refer to Seadrill and its consolidated companies. The use herein of such terms as group, organization, we, us, our and its, or references to specific entities, is not intended to be a precise description of corporate relationships.
Basis of presentation
The accompanying unaudited interim consolidated financial statements have been prepared on the same basis as the Company's audited financial statements and, in the opinion of management, include all material adjustments, consisting only of normal recurring adjustments that are considered necessary for a fair statement of the Company's financial statements in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). The accompanying unaudited interim consolidated financial statements do not include all of the disclosures required in complete annual financial statements. These interim financial statements should be read in conjunction with our annual financial statements filed with the SEC on Form 20-F for the year ended December 31, 2015. The amounts are presented in United States dollar ("US dollar") rounded to the nearest million, unless stated otherwise.
Significant accounting policies
The accounting policies adopted in the preparation of the unaudited interim financial statements are consistent with those followed in the preparation of our annual audited consolidated financial statements for the year ended December 31, 2015 except as discussed below or unless otherwise included in these unaudited interim financial statements as separate disclosures.
Dividends from Seadrill Partners Common Units
Historically the Company presented the dividend income received from Seadrill Partners Common Units within "Share in results from associated companies". From the period ended September 30, 2015, the Company has elected to present this income separately within "Other financial items" in order to distinguish the income from Seadrill Partners Common Units, which is accounted for as a "Marketable Security", to income from the Company's other investments in Seadrill Partners, which are accounted for as "Investment in associated companies" under the equity method and cost method. Accordingly the Company has re-presented income of $18 million for the three months ended September 30, 2015 and $55 million for the nine months ended September 30, 2015 from "Share in results from associated companies" to "Other financial items" on the statement of operations.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 – Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In February 2015, the FASB issued ASU 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis
, which changes guidance related to both the variable interest entity (VIE) and voting interest entity (VOE) consolidation models. With respect to the VIE model, the standard changes, among other things, the identification of variable interests associated with fees paid to a decision maker or service provider, the VIE characteristics for a limited partner or similar entity, and the primary beneficiary determination. With respect to the VOE model, the ASU eliminates the presumption that a general partner controls a limited partnership or similar entity unless the presumption can otherwise be overcome. Under the new guidance, a general partner would largely not consolidate a partnership or similar entity under the VOE model. The Company adopted this ASU effective January 1, 2016. The adoption of this ASU did not impact the Company's consolidated financial statements and related disclosures.
In April 2015, the FASB issued ASU 2015-05,
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement
, which provides explicit guidance about a customer's accounting for fees paid in a cloud computing arrangement. Under the ASU, if a cloud computing arrangement includes a software license, then the software license element of the arrangement should be accounted for consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement should be accounted for as a service contract. The Company adopted this ASU prospectively to arrangements entered into, or materially modified beginning January 1, 2016. The adoption of this ASU did not impact the Company's consolidated financial statements and related disclosures.
In September 2015, the FASB issued ASU 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The guidance further requires that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date and present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The Company adopted this ASU effective January 1, 2016 with prospective application. The adoption of this ASU did not impact the Company's consolidated financial statements and related disclosures.
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which provides new authoritative guidance on the methods of revenue recognition and related disclosure requirements. This new standard supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The new standard also requires additional qualitative and quantitative disclosures. In April 2015 the FASB proposed to defer the effective date of the guidance by one year. Based on this proposal, public entities would need to apply the new guidance for annual and interim periods beginning after December 15, 2017, and shall be applied, at the Company's option, retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted until periods beginning after December 15, 2016. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In August 2014, the FASB issued ASU 2014-15,
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern
, which provides new authoritative guidance with regards to management's responsibility to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The ASU will be effective for all entities in the first annual period ending after December 15, 2016 (December 31, 2016 for calendar year-end entities) and early adoption is permitted. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,
which made targeted improvements to the recognition and measurement of financial assets and financial liabilities. The update changes how entities measure equity investments that do not result in consolidation and are not accounted for under the equity method and how they present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. The new guidance also changes certain disclosure requirements and other aspects of current US GAAP. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted in some cases. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases
(Topic 842)
. The update requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. It also offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-07,
Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.
The update eliminates the requirement that an investor retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for use of the equity method. The guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years and early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).
The update clarifies principal vs agent accounting of the new revenue standard. The guidance will be effective for annual and interim periods beginning after December 15, 2017, and shall be applied, at the Company's option, retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted until periods beginning after December 15, 2016. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
The update simplifies the accounting for share based payment transactions. The guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years and early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements and related disclosures.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.
The update provides more clarification about identifying performance obligations and licensing. The guidance will be effective for annual and interim periods beginning after December 15, 2017, and shall be applied, at the Company's option, retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted until periods beginning after December 15, 2016. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.
In May 2016, the FASB issued ASU 2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
. The update provide some further guidance on assessing the collectability criteria, presentation of sales tax and other similar taxes collected from customers, noncash considerations and certain other matters related to transition and technical corrections. The guidance will be effective for annual and interim periods beginning after December 15, 2017, and shall be applied, at the Company's option, retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted until periods beginning after December 15, 2016. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
, which revises guidance for the accounting for credit losses on financial instruments within its scope. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The guidance will be effective January 1, 2020, with early adoption permitted. Entities are required to apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments based on a consensus of the Emerging Issues Task Force (EITF), to address the classification of certain cash receipts and cash payments on the statement of cash flows. The new guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance will be effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. Entities are required to apply the guidance retrospectively. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.
Note 3 – Segment information
Operating segments
The Company provides offshore drilling services to the oil and gas industry. Our business has been organized into segments based on differences in management structure and reporting, economic characteristics, customer base, asset class, and contract structure. We currently operate in the following segments:
Floaters: Services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts for this segment relate to semi-submersible rigs and drillships for harsh and benign environments in mid-, deep- and ultra-deep waters.
Jack-up rigs: Services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts for this segment relate to jack-up rigs for operations in harsh and benign environments.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Other: Primarily consists of rig management services.
Segment results are evaluated on the basis of operating profit, and the information given below is based on information used for internal management reporting. The accounting principles for the segments are the same as for our consolidated financial statements.
Total revenue
|
(In $ millions)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Floaters
|
|
|
528
|
|
|
|
647
|
|
|
|
1,754
|
|
|
|
2,262
|
|
|
Jack-up rigs
|
|
|
199
|
|
|
|
306
|
|
|
|
679
|
|
|
|
1,011
|
|
|
Other
|
|
|
16
|
|
|
|
32
|
|
|
|
69
|
|
|
|
103
|
|
|
Total
|
|
|
743
|
|
|
|
985
|
|
|
|
2,502
|
|
|
|
3,376
|
|
Depreciation and amortization
|
(In $ millions)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Floaters
|
|
|
143
|
|
|
|
140
|
|
|
|
433
|
|
|
|
423
|
|
|
Jack-up rigs
|
|
|
51
|
|
|
|
51
|
|
|
|
154
|
|
|
|
158
|
|
|
Other
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
Total
|
|
|
194
|
|
|
|
192
|
|
|
|
587
|
|
|
|
582
|
|
Operating income - Net Income
|
(In $ millions)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Floaters
|
|
|
182
|
|
|
|
(410
|
)
|
|
|
689
|
|
|
|
223
|
|
|
Jack-up rigs
|
|
|
62
|
|
|
|
114
|
|
|
|
240
|
|
|
|
562
|
|
|
Other
|
|
|
3
|
|
|
|
5
|
|
|
|
10
|
|
|
|
11
|
|
|
Operating income
|
|
|
247
|
|
|
|
(291
|
)
|
|
|
939
|
|
|
|
796
|
|
|
Unallocated items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial items and other
|
|
|
(854
|
)
|
|
|
(1,575
|
)
|
|
|
(1,042
|
)
|
|
|
(1,688
|
)
|
|
Income taxes
|
|
|
(49
|
)
|
|
|
(34
|
)
|
|
|
(189
|
)
|
|
|
(137
|
)
|
|
Net Income
|
|
|
(656
|
)
|
|
|
(1,900
|
)
|
|
|
(292
|
)
|
|
|
(1,029
|
)
|
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Drilling Units and Newbuildings - Total Assets
|
(In $ millions)
|
|
As of September 30, 2016
|
|
|
As of December 31, 2015
|
|
|
Floaters
|
|
|
11,904
|
|
|
|
12,189
|
|
|
Jack-up rigs
|
|
|
4,102
|
|
|
|
4,220
|
|
|
Total Drilling Units and Newbuildings
|
|
|
16,006
|
|
|
|
16,409
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated items:
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
|
128
|
|
|
|
128
|
|
|
Investments in associated companies
|
|
|
2,014
|
|
|
|
2,590
|
|
|
Marketable securities
|
|
|
93
|
|
|
|
324
|
|
|
Cash and restricted cash
|
|
|
1,399
|
|
|
|
1,292
|
|
|
Other assets
|
|
|
2,403
|
|
|
|
2,727
|
|
|
Total Assets
|
|
|
22,043
|
|
|
|
23,470
|
|
Capital expenditures – fixed assets
|
(In $ millions)
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Floaters
|
|
|
148
|
|
|
|
842
|
|
|
Jack-up rigs
|
|
|
30
|
|
|
|
79
|
|
|
Total
|
|
|
178
|
|
|
|
921
|
|
Note 4 - (Loss)/gain on disposals and contingent consideration
|
(In $ millions)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
(Loss)/gain on disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of West Polaris to Seadrill Partners
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(77
|
)
|
|
Gain on SeaMex deconsolidation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
186
|
|
|
West Mira cancellation
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
—
|
|
|
|
(80
|
)
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
Total (Loss)/gain on disposals
|
|
|
—
|
|
|
|
(82
|
)
|
|
|
—
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration realized - $'m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polaris earn out realized
|
|
|
2
|
|
|
|
15
|
|
|
|
6
|
|
|
|
17
|
|
|
Vela earn out realized
|
|
|
3
|
|
|
|
4
|
|
|
|
9
|
|
|
|
11
|
|
|
Total Contingent Consideration recognized
|
|
|
5
|
|
|
|
19
|
|
|
|
15
|
|
|
|
28
|
|
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Disposals for the period ended September 30, 2016
Nothing to report for this period.
Disposals for the year ended December 31, 2015
West Rigel
On December 2, 2015, the
West Rigel
was classified as an Asset held for sale. As at the transfer date the
West Rigel
held assets at its book value of $210 million and a loss on disposal of $82 million was recognized. Please refer to Note 20 for more details
.
The expected recoverable value of $128 million is classified as an Asset held for sale on the Balance Sheet for the period ended September 30, 2016.
Cancellation of the West Mira
On September 14, 2015, the Company cancelled the construction contract for the West Mira with Hyundai Samho Heavy Industries Co Ltd. ("HSHI"), due to the Shipyard's inability to deliver the unit within the timeframe required under the contract. The carrying value of the newbuild at the date of cancellation was $315 million, which included $170 million of pre-delivery installments paid to HSHI, with the remainder relating to purchased equipment, internally capitalized construction costs and capitalized interest. Under the contract terms, the Company has the right to recoup the $170 million in pre-delivery installments, plus accrued interest.
On October 12, 2015, HSHI launched arbitration proceedings under the contract. HSHI have claimed that Seadrill's cancellation was a repudiatory breach and claim they were due various extensions of time. The Company refutes this vigorously, and believes it has the contractual right to recover the $170 million in pre-delivery installments, plus accrued interest and legal costs. The recovery is however now not expected until the conclusion of an arbitration process under English law, which is expected to take up to two years.
Based both on management's assessment of the facts and circumstances, and advice from external counsel, who have been engaged for the arbitration process, the Company believes the recovery of the installment, plus accrued interest, is probable, as defined by US GAAP. As such, the Company has reclassified from "Newbuildings", a receivable of $170 million plus accrued interest of $29 million, which is presented in "Other non-current assets" on the balance sheet. The Company will continue to assess the recoverability throughout the arbitration process.
The Company redeployed a portion of equipment, totaling $48 million, within Seadrill's remaining fleet, and did not write off these amounts. The resulting net loss on disposal recognized was $80 million, which is included in "(Loss)/gain on disposals" in the Statement of Operations.
|
(In $ millions)
|
|
As at September 14, 2015
|
|
|
West Mira book value
|
|
|
315
|
|
|
Less: equipment redeployed
|
|
|
(48
|
)
|
|
Net book value disposed
|
|
|
267
|
|
|
Less: Yard Installments recoverable
|
|
|
(170
|
)
|
|
Less: interest accrued on installment
|
|
|
(29
|
)
|
|
Provisions for onerous commitments
|
|
|
12
|
|
|
Net Loss on disposal
|
|
|
80
|
|
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Disposal of the West Polaris
On June 19, 2015, the Company sold the entities that owned and operated the
West Polaris
(the "Polaris business"), to Seadrill Operating LP ("Seadrill Operating"), a consolidated subsidiary of Seadrill Partners LLC and 42% owned by the Company. The entities continue to be related parties subsequent to the sale.
The purchase price consisted of an initial enterprise value of $540 million, less debt assumed of $336 million. The fair value of consideration recognized on disposal was $235 million, which comprised of $204 million of cash consideration, and a working capital adjustment of $31 million, due to the net working capital of the Polaris business being greater than the required working capital prescribed in the sale and purchase agreement.
Additional contingent consideration in the form of a seller's credit of $50 million is also potentially due from Seadrill Partners in 2021, which will carry interest at a rate of 6.5% per annum. The repayment of the seller's credit is contingent on the future re-contracted day rate. During the three year period following the completion of the current customer contract, the final amount payable will be adjusted downwards to the extent the average re-contracted operating day rate (net of commissions), adjusted for utilization over the period, is less than $450 thousand per day. If the rig is off contract during this period, the reduction is equal to $450 thousand per day.
In addition, the Company may be entitled to receive further contingent consideration from Seadrill Partners, consisting of (a) any day rates earned by Seadrill Partners in excess of $450 thousand per day, adjusted for daily utilization, tax and agency commission for the remainder of the ExxonMobil contract completing in March 2018 and (b) 50% of any day rate earned above $450 thousand per day, adjusted for daily utilization, tax and agency commission fee after the conclusion of the existing contract until 2025. In February 2016, the drilling contract with ExxonMobil was amended such that the day rate for the
West Polaris
was reduced from $653 thousand per day to $490 thousand per day, effective January 1, 2016.
The Company's accounting policy is not to recognize contingent consideration before it is considered realizable and has therefore not recognized on disposal any amounts receivable relating to the elements of consideration which are contingent on future events. From the disposal date of the
West Polaris
on June 19, 2015 to September 30, 2016, the Company has recognized $38 million in contingent consideration, as it became realized, within "Contingent consideration realized" included within operating income.
The loss recognized at the time of disposal of the Polaris business was $75 million, after taking into account a goodwill allocation of $41 million. The loss has been presented in our consolidated statement of operations, under "(Loss)/gain on disposals" included within operating income and attributable to the floaters segment.
|
(In $ millions)
|
|
As at June 19, 2015
|
|
|
Initial enterprise value
|
|
|
540
|
|
|
Less: Debt assumed
|
|
|
(336
|
)
|
|
Initial purchase price
|
|
|
204
|
|
|
|
|
|
|
|
|
Plus: Working capital adjustment
|
|
|
31
|
|
|
Adjusted initial purchase price
|
|
|
235
|
|
|
|
|
|
|
|
|
Cash
|
|
|
204
|
|
|
Plus: Working capital receivable
|
|
|
31
|
|
|
Fair value of purchase consideration recognized on disposal
|
|
|
235
|
|
|
|
|
|
|
|
|
Less: net carrying value of assets and liabilities
|
|
|
(269
|
)
|
|
Less: allocated goodwill to subsidiaries
|
|
|
(41
|
)
|
|
Initial loss on disposal recognized for the six months ended June 30, 2015
|
|
|
(75
|
)
|
|
Measurement period adjustments *
|
|
|
(2
|
)
|
|
Loss on disposal recognized for the year ended December 31, 2015
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
Contingent consideration realized since disposal
|
|
|
38
|
|
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Under the terms of various agreements between Seadrill and Seadrill Partners LLC, entered into in connection with the initial public offering of Seadrill Partners LLC, Seadrill will continue to provide management, technical and administrative services to the Polaris business. See further discussion in Note 17 to the consolidated financial statements for details of these services and agreements.
The sale of the Polaris business does not qualify for reporting as a discontinued operation as the sale of the Polaris business is not considered to represent a strategic shift expected to have a major effect on the Company's operations and financial results.
|
*
|
During the second half of 2015, subsequent to the deconsolidation, certain immaterial measurement period adjustments were made to the values of the net assets as at the date of disposal, which increased the initial loss recognized by $2 million.
|
SeaMex Limited
During the year ended December 31, 2014, the Company entered into a joint venture agreement with an investment fund controlled by Fintech Advisory Inc. ("Fintech"), for the purpose of owning and managing certain jack-up drilling units located in Mexico under contract with Pemex. The
West Oberon, West Intrepid, West Defender, West Courageous
and
West Titania
jack-up drilling rigs ("the jack-up drilling rigs") were included within the joint venture. The transaction was completed on March 10, 2015, when Fintech subscribed for a 50% ownership interest in the joint venture company, SeaMex Limited ("SeaMex"), which was previously 100% owned by the Company, and SeaMex simultaneously purchased the jack-up drilling rigs from Seadrill Limited.
As a result of the transaction the Company no longer controls the entities that own and operate these jack-up drilling units (the "Disposal Group"), and accordingly the Company has deconsolidated certain entities as of March 10, 2015, and has recognized its remaining 50% investment in the joint venture at fair value. The fair value of the retained 50% equity interest in the SeaMex joint venture was determined by reference to the price paid by Fintech to obtain a 50% equity interest in the Disposal Group from Seadrill. Seadrill accounts for its 50% investment in the joint venture under the Equity Method.
Total consideration in respect of the Disposal Group was $1,077 million from SeaMex to Seadrill. This was comprised of net cash of $586 million, a Seller's credit receivable of $250 million, short term related party receivable balances of $90 million and direct settlement of Seadrill's debt facilities relating to the
West Oberon
amounting to $150 million. Subsequently, $162 million of related party balance was received when the
West Titania
was refinanced. The Seller's credit bears interest at a rate of LIBOR plus a margin of 6.50% and matures in December 2019. See Note 17 to the consolidated financial statements for further details on the related party balances.
Seadrill utilized the cash consideration to repay outstanding debt facilities in respect of the
West Courageous
,
West Defender, West Intrepid
and
West Titania
. See further details in Note 12 to the consolidated financial statements.
The total recognized gain on disposal was $186 million, after taking into account a goodwill allocation of $49 million, which has been presented in our consolidated statement of operations, under "(Loss)/gain on disposals" included within operating income.
The Company has not presented this Disposal Group as a discontinued operation in the statement of operations as it does not represent a strategic shift that has (or will have) a major effect on the Company's operations and financial results.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
(In $ millions)
|
|
As at March 10, 2015
|
|
|
FAIR VALUE OF CONSIDERATION RECEIVED
|
|
|
|
|
Net cash consideration received
|
|
|
749
|
|
|
Seller's credit recognized
|
|
|
250
|
|
|
Direct repayment of debt by the JV on behalf of Seadrill
|
|
|
150
|
|
|
Consideration receivable in respect of
West Titania
|
|
|
162
|
|
|
Other related party balances payable
|
|
|
(71
|
)
|
|
Cash paid to acquire 50% interest in the JV
|
|
|
(163
|
)
|
|
Fair value of consideration received
|
|
|
1,077
|
|
|
|
|
|
|
|
|
FAIR VALUE OF RETAINED 50% INVESTMENT IN SEAMEX LIMITED
|
|
|
163
|
|
|
|
|
|
|
|
|
CARRYING VALUE OF NET ASSETS
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
40
|
|
|
Deferred tax assets - short term
|
|
|
8
|
|
|
Other current assets
|
|
|
20
|
|
|
Total current assets
|
|
|
68
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
Drilling units
|
|
|
969
|
|
|
Deferred tax asset - long term
|
|
|
4
|
|
|
Other non-current assets
|
|
|
86
|
|
|
Goodwill
|
|
|
49
|
|
|
Total non-current assets
|
|
|
1,108
|
|
|
Total assets
|
|
|
1,176
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Trade accounts payable
|
|
|
(1
|
)
|
|
Other current liabilities
|
|
|
(61
|
)
|
|
Total current liabilities
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
Other non-current liabilities
|
|
|
(60
|
)
|
|
Total non-current liabilities
|
|
|
(60
|
)
|
|
Total liabilities
|
|
|
(122
|
)
|
|
Carrying value of net assets
|
|
|
1,054
|
|
|
|
|
|
|
|
|
Initial gain on disposal recognized for the six months ended June 30, 2015
|
|
|
186
|
|
|
Measurement period adjustments *
|
|
|
(5
|
)
|
|
Gain on disposal recognized for the year ended December 31, 2015
|
|
|
181
|
|
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In connection with the JV agreement, SeaMex entered into a management support agreement with Seadrill Management Ltd, a wholly owned subsidiary of the Company, pursuant to which Seadrill Management Ltd. provides SeaMex with certain management and administrative services. The services provided by Seadrill Management Ltd. are charged at cost plus management fee of 8% of Seadrill's costs and expenses incurred in connection with providing these services. The agreement can be terminated by SeaMex by providing 120 days written notice.
|
*
|
During the second half of 2015, subsequent to the deconsolidation, certain immaterial measurement period adjustments were made to the values of the net assets as at the date of deconsolidation, which reduced the initial gain recognized by $5 million.
|
Note 5 – Taxation
The effective tax rate for the nine months ended September 30, 2016 and 2015 was (183.5)% and (15.4)%, respectively. The income tax expense increased $52 million for the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015. The changes are primarily attributable to a change in balance of the relative components of our estimated 2016 earnings, with more earned in jurisdictions with higher tax rates. In addition, book discrete losses, for which no benefits were recognized, were higher during 2016. The Company has also recognized liabilities related to uncertain tax positions and other adjustments associated with prior periods.
Note 6 – Earnings per share
The computation of basic earnings per share ("EPS") is based on the weighted average number of shares outstanding during the period. Diluted EPS includes the effect of the assumed conversion of potentially dilutive instruments.
The components of the numerator for the calculation of basic and diluted EPS are as follows:
|
(In $ millions)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Net loss attributable to the parent
|
|
|
(657
|
)
|
|
|
(1,829
|
)
|
|
|
(323
|
)
|
|
|
(1,023
|
)
|
|
Less: Allocation to participating securities
|
|
|
5
|
|
|
|
4
|
|
|
|
2
|
|
|
|
2
|
|
|
Net loss available to shareholders
|
|
|
(652
|
)
|
|
|
(1,825
|
)
|
|
|
(321
|
)
|
|
|
(1,021
|
)
|
|
Effect of dilution
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Diluted net loss available to shareholders
|
|
|
(652
|
)
|
|
|
(1,825
|
)
|
|
|
(321
|
)
|
|
|
(1,021
|
)
|
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The components of the denominator for the calculation of basic and diluted EPS are as follows:
|
(In millions)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
507
|
|
|
|
493
|
|
|
|
500
|
|
|
|
493
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
507
|
|
|
|
493
|
|
|
|
500
|
|
|
|
493
|
|
|
Effect of dilutive share options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Effect of dilutive convertible bonds
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Weighted average number of common shares outstanding adjusted for the effects of dilution
|
|
|
507
|
|
|
|
493
|
|
|
|
500
|
|
|
|
493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share (US dollar)
|
|
|
(1.29
|
)
|
|
|
(3.70
|
)
|
|
|
(0.64
|
)
|
|
|
(2.07
|
)
|
|
Diluted loss per share (US dollar)
|
|
|
(1.29
|
)
|
|
|
(3.70
|
)
|
|
|
(0.64
|
)
|
|
|
(2.07
|
)
|
Note 7 – Marketable securities
The historic cost of marketable securities is marked to market, with changes in fair value recognized in "Other comprehensive income" ("OCI").
Marketable securities held by the Company are equity securities considered to be available-for-sale securities. The following tables summarize the carrying values of the marketable securities in the balance sheet:
|
|
|
As at September 30, 2016
|
|
|
(In $ millions)
|
|
Amortized cost
|
|
|
Cumulative unrealized fair value gains/(losses)
|
|
|
Carrying value
|
|
|
SapuraKencana
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Seadrill Partners - Common Units
|
|
|
93
|
|
|
|
—
|
|
|
|
93
|
|
|
Total
|
|
|
93
|
|
|
|
—
|
|
|
|
93
|
|
|
|
|
As at December 31, 2015
|
|
|
(In $ millions)
|
|
Amortized cost
|
|
|
Cumulative unrealized fair value gains/(losses)
|
|
|
Carrying value
|
|
|
SapuraKencana
|
|
|
206
|
|
|
|
22
|
|
|
|
228
|
|
|
Seadrill Partners - Common Units
|
|
|
247
|
|
|
|
(151
|
)
|
|
|
96
|
|
|
Total
|
|
|
453
|
|
|
|
(129
|
)
|
|
|
324
|
|
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Marketable securities and changes in their carrying value are as follows:
|
|
|
Nine Months Ended September 30, 2016
|
|
|
(In $ millions)
|
|
Gross realized gains
|
|
|
Gross realized losses
|
|
|
Gross Unrealized gains
|
|
|
Gross Unrealized losses
|
|
|
Gross proceeds from disposals
|
|
|
Recognition and purchases
|
|
|
Gain/(loss) reclassified into income
|
|
|
SapuraKencana
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(33
|
)
|
|
|
195
|
|
|
|
—
|
|
|
|
(11
|
)
|
|
Seadrill Partners - Common Units
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(153
|
)
|
|
Total
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(35
|
)
|
|
|
195
|
|
|
|
—
|
|
|
|
(164
|
)
|
|
|
|
Nine Months Ended September 30, 2015
|
|
|
(In $ millions)
|
|
Gross realized gains
|
|
|
Gross realized losses
|
|
|
Gross Unrealized gains
|
|
|
Gross Unrealized losses
|
|
|
Gross proceeds from disposals
|
|
|
Recognition and purchases
|
|
|
Gain/(loss) reclassified into income
|
|
|
SapuraKencana
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(119
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(167
|
)
|
|
Seadrill Partners - Common Units
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(179
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(574
|
)
|
|
Total
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(298
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(741
|
)
|
SapuraKencana
On April 27, 2016, the Company sold its entire shareholding in SapuraKencana for proceeds of $195 million, net of transaction costs. In the period ending March 31, 2016 we recognized a net impairment charge to bring the carrying value of the asset to the realized value of $195 million. As a result, we reclassified the accumulated unrecognized gains of $22 million as of December 31, 2015, out of Other Comprehensive Income into earnings during the period. The resulting net impairment was a loss of $11 million, which is recognized within "Loss on impairments of investments" in the Statement of Operations.
Seadrill Partners - Common Units
The Company's ownership interest in Seadrill Partners' common units is 28.6% of total outstanding units as of September 30, 2016.
Seadrill deconsolidated Seadrill Partners in January 2014, recognizing its investment in common units at market value of $30.60. Seadrill also purchased further units in 2014 at a similar price. From October 2014 the share price began to fall to a position as at September 30, 2016, where the market price was at $3.53.
In September 2015, the Company impaired the investment, recognizing an impairment charge of $574 million. During the period between September 30, 2015 and September 30, 2016, Seadrill Partners' unit price fell by approximately 62%, on both a spot price and trailing three-month average basis. At September 30, 2016, management determined that the investment in Seadrill Partners' common units was other than temporarily impaired due to the length and severity of the reduction in value below historic cost. As a result the Company has further impaired the investment, recognizing an impairment charge of $153 million within "Loss on impairment of investments". This impairment charge includes a reclassification of current period and historical fair value losses previously recognized within Other Comprehensive Income. The amount reclassified out of Accumulated other comprehensive income into earnings was determined on the basis of average cost.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 8 – Investment in associated companies
The Company has the following investments that are recorded using the equity method and cost method for the periods presented in these financial statements:
|
(In $ millions)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
Seabras Sapura Participacoes
|
|
|
39
|
|
|
|
29
|
|
|
Seabras Sapura Holdco
|
|
|
190
|
|
|
|
158
|
|
|
Itaunas Drilling
|
|
|
—
|
|
|
|
3
|
|
|
Camburi Drilling
|
|
|
—
|
|
|
|
6
|
|
|
Sahy Drilling
|
|
|
—
|
|
|
|
4
|
|
|
Seadrill Partners - Total direct ownership interests
|
|
|
1,443
|
|
|
|
1,767
|
|
|
Seadrill Partners - Subordinated Units
|
|
|
142
|
|
|
|
293
|
|
|
Seadrill Partners - Seadrill member interest and IDRs*
|
|
|
64
|
|
|
|
137
|
|
|
SeaMex Ltd
|
|
|
136
|
|
|
|
193
|
|
|
Total
|
|
|
2,014
|
|
|
|
2,590
|
|
* The Seadrill Partners - Seadrill member interest and IDRs are accounted for as cost-method investments on the basis that they do not represent common stock interests and their fair value is not readily determinable. The investments are held at cost and are not subsequently remeasured.
Seadrill Partners
Equity method investments
The Company holds investments in both subordinated units of Seadrill Partners and direct ownership interests in controlled subsidiaries of Seadrill Partners, which are accounted for under the equity method. The fair value of these investments is not readily determinable, as they are not publicly traded. These investments were recognized at fair value on the deconsolidation of Seadrill Partners in January 2014, using valuations involving significant unobservable inputs, and categorized at level 3 on the fair value hierarchy. In the period ending September 30, 2015 the Company impaired the investments and recognized an impairment charge of $125 million on subordinated units and $302 million on direct ownership interests.
Seadrill Partners' unit price has fallen from approximately $9.40 per unit in October 2015 to $3.53 at September 30, 2016 as a result of further deteriorating market conditions in the oil and gas industry and supply and demand conditions in the ultra-deepwater offshore drilling sector in which Seadrill Partners operates. During the twelve months between September 30, 2015 and September 30, 2016, Seadrill Partners' unit price fell by approximately 62%, on both a spot price and trailing three month average basis. Whilst the investments in Seadrill Partners held under the equity method are not publicly traded, the reduction in value of the publicly traded units is considered an indicator of impairment. The Company has determined the length and severity of the reduction in value of the traded units to be representative of an other than temporary impairment.
As such the Company has measured and recognized an other than temporary impairment of the subordinated units and direct ownership interests as at September 30, 2016.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The fair value of these investments was derived using an income approach, which discounts future free cash flows ("DCF model"). The estimated future free cash flows associated with the investments are primarily based on expectations around applicable day rates, drilling unit utilization, operating costs, capital and long-term maintenance expenditures, applicable tax rates and industry conditions. The cash flows were estimated over the remaining useful economic lives of the underlying assets but no longer than 30 years in total, and discounted using an estimated market participant weighted average cost of capital of 9.5%. The DCF model derived an enterprise value of the investments, after which associated debt was subtracted to provide equity values. The implied valuation of Seadrill Partners derived from the DCF model was crosschecked against the market price of Seadrill Partners' common units. Due to the significant influence the Company has on Seadrill Partners, there is in implied significant influence premium, which represents the additional value the Company would place over and above the market price of Seadrill Partners in order to maintain this significant influence. This is similar in thought to an implied control premium. The Company evaluated the difference by reviewing the implied control premium as compared to other market transactions within the industry. The Company deems the implied control premium to be reasonable in the context of the data considered.
As at September 30, 2016, the carrying value of the subordinated units was found to exceed the fair value by $180 million, and the carrying value of the direct ownership interests was found to exceed the fair value by $400 million. The company has recognized this impairment of the investments within "Loss on impairment of Investments" in the Statement of Operations.
The assumptions used in the DCF model were derived from unobservable inputs (level 3) and are based on management's judgments and assumptions available at the time of performing the impairment test.
Cost method investments
The Company also holds the Seadrill member interest, which is a 0% non-economic interest, and which holds the rights to 100% of the Incentive Distribution Rights "IDRs" of Seadrill Partners. The Seadrill Member Interest and the IDRs in Seadrill Partners are accounted for as cost-method investments on the basis that they do not represent common stock interests and their fair value is not readily determinable. The fair value of the Company's interest in the Seadrill Member and the attached IDRs at deconsolidation in January, 2014, was determined using a Monte Carlo simulation method ("Monte Carlo model"). The method takes into account the cash distribution waterfall, historical volatility, estimated dividend yield and share price of the common units as of the deconsolidation date. In the period ending September 30, 2015 the Company impaired the investments and recognized an impairment charge of $106 million on the IDRs.
As at September 30, 2016, the reduction in value of the Seadrill Partners common units was determined to be an indicator of impairment of the Seadrill member interest. The fair value was determined using the Monte Carlo model, updated for applicable assumptions as at September 30, 2016. The carrying value of the investment was found to exceed the fair value by $73 million. The company has recognized this impairment within "Loss on impairment of Investments" in the Statement of Operations.
The assumptions used in the Monte Carlo model were derived from both observable and unobservable inputs (classified as level 3) and are based on management's judgments and assumptions available at the time of performing the impairment test.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SeaMex Limited
During the year ended December 31, 2014, the Company entered into a joint venture agreement with an investment fund controlled by Fintech, for the purpose of owning and managing certain jack-up drilling units located in Mexico under contract with Pemex. The
West Oberon, West Intrepid, West Defender, West Courageous
and
West Titania
jack-up drilling rigs were included within the joint venture. The transaction was completed on March 10, 2015, when Fintech subscribed for a 50% ownership interest in SeaMex, which was previously 100% owned by the Company, and the jack-up drilling rigs were acquired by SeaMex from Seadrill.
As a result of the transaction the Company no longer controls the entities that own and operate these jack-up drilling rigs, and accordingly the Company deconsolidated these entities as of March 10, 2015, and recognized its retained 50% investment in the joint venture at fair value. See Note 4
to the Financial Statements for further details.
The deteriorating market conditions in the oil and gas industry and supply and demand conditions in the offshore drilling sector in which SeaMex operates is considered to be an indicator of impairment. The Company has determined the length and severity of the deterioration of market conditions to be representative of an other than temporary impairment. As such the Company has measured and recognized an other than temporary impairment of the investment in SeaMex as at September 30, 2016.
The fair value was derived using an income approach, which discounts future free cash flows ("DCF model"). The estimated future free cash flows associated with the investment were primarily based on expectations around applicable day rates, drilling unit utilization, operating costs, capital and long-term maintenance expenditures and applicable tax rates. The cash flows were estimated over the remaining useful economic lives of the underlying assets but no longer than 30 years in total, and discounted using an estimated market participant weighted average cost of capital of 11%. The DCF model derived an enterprise value of the investments, after which associated debt was subtracted to provide equity values.
The carrying value of the investment was found to exceed the fair value by $76 million. The company has recognized this impairment of the investments within "Loss on impairment of Investments" in the Statement of Operations.
The assumptions used in the DCF model were derived from unobservable inputs (level 3) and are based on management's judgments and assumptions available at the time of performing the impairment test.
Itaunas Drilling, Camburi Drilling, and Sahy Drilling
Itaunas Drilling BV, Camburi Drilling BV and Sahy Drilling BV are joint ventures which are currently constructing three drillships. The joint ventures are owned 70% by Sete International (a subsidiary of Sete Brasil Participacoes SA) and 30% by the Company.
During the nine months ended September 30, 2016, due to the deteriorating market conditions in the offshore drilling industry, the uncertainty around the financial condition of Sete Brasil Participacoes SA, and the uncertainty around the recoverability of the investments, the Company recognized an other than temporary impairment of $13 million to write down the value of these investments to nil. The company has recognized this impairment within "Loss on impairment of Investments" in the Statement of Operations.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The table below summarizes the total impairments made during the nine months ended September 30, 2016:
|
(In $ millions)
|
|
Nine months ended September 30, 2016
|
|
|
Impairments of Investment in Associated Companies
|
|
|
|
|
Seadrill Partners - Total direct ownership investments
|
|
|
400
|
|
|
Seadrill Partners - Subordinated units
|
|
|
180
|
|
|
Seadrill Partners - Seadrill member interest and IDRs
|
|
|
73
|
|
|
SeaMex
|
|
|
76
|
|
|
Sete Brasil Participacoes SA
|
|
|
13
|
|
|
Total impairment of investment in associated companies
|
|
|
742
|
|
|
|
|
|
|
|
|
Impairments of marketable securities (refer to Note 7)
|
|
|
|
|
|
Seadrill Partners - Common Units
|
|
|
153
|
|
|
SapuraKencana
|
|
|
11
|
|
|
Total Impairment of marketable securities investments (reclassification from OCI)
|
|
|
164
|
|
|
|
|
|
|
|
|
Total impairment of investments
|
|
|
906
|
|
Note 9 – Newbuildings
|
(In $ millions)
|
|
Nine months ended September 30, 2016
|
|
|
Year ended December 31,
2015
|
|
|
Opening balance
|
|
|
1,479
|
|
|
|
2,030
|
|
|
Additions
|
|
|
39
|
|
|
|
661
|
|
|
Transfers to drilling units
|
|
|
—
|
|
|
|
(725
|
)
|
|
Reclassification to non-current assets*
|
|
|
—
|
|
|
|
(199
|
)
|
|
Disposals*
|
|
|
—
|
|
|
|
(78
|
)
|
|
Reclassification to assets held for sale**
|
|
|
—
|
|
|
|
(210
|
)
|
|
Closing balance
|
|
|
1,518
|
|
|
|
1,479
|
|
*On September 14, 2015, the Company cancelled the construction contract for the
West Mira
with Hyundai Samho Heavy Industries Co Ltd. Please refer to Note 4 for more details
.
**
On December 2, 2015, the
West Rigel
was classified as an Asset held for sale. As at the transfer date the
West Rigel
held assets at its book value of $210 million. Please refer to Note 20 to the consolidated financial statements, included herein, for more details
.
Note 10 – Drilling units
|
(In $ millions)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
Cost
|
|
|
17,745
|
|
|
|
17,606
|
|
|
Accumulated depreciation
|
|
|
(3,257
|
)
|
|
|
(2,676
|
)
|
|
Net book value
|
|
|
14,488
|
|
|
|
14,930
|
|
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Depreciation expense on drilling units was $191 million and $581 million for the three and nine months ended September 30, 2016, and $188 million and $571 million for the three and nine months ended September 30, 2015.
In addition the depreciation expense on equipment was $3 million and $6 million for the three and nine months ended September 30, 2016, and $4 million and $11 million for the three and nine months ended September 30, 2015.
Note 11 – Goodwill
The goodwill balance and changes in the carrying amount of goodwill are as follows:
|
(In $ millions)
|
|
Nine months ended September 30, 2016
|
|
|
Year ended December 31,
2015
|
|
|
Opening balance
|
|
|
|
|
|
|
|
Goodwill
|
|
|
795
|
|
|
|
836
|
|
|
Accumulated impairment losses
|
|
|
(795
|
)
|
|
|
(232
|
)
|
|
Total opening goodwill
|
|
|
—
|
|
|
|
604
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals and deconsolidations (see note 4)
|
|
|
—
|
|
|
|
(41
|
)
|
|
Impairment of goodwill
|
|
|
—
|
|
|
|
(563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
795
|
|
|
|
795
|
|
|
Accumulated impairment losses
|
|
|
(795
|
)
|
|
|
(795
|
)
|
|
Total closing goodwill
|
|
|
—
|
|
|
|
—
|
|
As at September 30, 2015, after a 43% decline in Seadrill closing spot price over a three month period, an impairment test was conducted. This resulted in the Company recognizing an impairment loss of $563 million relating to the Floaters reporting unit which represented all of the Goodwill attributable to that reporting unit. Following the impairment the Company no longer retains any Goodwill balance. The impairment is a result of deteriorating market conditions and the Company's outlook on expected conditions through the current down-cycle. The impairment charge was allocated between the parent and non-controlling interests based upon the non-controlling interests' share in each drilling unit within the Floater segment. The overall charge to the reporting unit was first allocated to each drilling unit based upon the relative fair values of those drilling units. The percentage non-controlling interest in each drilling unit was then applied to the allocated charge in order to determine the portion attributable to non-controlling interests. The total impairment allocated to the non-controlling interest was $95 million.
The estimated fair value of the reporting unit was derived using an income approach, using discounted future free cash flows. The Company's estimated future free cash flows are primarily based on its expectations around day rates, drilling unit utilization, operating costs, capital and long term maintenance expenditures and applicable tax rates. The cash flows are estimated over the remaining useful economic lives of the assets but no longer than 30 years in total, and discounted using an estimated market participant weighted average cost of capital of 10%.
The assumptions used in the Company's estimated cash flows were derived from unobservable inputs (level 3) and are based on management's judgments and assumptions available at the time of performing the impairment test.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Debt
|
(In $ millions)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
Credit facilities:
|
|
|
|
|
|
|
|
$2,000 facility (North Atlantic Drilling)
|
|
|
1,075
|
|
|
|
1,200
|
|
|
$400 facility
|
|
|
210
|
|
|
|
240
|
|
|
$440 facility
|
|
|
207
|
|
|
|
224
|
|
|
$1,450 facility
|
|
|
363
|
|
|
|
393
|
|
|
$360 facility (Asia Offshore Drilling)
|
|
|
246
|
|
|
|
273
|
|
|
$300 facility
|
|
|
168
|
|
|
|
186
|
|
|
$1,750 facility (Sevan Drilling)
|
|
|
980
|
|
|
|
1,085
|
|
|
$450 facility
|
|
|
291
|
|
|
|
344
|
|
|
$1,500 facility
|
|
|
1,250
|
|
|
|
1,344
|
|
|
$1,350 facility
|
|
|
1,080
|
|
|
|
1,181
|
|
|
$950 facility
|
|
|
639
|
|
|
|
688
|
|
|
$450 facility (2015)
|
|
|
185
|
|
|
|
215
|
|
|
Total credit facilities
|
|
|
6,694
|
|
|
|
7,373
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans contained within VIEs:
|
|
|
|
|
|
|
|
|
|
$375 facility
|
|
|
286
|
|
|
|
256
|
|
|
$390 facility
|
|
|
254
|
|
|
|
221
|
|
|
$475 facility
|
|
|
368
|
|
|
|
354
|
|
|
Total Loans contained within VIEs
|
|
|
908
|
|
|
|
831
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured bonds:
|
|
|
|
|
|
|
|
|
|
Unsecured bonds
|
|
|
2,310
|
|
|
|
2,381
|
|
|
Total unsecured bonds
|
|
|
2,310
|
|
|
|
2,381
|
|
|
|
|
|
|
|
|
|
|
|
|
Other credit facilities with corresponding restricted cash deposits
|
|
|
55
|
|
|
|
76
|
|
|
Total debt principal
|
|
|
9,967
|
|
|
|
10,661
|
|
|
Less: current portion of debt principal
|
|
|
(3,176
|
)
|
|
|
(1,526
|
)
|
|
Long-term portion of debt principal
|
|
|
6,791
|
|
|
|
9,135
|
|
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The tables below show the debt issuance costs that are netted against the current and long-term debt for each of the periods presented:
|
Outstanding debt as at September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
|
Principal outstanding
|
|
|
Less: Debt Issuance Costs
|
|
|
Total Debt
|
|
|
Current portion of long-term debt
|
|
|
3,176
|
|
|
|
(40
|
)
|
|
|
3,136
|
|
|
Long-term debt
|
|
|
6,791
|
|
|
|
(63
|
)
|
|
|
6,728
|
|
|
Total
|
|
|
9,967
|
|
|
|
(103
|
)
|
|
|
9,864
|
|
|
Outstanding debt as at December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
|
Principal outstanding
|
|
|
Less: Debt Issuance Costs
|
|
|
Total Debt
|
|
|
Current portion of long-term debt
|
|
|
1,526
|
|
|
|
(37
|
)
|
|
|
1,489
|
|
|
Long-term debt
|
|
|
9,135
|
|
|
|
(81
|
)
|
|
|
9,054
|
|
|
Total
|
|
|
10,661
|
|
|
|
(118
|
)
|
|
|
10,543
|
|
The outstanding debt as of September 30, 2016 is repayable as follows:
|
(In $ millions)
|
|
Year ended September 30,
|
|
|
2017
|
|
|
3,176
|
|
|
2018
|
|
|
2,371
|
|
|
2019
|
|
|
3,382
|
|
|
2020
|
|
|
1,038
|
|
|
Total debt principal
|
|
|
9,967
|
|
The Company routinely monitors the market for opportunities to strengthen its balance sheet and may from time take steps to do so, including making repurchases of its debt securities.
The movement in debt instruments above are largely due to scheduled principal repayments unless otherwise detailed below.
The significant developments relating to the Company's debt in the nine months ended September 30, 2016 are explained below.
Bond conversion
In May 2016, Seadrill Limited entered into a privately negotiated exchange agreement with certain holders of its outstanding 5
5
/
8
% (subsequently increased to 6.125%) Senior Notes due 2017 (the "2017 Notes"), pursuant to which the Company agreed to issue a total of 8,184,340 new shares of its common stock, par value $2.00 per share, in exchange for $55.0 million principal amount of the 2017 Notes in accordance with Section 3(a)(9) of the U.S. Securities Act of 1933, as amended. Settlement occurred on May 20, 2016, upon which the Company had a total of 500,944,280 shares of its common stock issued and outstanding.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In June 2016, Seadrill Limited entered into a privately negotiated exchange agreement with certain holders of its outstanding 5
5
/
8
% (subsequently increased to 6.125%) Senior Notes due 2017 (the "2017 Notes"), pursuant to which the Company agreed to issue a total of 7,500,000 new shares of its common stock, par value $2.00 per share, in exchange for $50.0 million principal amount of the 2017 Notes in accordance with Section 3(a)(9) of the U.S. Securities Act of 1933, as amended. Settlement occurred on June 13, 2016, upon which the Company had a total of 508,444,280 shares of its common stock issued and outstanding.
As a result of the exchange the Company recorded a $47 million gain on debt extinguishment which has been included within other financial items in the Company's consolidated statement of operations.
Loans contained within the Ship Finance Variable Interest Entities ("VIEs")
During the nine months ended September 30, 2016, the three VIEs that we consolidate in our financial statements, SFL Hercules Ltd, SFL Deepwater Ltd and SFL Linus Ltd, each drew down $50 million on the revolving credit tranches of their respective $375 million term loan, $390 million term loan and $475 million term loan. Subsequently the VIE's repaid balances with Ship Finance, a related party to Seadrill, thus reducing the consolidated related party net debt.
Covenants contained in our debt facilities
The full list of the Company's covenants are disclosed in the annual report on 20-F for the year ended December 31, 2015.
April 2016 Amendments to Senior Secured Credit Facilities
On April 28, 2016, the Company executed temporary amendment agreements in respect of all of its senior secured credit facilities. The Company also executed maturity extension agreements in respect of three senior secured credit facilities maturing in the near term. The key terms and conditions of these agreements are as follows:
|
|
◦
|
$450 million Senior Secured Credit Facility
: The maturity of the $450 million senior secured credit facility, relating to the
West Eminence
rig, has been extended from June 20, 2016 to December 31, 2016. The outstanding balance on the credit facility of $291 million is classified as a short term debt facility in the consolidated Balance Sheet as at September 30, 2016.
|
|
|
◦
|
$400 million Senior Secured Credit Facility
: The maturity of the $400 million senior secured credit facility, relating to jack-up rigs
West Cressida
,
West Callisto
,
West Leda
and
West Triton,
has been extended from December 8, 2016 to May 31, 2017. The outstanding balance on the credit facility of $210 million is classified as a short term debt facility in the consolidated Balance Sheet as at September 30, 2016.
|
|
|
◦
|
$2 billion Senior Secured Credit Facility
: The maturity of the $2 billion senior secured credit facility of our majority-owned subsidiary NADL has been extended from April 15, 2017 to June 30, 2017. The outstanding balance on the credit facility of $1,075 million is classified as a short term debt facility in the consolidated Balance Sheet as at September 30, 2016.
|
|
|
•
|
Key amendments and waivers:
|
|
|
◦
|
Equity ratio
: The Company is required to maintain a total equity to total assets ratio of at least 30.0%. Prior to the amendment, both total equity and total assets were adjusted for the difference between book and market values of drilling units, as determined by independent broker valuations. The amendment removes the need for the market value adjustment from the calculation of the equity ratio until June 30, 2017.
|
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
•
|
Leverage ratio
: The Company is required to maintain a ratio of net debt to EBITDA. Prior to the amendment the leverage ratio had to be no greater than 6.0:1, falling to 5.5:1 from October 1, 2016, and falling again to 4.5:1 from January 1, 2017. The amendment retains the ratio at 6.0:1 until December 31, 2016, and then increases to 6.5:1 between January 1, 2017 and June 30, 2017.
|
|
|
•
|
Minimum-value-clauses
: The Company's secured bank credit facilities contain loan-to-value clauses, or minimum-value-clauses ("MVC"), which could require the Company to prepay a portion of the outstanding borrowings should the value of the drilling units securing borrowings under each of such agreements decrease below required levels. This covenant has been suspended until June 30, 2017.
|
|
|
•
|
Minimum Liquidity
: The Company has previously been required to maintain a minimum of $150 million of liquidity. This has been reset to $250 million.
|
|
|
•
|
Additional undertakings:
|
|
|
◦
|
Further process
: The Company has agreed certain undertakings on a temporary basis while further discussions with its lenders under its senior secured credit facilities remain ongoing. This includes agreements in respect of progress milestones towards the agreement of, and implementation plan in respect of, a comprehensive financing package.
|
|
|
◦
|
Restrictive undertakings
: The Company has agreed to additional near-term restrictive undertakings applicable during this process, including limitations in respect of:
|
|
|
▪
|
dividends, share capital repurchases and new total return swaps;
|
|
|
▪
|
incurrence of certain indebtedness;
|
|
|
▪
|
investments in, extensions of credit to or the provision of financial support for non-wholly owned subsidiaries;
|
|
|
▪
|
investments in, extensions of credit to or the provision of financial support for joint ventures or associated entities;
|
|
|
▪
|
prepayment, repayment or repurchase of any debt obligations;
|
|
|
▪
|
payments in respect of newbuild drilling units,
|
in each case, subject to limited exceptions.
|
|
•
|
Other changes and provisions:
|
|
|
◦
|
Undrawn availability
: The Company has agreed to refrain from borrowing any undrawn commitments under its senior secured credit facilities.
|
|
|
◦
|
Fees
: The Company has agreed to pay certain fees to its lenders in consideration of these extensions and amendments.
|
These extensions and amendments are designed to provide the Company and the banking group with a period of stability and certainty while a more comprehensive financing package is agreed.
The Company is in compliance with all covenants as at September 30, 2016 and expects to remain in compliance with the amended covenant package that is expected to be part of the Company's restructuring plans.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 13 – Common shares
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
All shares are common shares of $2.00 par value each
|
|
Shares
|
|
|
$ million
|
|
|
Shares
|
|
|
$ million
|
|
|
Authorized share capital
|
|
|
800,000,000
|
|
|
|
1,600
|
|
|
|
800,000,000
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and fully paid share capital
|
|
|
508,763,020
|
|
|
|
1,017
|
|
|
|
493,078,680
|
|
|
|
986
|
|
|
Treasury shares held by Company
|
|
|
(4,318,740
|
)
|
|
|
(9
|
)
|
|
|
(318,740
|
)
|
|
|
(1
|
)
|
|
Outstanding common shares in issue
|
|
|
504,444,280
|
|
|
|
1,008
|
|
|
|
492,759,940
|
|
|
|
985
|
|
As a result of the share-for-debt exchange, the number of common shares outstanding in the Company increased by 15,684,340 shares. Refer to Note 12 – Debt for additional information.
On September 5, 2016 the Company repurchased 4,000,000 shares in settlement of its total return swap agreements. This was completed at a strike price of NOK20.30. Refer to Note 15 - Risk management and financial instruments for additional information.
Note 14 – Accumulated other comprehensive income
Accumulated other comprehensive income as of September 30, 2016 and December 31, 2015 was as follows:
|
(In $ millions)
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities
|
|
|
—
|
|
|
|
(129
|
)
|
|
Unrealized gain on foreign exchange
|
|
|
36
|
|
|
|
36
|
|
|
Actuarial loss relating to pension
|
|
|
(31
|
)
|
|
|
(38
|
)
|
|
Share in unrealized gains from associated companies
|
|
|
8
|
|
|
|
11
|
|
|
Accumulated other comprehensive income
|
|
|
13
|
|
|
|
(120
|
)
|
The unrealized loss on marketable securities relates to the accumulated losses on the investments in SapuraKencana and Seadrill Partners Common units as at December 31, 2015. Refer to Note 7 - Marketable securities for further information.
With the exception of actuarial loss relating to pension, income taxes associated with each component of other comprehensive income is nil. The income tax benefit on actuarial loss relating to pension is $6 million as of September 30, 2016 and $8 million as of December 31, 2015.
Note 15 – Risk management and financial instruments
The majority of gross earnings from the Company's drilling units are receivable in US dollars and the majority of the Company's other transactions, assets and liabilities are denominated in US dollars, the functional currency of the Company. However, the Company has operations and assets in a number of countries worldwide and incurs expenditures in other currencies, causing its results from operations to be affected by fluctuations in currency exchange rates, primarily relative to the US dollar. The Company is also exposed to changes in interest rates on floating interest rate debt, and to the impact of changes in currency exchange rates on primarily NOK and SEK denominated debt. There is a potential that currency and interest rate fluctuations may have a positive or negative effect on the value of the Company's cash flows.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Interest rate risk management
The Company's exposure to interest rate risk relates mainly to its floating interest rate debt and balances of surplus funds may be placed with financial institutions. This exposure is managed through the use of interest rate swaps and other derivative arrangements. The Company's objective is to obtain the most favorable interest rate borrowings available without risking exposure to fluctuating interest rates. Surplus funds are generally used to repay revolving credit facilities, which yield higher returns than are available on fixed or overnight deposits with banks. The extent to which the Company utilizes interest rate swaps and other derivatives to manage its interest rate risk is determined by the net debt exposure.
Interest rate swap agreements not qualified as hedge accounting
At September 30, 2016 the Company had interest rate swap agreements with an outstanding principal of $6,388 million (December 31, 2015: $7,266 million). The agreements have maturity dates between June 2017 and January 2027, swapping the floating element of interest on our facilities for fixed rates ranging between 0.74% and 3.80%. In addition we have one interest rate swap agreement with an outstanding principal of $166 million (December 31, 2015: $178 million) under which we pay a floating rate of LIBOR and receive a fixed rate of 2.12%. These agreements do not qualify for hedge accounting and accordingly any changes in the fair values of the swap agreements are included in the consolidated statement of operations under "Loss on derivative financial instruments". The total fair value of the interest rate swaps outstanding at September 30, 2016 amounted to a gross liability of $166 million, a net liability of $160 million due to master netting agreements with our counterparties, and an asset of nil (December 31, 2015: a gross liability of $191 million, a net liability of $134 million and an asset of $2 million). The fair value of the interest rate swaps are classified as either "Other current liabilities" or "Other current assets" in the balance sheet.
Cross currency interest rate swaps not qualified as hedge accounting
At September 30, 2016 the Company had outstanding cross currency interest rate swaps with a principal amount of $807 million (December 31, 2015: $807 million) with maturity dates between March 2018 and March 2019, swapping the floating element of interest as well as fluctuations in exchange rates on our facilities for fixed rates ranging from 4.94% to 6.18%. These agreements do not qualify for hedge accounting and accordingly any changes in the fair values of the swap agreements are included in the consolidated statement of operations under "Loss on derivative financial instruments". The total fair value of cross currency interest swaps outstanding at September 30, 2016 amounted to a gross and net liability of $245 million (December 31, 2015: gross and net liability of $291 million). The fair value of the cross currency interest swaps are classified as other current liabilities in the balance sheet.
Interest rate hedge accounting
A Ship Finance subsidiary consolidated by the Company as a Variable Interest Entity ("VIE") (refer to Note 16) has entered into interest rate swaps in order to mitigate its exposure to variability in cash flows for future interest payments on the loans taken out to finance the acquisition of the
West Linus
.
These interest rate swaps qualify for hedge accounting and any changes in its fair value are included in "Other comprehensive income". Below is a summary of the notional amount, fixed interest rate payable and duration of the outstanding principal as of September 30, 2016.
|
Variable interest entity
|
|
Outstanding principal as at
|
|
Receive rate
|
|
Pay rates
|
|
Length of contracts
|
|
|
September 30, 2016
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
SFL Linus Limited (West Linus)
|
|
182
|
|
1 - 3 month LIBOR
|
|
1.77 - 2.01%
|
|
Dec 2013 - Dec 2018
|
The total fair value of interest swaps under hedge accounting at September 30, 2016 amounted to a liability of $3 million (December 31, 2015: liability of $2 million), classified as other non-current liabilities in the balance sheet.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the nine months ended September 30, 2016, the VIE Ship Finance subsidiary recorded $0.4 million fair value losses (nine months ended September 30, 2015: $1.9 million fair value losses). Any such losses recorded by the VIE in "Other comprehensive income" are allocated to "Non-controlling interests" in our consolidated statement of changes in equity due to their ownership by Ship Finance.
Any change in fair value resulting from hedge ineffectiveness is recognized immediately in earnings. The VIE, and therefore the Company, recognized no gain or loss due to hedge ineffectiveness in the consolidated financial statements during the three and nine months ended September 30, 2016 (three and nine months ended September 30, 2015: no fair value gain or loss).
Foreign exchange risk management
The Company and the majority of its subsidiaries use the US dollar as their functional currency because the majority of their revenues and expenses are denominated in US dollars. The Company's reporting currency is also US dollars. We do, however, earn revenue and incur expenses in other currencies and there is thus a risk that currency fluctuations could have an adverse effect on the value of our cash flows.
Foreign currency forwards not qualified as hedge accounting
As at September 30, 2016 the Company had no outstanding forward currency agreements.
Other derivative agreements
Total Return Swap Agreements
On September 5, 2016, the Company settled TRS agreements for 4,000,000 Seadrill Limited shares at a strike price of NOK 20.30. As at September 30, 2016 there were no outstanding TRS agreements (December 31, 2015: outstanding TRS agreements for 4,000,000 shares amounting to a liability of $9 million).
SapuraKencana financing agreements
In September 2013, the Company entered into two derivative contract arrangements with a bank to finance a portion of its equity investment in SapuraKencana, in which the Company received $250 million upfront as prepayment for one of the agreements. The agreements had a settlement date three years from the inception date and include an interest equivalent component which is based on the prepaid amount received and LIBOR plus 1.9% per annum.
On July 8, 2015, the Company amended the financing arrangement relating to its equity investment in SapuraKencana and extended the agreement to July 2018. The total financing was reduced by $90 million to $160 million, and the corresponding restricted cash held as collateral of $93 million was settled against the liability. In addition the interest rate increased to LIBOR plus 2.6%. As at December 31, 2015, the Company had associated restricted cash of $160 million due to the significant fall in the share price of SapuraKencana.
As part of these agreements, all of the shares which we owned SapuraKencana were pledged as security, the value of which as of December 31, 2015 was $228 million, and was presented as a long term marketable security on the balance sheet. The unrealized gains and losses resulting from measuring the fair value of these contracts as at December 31, 2015 were a gross asset of $135 million and gross liability of $135 million, which were offset in the balance sheet and income statement as these agreements met the criteria for offsetting. The $160 million received as a prepayment to Seadrill was included in other long-term liabilities as at December 31, 2015.
On February 24, 2016, the Company elected to exercise the optional termination notice under the prepaid forward and equity swap agreements, and the corresponding liability of $160 million and restricted cash of $160 million were settled, and the pledged security was released.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Realized gains and losses
The total realized and unrealized gains and losses recognized in the consolidated statement of operations relating to above derivative arrangements for the three and nine months ended September 30, 2016 and 2015 are as follows:
|
(In $ millions)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
(Losses)/gains recognized in statement of operations relating to derivative financial instruments
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Interest rate swap agreements not qualified as hedge accounting
|
|
|
32
|
|
|
|
(107
|
)
|
|
|
(118
|
)
|
|
|
(187
|
)
|
|
Cross currency interest rate swaps not qualified as hedge accounting
|
|
|
24
|
|
|
|
(49
|
)
|
|
|
31
|
|
|
|
(96
|
)
|
|
Foreign currency forwards not qualified as hedge accounting
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
(10
|
)
|
|
Total Return Swap Agreements
|
|
|
(3
|
)
|
|
|
(15
|
)
|
|
|
(6
|
)
|
|
|
(18
|
)
|
|
Other
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
|
Gain/(loss) on derivative financial instruments
|
|
|
53
|
|
|
|
(177
|
)
|
|
|
(94
|
)
|
|
|
(314
|
)
|
Fair values of financial instruments
The carrying value and estimated fair value of the Company's financial instruments at September 30, 2016 and December 31, 2015 were as follows:
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
(In $ millions)
|
|
Fair
value
|
|
|
Carrying
value
|
|
|
Fair
value
|
|
|
Carrying
value
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,250
|
|
|
|
1,250
|
|
|
|
1,044
|
|
|
|
1,044
|
|
|
Restricted cash
|
|
|
149
|
|
|
|
149
|
|
|
|
248
|
|
|
|
248
|
|
|
Related party loans receivable - short term
|
|
|
192
|
|
|
|
192
|
|
|
|
371
|
|
|
|
371
|
|
|
Related party loans receivable - long term
|
|
|
481
|
|
|
|
481
|
|
|
|
464
|
|
|
|
464
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of floating rate debt
|
|
|
2,310
|
|
|
|
2,310
|
|
|
|
1,493
|
|
|
|
1,493
|
|
|
Long-term portion of floating rate debt
|
|
|
5,292
|
|
|
|
5,292
|
|
|
|
6,711
|
|
|
|
6,711
|
|
|
Current portion of fixed rate CIRR loans
|
|
|
23
|
|
|
|
23
|
|
|
|
33
|
|
|
|
33
|
|
|
Long term portion of fixed rate CIRR loans
|
|
|
32
|
|
|
|
32
|
|
|
|
43
|
|
|
|
43
|
|
|
Fixed interest bonds - short term
|
|
|
350
|
|
|
|
843
|
|
|
|
—
|
|
|
|
—
|
|
|
Fixed interest bonds - long term
|
|
|
225
|
|
|
|
892
|
|
|
|
944
|
|
|
|
1,840
|
|
|
Floating interest bonds - long term
|
|
|
185
|
|
|
|
575
|
|
|
|
283
|
|
|
|
541
|
|
|
Related party fixed rate debt - long term
|
|
|
415
|
|
|
|
415
|
|
|
|
415
|
|
|
|
415
|
|
The carrying value of cash and cash equivalents and restricted cash, which are liquid, is a reasonable estimate of fair value and categorized at level 1 on the fair value measurement hierarchy.
The fair value of the related party loans receivable from Seadrill Partners, SeaMex, Seabras Sapura and Archer are estimated to be equal to the carrying value. This debt is not freely tradable and cannot be recalled by the Company at prices other than specified in the loan note agreements. The loans were entered into at market rates. They are categorized as level 2 on the fair value measurement hierarchy. Refer to Note 17 for further information.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the current and long-term portion of floating rate debt is estimated to be equal to the carrying value since it bears variable interest rates, which are reset regularly, usually every one to six months. This debt is not freely tradable and cannot be purchased by the Company at prices other than the outstanding balance plus accrued interest. We have categorized this at level 2 on the fair value measurement hierarchy.
The fair value of the long-term portion of the fixed rate CIRR loans is equal to the carrying value, as they are matched with equal balances of restricted cash. We have categorized this at level 2 on the fair value measurement hierarchy.
The fixed interest rate bonds are freely tradable and their fair value has been set equal to the price at which they were traded at on September 30, 2016 and December 31, 2015. We have categorized this at level 1 on the fair value measurement hierarchy.
The floating interest bonds are freely tradable and their fair value has been set equal to the price at which they were traded at on September 30, 2016 and December 31, 2015. We have categorized this at level 1 on the fair value measurement hierarchy.
The related party fixed rate debt relates to the loans provided by Ship Finance to the Company's VIE's totaling $415 million. The fair value of these loans are estimated to be equal to the carrying value as the loans were entered into at market rates. The debt is not freely tradable and cannot be purchased by the Company at prices other than the outstanding balance. We have categorized this at level 2 on the fair value measurement hierarchy. Refer to Note 17 for further information.
Financial instruments that are measured at fair value on a recurring basis:
|
|
|
|
|
|
Fair value measurements
at reporting date using
|
|
|
|
|
Total
Fair value
|
|
|
Quoted Prices in Active Markets for Identical Assets
|
|
|
Significant Other Observable Inputs
|
|
|
Significant Unobservable Inputs
|
|
|
(In $ millions)
|
|
September 30,
2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
93
|
|
|
|
93
|
|
|
|
—
|
|
|
|
—
|
|
|
Other derivative instruments – short term receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total assets
|
|
|
93
|
|
|
|
93
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts – short term payable
|
|
|
160
|
|
|
|
—
|
|
|
|
160
|
|
|
|
—
|
|
|
Interest rate swap contracts – long term payable
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
Cross currency swap contracts – short term payable
|
|
|
245
|
|
|
|
—
|
|
|
|
245
|
|
|
|
—
|
|
|
Total liabilities
|
|
|
408
|
|
|
|
—
|
|
|
|
408
|
|
|
|
—
|
|
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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Fair value measurements
at reporting date using
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Total
Fair value
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Quoted Prices in Active Markets for Identical Assets
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Significant Other Observable Inputs
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Significant Unobservable Inputs
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(In $ millions)
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December 31, 2015
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(Level 1)
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(Level 2)
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(Level 3)
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Assets:
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Marketable securities
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324
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324
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—
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—
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Interest rate swap contracts – short term receivable
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2
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|
|
|
—
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|
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2
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|
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—
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Total assets
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326
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324
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2
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—
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Liabilities:
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Interest rate swap contracts – short term payable
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124
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—
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124
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—
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Interest rate swap contracts – long term payable
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2
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—
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2
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—
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Cross currency swap contracts – short term payable
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291
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—
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291
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—
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Other derivative instruments – short term payable
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9
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—
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9
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—
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Total liabilities
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426
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—
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426
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—
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US GAAP emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, US GAAP establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within levels one and two of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within level three of the hierarchy).
Level one input utilizes unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level two inputs are inputs other than quoted prices included in level one that are observable for the asset or liability, either directly or indirectly. Level two inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability, other than quoted prices, such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level three inputs are unobservable inputs for the asset or liability, which are typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Quoted market prices are used to estimate the fair value of marketable securities, which are valued at fair value on a recurring basis.
The fair value of total return equity swaps is calculated using the closing prices of the underlying listed shares, dividends paid since inception and the interest rate charged by the counterparty.
The fair values of interest rate swaps, cross currency swaps and forward exchange contracts are calculated using well-established independent valuation techniques, using the income method approach, applied to contracted cash flows and LIBOR, NIBOR and STIBOR interest rates as of September 30, 2016.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The fair value of other derivative instruments is calculated using the closing prices of the underlying securities, dividends paid since inception and the interest charged by the counterparty.
Credit risk
The Company has financial assets, including cash and cash equivalents, marketable securities, other receivables and certain amounts receivable on derivative instruments, mainly forward exchange contracts and interest rate swaps. These assets expose the Company to credit risk arising from possible default by the counterparty. The Company considers the counterparties to be creditworthy financial institutions and does not expect any significant loss to result from non-performance by such counterparties. The Company, in the normal course of business, does not demand collateral. The credit exposure of interest rate swap agreements, currency option contracts and foreign currency contracts is represented by the fair value of contracts with a positive fair value at the end of each period, reduced by the effects of master netting agreements. It is the Company's policy to enter into master netting agreements with the counterparties to derivative financial instrument contracts, which give the Company the legal right to discharge all or a portion of amounts owed to counterparty by offsetting them against amounts that the counterparty owes to the Company.
Note 16 – Variable Interest Entities
As of September 30, 2016, the Company leased two semi-submersible rigs, and one jack-up rig from Ship Finance VIEs under capital leases. Each of the units had been sold by the Company to single purpose subsidiaries of Ship Finance and simultaneously leased back by the Company on bareboat charter contracts for a term of 15 years. The Company has several options to repurchase the units during the charter periods, and obligations to purchase the assets at the end of the 15 year lease period.
The following table gives a summary of the sale and leaseback arrangements, as of September 30, 2016:
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Unit
|
Effective
from
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Sale value
(In $ millions)
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First
repurchase
option
(In $ millions)
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Month of first
repurchase
option
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Last
repurchase
option
(In $ millions)
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Month of last
repurchase
Option *
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West Taurus
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Nov 2008
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850
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418
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Feb 2015
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149
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Nov 2023
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West Hercules
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Oct 2008
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850
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580
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Aug 2011
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135
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Aug 2023
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West Linus*
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June 2013
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600
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370
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June 2018
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170
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June 2028
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*Ship Finance has a right to require the Company to purchase the
West Linus
rig on the 15
th
anniversary for the price of $100 million if the Company doesn't exercise the final repurchase option.
The Company has determined that the Ship Finance subsidiaries, which own the units, are VIEs, and that the Company is the primary beneficiary of the risks and rewards connected with the ownership of the units and the charter contracts. Accordingly, these VIEs are fully consolidated in the Company's consolidated financial statements. The Company did not record any gains from the sale of the units, as they continued to be reported as assets at their original cost in the Company's balance sheet at the time of each transaction. The equity attributable to Ship Finance in the VIEs is included in non-controlling interests in the Company's consolidated accounts. At September 30, 2016 and at December 31, 2015 the units are reported under drilling units in the Company's balance sheet.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The bareboat charter rates are set on the basis of a Base LIBOR Interest Rate for each bareboat charter contract, and thereafter are adjusted for differences between the LIBOR fixing each month and the Base LIBOR Interest Rate for each contract. A summary of the bareboat charter rates per day for each unit is given below.
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(In $ thousands)
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Unit
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2016
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2017
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2018
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2019
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2020
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2021
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West Taurus
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165
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158
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158
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144
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143
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136
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West Hercules
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179
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170
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166
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143
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141
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135
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West Linus
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222
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222
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222
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173
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140
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140
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The assets and liabilities in the accounts of the VIEs as at September 30, 2016 and as at December 31, 2015 are as follows:
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September 30, 2016
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December 31, 2015
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(In $ millions)
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SFL
Deepwater
Limited
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SFL
Hercules
Limited
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SFL
Linus
Limited
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SFL
Deepwater
Limited
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SFL
Hercules
Limited
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SFL
Linus
Limited
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Name of unit
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West Taurus
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West Hercules
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West Linus
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West Taurus
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West Hercules
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West Linus
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Investment in finance lease
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372
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369
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|
495
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|
|
|
394
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|
394
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|
|
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530
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Other assets
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6
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|
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|
6
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—
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6
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7
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—
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Total assets
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378
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|
|
|
375
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|
|
|
495
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|
|
|
400
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|
|
|
401
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|
|
|
530
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|
|
|
|
|
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|
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Short-term interest bearing debt
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23
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28
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51
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23
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28
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51
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Long-term interest bearing debt
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231
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|
258
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317
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198
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|
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229
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302
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Other liabilities
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3
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|
1
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3
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3
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1
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2
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Short-term debt due to related parties
|
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—
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—
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—
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—
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—
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23
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|
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Long-term debt due to related parties
|
|
|
121
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88
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|
|
|
124
|
|
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|
137
|
|
|
|
125
|
|
|
|
125
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Total liabilities
|
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378
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|
|
|
375
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|
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|
495
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|
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|
361
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|
|
|
383
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|
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|
503
|
|
|
Equity
|
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|
—
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|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
|
18
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
Book value of units in the Company's consolidated accounts
|
|
|
419
|
|
|
|
546
|
|
|
|
543
|
|
|
|
434
|
|
|
|
571
|
|
|
|
559
|
|
The Company presents balances due to/from Ship Finance on a net basis, due to the fact there is a right of offset established in the long-term loan agreements, and the balances are intended to be settled on a net basis. As at September 30, 2016, the Company has presented receivable balances (current assets) of $24 million related to SFL Deepwater Ltd, $57 million related to SFL Hercules Ltd, and $1 million related to SFL Linus Ltd against Long-term debt due to related parties (non-current liabilities). As at December 31, 2015, the balances offset were $8 million related to SFL Deepwater Ltd, $20 million related to SFL Hercules Ltd, and nil related to SFL Linus Ltd.
In the period ended September 30, 2016 the VIEs declared and paid dividends totaling $105 million.
Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS