SDRL Seadrill Limited

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of May 2017

Commission File Number 001-34667

SEADRILL LIMITED

Par-la-Ville Place, 4th Floor

14 Par-la-Ville Road

Hamilton HM 08 Bermuda

(441)295-6935

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F [X]       Form 40-F [  ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [  ].

Note : Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [  ].

Note : Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

INFORMATION CONTAINED IN THIS FORM 6-K REPORT

Attached hereto as Exhibit 99.1 is a copy of the earnings release of Seadrill Limited (the "Company"), dated May 24, 2017, announcing the Company's results for the first quarter ended March 31, 2017.

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Seadrill Limited (SDRL) - First quarter 2017 results

May 24, 2017 - Seadrill Limited ("Seadrill" or "the Company"), a world leader in offshore drilling, announces its first quarter results for the period ended March 31, 2017.

Highlights

·

Revenue of $569 million

·

Operating income of $83 million

·

EBITDA 1 of $291 million

·

98% economic utilization 2

·

Reported net income of $57 million and diluted net income per share of $0.13

·

Underlying net income 3 , excluding non-recurring items and non-cash mark to market movements on derivatives, was $22 million and earnings per share was $0.06

·

Cash and cash equivalents of $1.5 billion

·

Seadrill Limited order backlog of approximately $3.4 billion

Commenting today, Per Wullf, CEO and President of Seadrill Management Ltd., said: "Tendering activity continues to increase, especially in the North Sea, South-East Asia and Middle-East segments.  While competition remains fierce for available work we are well positioned with our scale, young modern fleet and highly skilled workforce.

We remain committed to keeping our units working in the short-term and have successfully re-contracted a number of our available units.

Our priority continues to be to implement our restructuring plan with the right structure and terms for our stakeholders."

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1

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 long-lived assets. 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. Refer to the Appendix for the reconciliation of operating income to EBITDA, as operating income is the most directly comparable US GAAP measure.

2	Economic utilization is calculated as total revenue, excluding bonuses, for the period as a proportion of the full operating dayrate multiplied by the number of days on contract in the period.

3	Underlying is defined as reported results, adjusted for certain non-recurring items and other exclusions as discussed in the Appendix. These numbers are reconciled to the US GAAP reported results for corresponding periods in the Appendix.

Revenues of $569 million for the first quarter (Q4 2016: $667 million) were down approximately 15% primarily due to:

·

The West Saturn becoming idle during the quarter;

·

The West Epsilon and West Vigilant having a full quarter of idle time;

·

Lower West Hercules termination fee recognition (terminated contract originally scheduled to conclude in January); and

·

West Epsilon termination fee received in the fourth quarter not repeated in the first quarter

These reductions to revenue were partially offset by the West Castor operating for a full quarter and the West Phoenix commencing operations during the quarter.

EBITDA was $63 million lower in the first quarter, as the revenue reduction was partly offset by lower opex due to additional idle units and lower general and administrative expenses due to the continued benefits of cost control and saving initiatives implemented during 2016.

Net operating income for the quarter was $83 million (Q4 2016: $87 million), approximately in-line with the prior quarter. The EBITDA reduction was offset by no impairment charges taken during the quarter (Q4 2016: charge of $44 million) and lower depreciation.

Net financial and other items resulted in an expense of $31 million in the quarter (Q4 2016: income of $6 million). The increase in expense was due to lower results from associated companies related to our share of Seadrill Partners net income and foreign exchange gains not repeated in the first quarter. This was partially offset by a gain on derivatives (loss in 4Q16) and lower expense in other financial items (4Q 2016 expense related to the recognition of the Archer guarantee liability that did not recur).

Income taxes for the first quarter were a credit of $5 million, (Q4 2016: expense of $10 million) reflecting an estimate of the annual effective tax rate for the full year applied to the result for this reporting period.

Net income for the quarter was $57 million resulting in basic and diluted earnings per share of $0.13.

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1

Operating income presented in the fourth quarter results was adjusted to reflect settlement with Hyundai Samho Heavy Industries Co. Ltd. for the West Mira in which an impairment of long-lived assets was recorded, reducing operating income by $31 million. Please refer to the Seadrill Annual Report on Form 20-F for further information.

Balance sheet

As at March 31, 2017, total assets were $21.3 billion (Q4 2016: $21.7 billion).

Total current assets were $2.6 billion (Q4 2016: $2.9 billion). The main movements during the quarter were the settlement of the West Mira arbitration, a reduction in accounts receivable related to additional idle units and receipt of final installments of termination payments for two units.

Cash and cash equivalents were $1.5 billion, an increase of $94 million.

Total non-current assets were $18.7 billion (Q4 2016: $18.8 billion).  Quarterly depreciation was partially offset by an increase in the value of investments in associated companies, primarily related to Seadrill Partners.

Total current liabilities were $4.7 billion (Q4 2016: $4.7 billion). The main movement was the NOK1,800m Seadrill bond with an outstanding value of $211m becoming current, offset by a reduction in unrealized losses on derivatives, accrued interest, deferred mobilization, and tax payable.

Total non-current liabilities were $6.5 billion (Q4 2016: $6.9 billion). The main movement was the reclassification of long term debt to short term debt.

Over the course of the quarter total net interest bearing debt (including related party debt and net of cash and cash equivalents) was $8.2 billion (Q4 2016: $8.5 billion), reflecting normal quarterly installments.

Total equity was $10.1 billion as at March 31, 2017 (Q4 2016: $10.1 billion), primarily reflecting net income for the quarter.

Cash flow

As at March 31, 2017, cash and cash equivalents were $1.5 billion (Q4 2016: $1.4 billion).

Net cash provided by operating activities for the three month period ended March 31, 2017 was $155 million (Q4 2016: $345 million). Net cash provided by investing activities was $181 million (Q4 2016: $75 million) driven mainly by the West Mira settlement, and net cash used in financing activities was $244 million (Q4 2016: $313 million) due to debt repayments.

Cost Reduction

Headcount has been reduced from 6,995 at year end 2015 to 5,196 at the end of the first quarter. Of the 1,799 reduction, 1,380 have been offshore and 419 onshore.

Vessel and rig operating expenses decreased by $23 million during the first quarter, primarily due to additional idle units, and general and administrative expenses decreased from $69 million to $61 million. We continue to expect G&A, excluding restructuring costs, to be in the range of $220 million for full year 2017.

Newbuilding Program

During the first quarter a settlement agreement was reached with Hyundai Samho Heavy Industries Co Ltd. ("HSHI") in relation to the West Mira ("the Unit") arbitration. A cash payment of $170 million was received in March 2017 as full settlement of the dispute. Arbitration proceedings began in October 2015 following the cancellation of the construction contract for the West Mira and were expected to conclude during the first half of 2018. This settlement agreement brings an early conclusion to the arbitration process. As part of this settlement, Northern Drilling (as agreed with Seatankers), a related party, has purchased the West Mira from HSHI. Northern Drilling is an asset holding company and is not expected to engage in offshore drilling activities. The Company expects to execute an agreement with Northern Drilling for the commercial and technical management of the West Mira as well as a right of first refusal for purchase of the Unit.

In April 2017, Sevan Drilling and Cosco deferred the negotiation of the final delivery deferral agreement for the Sevan Developer until May 31, 2017. If an agreement cannot be reached, the remaining installment of $26.3 million will be refunded.

The West Dorado and West Draco, currently under construction at Samsung, are not yet completed and we are in discussions with Samsung to defer the delivery dates prior to the units being completed and ready for delivery.

We remain in constructive discussions with our shipyards as part of our broader restructuring discussions regarding reaching agreements to defer our remaining deliveries further into the future.

Operations

During the first quarter economic utilization was 98% (Q4 2016: 99%).  The West Saturn completed its contract, while the West Castor and West Phoenix returned to service.

The first quarter status and performance of the Group's delivered rig fleet is as follows:

Commercial Developments

During the first quarter:

·

The West Phoenix was awarded a one well contract with Nexen Petroleum. The contract will run in direct continuation from its existing contract with Total and the total backlog is estimated to be $17 million.

·

The West Elara was awarded a one well extension plus one option well from Statoil. The backlog for the firm well is estimated to be $10 million.

·

The West Mischief received a contract termination notice from NDC and is expected to end operations in August 2017 as opposed to the original contracted December 2017 date. The total backlog impact is a $9 million decrease.

·

West Cressida was awarded a two month extension of its existing contract with PTTEP Thailand at the original contract day rate of $64,500 per day.

·

SeaMex, the Company's 50% owned JV, agreed a 29 month contract extension at the current contracted day rates for each of the five jack-up rigs contracted with Pemex in Mexico.  Simultaneously SeaMex agreed to provide Pemex with a discount to contracted rates for 22 months effective November 2016.  The net impact on contract backlog for SeaMex was an increase of $580 million.

·

The West Saturn was awarded a one well contract with Ophir Cotê d'Ivoire in Cotê d'Ivoire, which commenced in the second quarter of 2017. Total contract backlog is expected to be approximately $5.5 million based on an estimated contract duration of 35 days.

Additionally, during the second quarter to date we have concluded the following commercial agreements:

·

The West Freedom was awarded a one well contract with Ecopetrol in Columbia.  Commencement is expected in the third quarter of 2017.  Contract backlog is expected to be approximately $5 million.

·

In April, NADL, our majority owned subsidiary, announced the contract awards and extension for the jack-ups West Elara and West Linus with ConocoPhillips, for work in the Greater Ekofisk Area. The contracts are for a period of 10 years and the total additional backlog for the new contract awards is estimated at $1.4 billion, excluding performance bonuses. The contracts include market indexed dayrates and the estimated backlog is subject to change based on market conditions.

·

In April, Statoil exercised an option to extend the contract for the West Elara with one additional well at a rate of $135,000 per day.  The contract is now expected to extend until September 2017.

·

In May, Seadrill announced an agreement with Shelf Drilling to sell the West Triton, West Resolute and West Mischief for a total consideration of $225 million subject to customary closing conditions. The West Triton and West Resolute were delivered to Shelf Drilling in May 2017. The West Mischief is due for delivery to Shelf Drilling during the third quarter of 2017 after completion of its current drilling contract with NDC in Abu Dhabi.

·

The West Cressida was awarded a binding letter of award for a 90 day contract with PCPPOC in Malaysia.  Commencement is expected in June 2017. Contract backlog is expected to be approximately $5 million.

Seadrill's order backlog as at May 24, 2017 is $3.4 billion, comprised of $1.4 billion for the floater fleet and $2.0 billion for the Jack-up fleet. The average contract duration is 13 months for floaters and 30 months for Jack-ups.

For the Seadrill Group ¹ , the total order backlog is $7.1 billion.

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1	Seadrill Group is defined as all companies currently consolidated into Seadrill Limited plus Seadrill Partners LLC and SeaMex Limited.

Market Development

The offshore drilling market remains challenging and we expect this dynamic to continue in the short to medium term.  The majority of customers remain focused on conserving cash and are still reluctant to commit to significant new capital projects offshore until an increased consistency and upward trend in oil prices is demonstrated. The significant rig supply overhang remains and a faster return to a balanced market will require drilling contractors to be more disciplined in retiring older units.

Tendering activity has continued at increased levels, albeit from a low base, over the past few months, especially in the North Sea floater and South-East Asia and Middle-East jack-up segments. Market behavior points increasingly to the market having reached its bottom. An increasing number of recent tenders released by oil companies seek to contract at current bottom of cycle dayrates for increased durations and / or with multiple fixed price options periods.

We remain committed to keeping our units working in the short-term and have successfully re-contracted a number of our units. We still believe in the long term fundamentals of the offshore drilling industry, driven by years of under-investment in new fields and the competitiveness of offshore resources on a full cycle basis.

Our enduring focus on our customers, safe and efficient operations and a disciplined approach to contracting, will ensure that Seadrill is well placed to capitalize when the market recovers.

Restructuring Update

In April, the Company reached an agreement with its bank group to extend the comprehensive restructuring plan negotiating period until 31 July 2017, reflecting significant progress on the terms of such restructuring made with the bank group.

The Company is now in advanced discussions with certain third party and related party investors and its secured lenders on the terms of a comprehensive recapitalization.  The Company is in receipt of a proposal from the third party and related party investors which remains subject to further negotiation, final due diligence and documentation.

The Company is also in discussions with certain bondholders who have recently become restricted again.

While discussions with our secured lenders and certain investors have advanced significantly, a number of important terms continue to be negotiated and no assurance can be given that an agreement will be reached. As previously disclosed, we continue to believe that implementation of a comprehensive restructuring plan will likely involve schemes of arrangement or chapter 11 proceedings, and we are preparing accordingly.

It is likely that the comprehensive restructuring plan will require a substantial impairment or conversion of our bonds, as well as impairment and losses for other stakeholders, including shipyards. As a result, the Company currently expects that shareholders are likely to receive minimal recovery for their existing shares.

The Company's business operations remain unaffected by these restructuring efforts and the Company expects to continue to meet its ongoing customer and business counterparty obligations.

Archer

In April the Company, as part of its restructuring plans, signed and closed an agreement with Archer and its lenders to extinguish approximately $253 million in financial guarantees provided by Seadrill in exchange for a cash payment of approximately $25 million. The Company remains in constructive discussions with Archer and its lenders to extinguish the remaining $25 million of financial guarantees in exchange for a cash payment representing 10% of their face value.

As part of Archer's restructuring plans the Company has also agreed to convert $146 million in subordinated loans provided to Archer into a $45 million subordinated convertible loan. The subordinated convertible loan will bear interest of 5.5%, matures in December 2021 and has a conversion right into equity of Archer Limited in 2021 based on a strike price of US$2.083 per share (subject to appropriate adjustment mechanics), which is approximately 75% above the subscription price in Archer's private placement on February 28, 2017.

NYSE Listing Requirements

On May 4, 2017, the Company was notified by the New York Stock Exchange ("NYSE") that it is no longer compliant with continued listing standards because the average closing price of its common shares over a period of 30 consecutive trading days had fallen below $1.00 per share, which is the minimum average closing price per share required to maintain listing on the NYSE.

Under the NYSE rules, during the six-month period from the date of the NYSE notice, the Company can regain compliance if the price per share of the Company's common shares on the last trading day of any calendar month within such period and the 30 trading day average price per common share for that month is at least $1.00. During this period, subject to the Company's compliance with other NYSE continued listing requirements, the Company's common shares will continue to be traded on the NYSE under the symbol "SDRL" but will have an added designation of ".BC" to indicate the status of the common shares as below compliance.

The Company has notified the NYSE that it believes it could regain compliance through the completion of a comprehensive restructuring plan arising from the Company's previously disclosed ongoing negotiations with its banks, potential new money investors, an ad hoc committee of bondholders, and other constituents in the event that such restructuring is completed prior to the expiration of the six-month grace period from the date of the NYSE notice. There can be no assurances that the Company will regain such compliance, the restructuring will be completed within such grace period or that the common shares will not be subject to delisting during the grace period if the Company enters into Chapter 11 proceedings or for other reasons.

The NYSE notification does not affect the Company's business operations or its Securities and Exchange Commission reporting requirements and does not conflict with or cause an event of default under any of the Company's material debt agreements.

Guidance

Second Quarter 2017

With a number of our units coming off contract and the impact of lower day rates, EBITDA will be lower for the second quarter, at around $240 million. This is based on second quarter expected operating income of $40 million.

The following units have already or are expected to become idle during the second quarter of 2017:

·

Sevan Louisiana

·

West Tucana

·

West Cressida

The following units will have lower dayrates compared to the first quarter of 2017:

·

West Elara

·

West Hercules (final termination payment received in the first quarter).

These reductions are expected to be partially offset by a full quarter of operations for the West Phoenix, the West Saturn commencing a one well contract and the West Freedom returning to normal operating rate for a full quarter.

Operationally, performance in the second quarter of 2017 is strong with 99% utilization quarter to date.

Forward-Looking Statements

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 at 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 and our ability to negotiate and complete a comprehensive restructuring, either on a consensual basis or otherwise.  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.

May 24, 2017

The Board of Directors

Seadrill Limited

Hamilton, Bermuda

Questions should be directed to Seadrill Management Ltd. represented by:

Media contacts:

Iain Cracknell

Director of Communications

Seadrill Management Ltd.

+44 (0) 2088 114700

Bell Pottinger +44 (0) 2037 722500

Appendix - Reconciliation of certain underlying financial measures with the reported results

Reconciliation of Operating Income to EBITDA

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.

Calculation of Underlying Basic and Diluted Per Share Data

Calculation of Net Interest Bearing Debt

Reconciliation of Reported to Underlying Figures

There were no exclusions for Q1 2017.

There were no exclusions for Q1 2016.

The Q4 2016 underlying Operating Income excludes impairments of long-lived assets of $44 million.

* Includes transactions with related parties. Refer to Note 16 Related party transactions.

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.

Seadrill Limited
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 at March 31, 2017 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 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 financial statements do not include all of the disclosures required in complete annual financial statements. These 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, 2016. The amounts are presented in United States dollar ("US dollar" or "$") rounded to the nearest million, unless stated otherwise.

The Company's consolidated financial statements have been prepared on a going concern basis and contemplate the realization of assets and satisfaction of liabilities in the normal course of business. However, the Company's going concern assumption is based on management's expectation that the current restructuring program will be completed successfully as described below.

The Company's liquidity requirements relate to servicing debt amortizations, interest payments, and funding working capital requirements. Sources of liquidity include existing cash balances, short-term investments and contract and other revenues. We have historically relied on our cash generated from operations to meet our short term liquidity needs. However, as a result of the downturn in the offshore industry, we require additional liquidity to fully meet our obligations that fall due within one year after the date the financial statements are issued, given the debt repayments that are due in this period.

Over the past year the Company has been engaged in discussions with its banks, potential new investors, existing stakeholders and bondholders in order to restructure its secured credit facilities and unsecured bonds, and in order to raise new capital. The Company expects the implementation of a comprehensive restructuring plan will likely involve commencing schemes of arrangement in the United Kingdom or Bermuda or proceedings under Chapter 11 of the United States Bankruptcy Code.

Although discussions are well advanced and significant progress has been made, until such time our restructuring is completed, uncertainty remains and therefore substantial doubt exists over the Company's ability to continue as a going concern for twelve months after the date the financial statements are issued.

The Company's business operations are unaffected by these restructuring efforts and the Company expects to meet its ongoing customer and business counterparty obligations during the restructuring process.

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, 2016 except as discussed below or unless otherwise included in these unaudited interim financial statements as separate disclosures.

Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Restatement

As described in the Company's form 20-F filed on April 27, 2017, the Company concluded that its previously issued financial statements for the year ended December 31, 2015, and the quarters ended March 31, June 30 and September 30, 2016 should no longer be relied upon as a result of a misstatement. In the form 20-F filed on April 27, 2017, the Company restated the financial statements for the year ended December 31, 2015, and also presented the impact of the correction of the misstatements on the unaudited consolidated statements of operations, consolidated statements of comprehensive income, consolidated balance sheets and consolidated statements of cash flows for the quarters ended March 31, June 30 and September 30, 2016 (the "Restated Periods"). The misstatement related to the fair value accounting principles applied under U.S. GAAP to the Company's interest rate and cross currency swap portfolio. In addition to these errors, the restated financial statements also included adjustments to correct certain other immaterial errors. All amounts in this quarterly report affected by the restatement adjustments reflect such amounts as restated in the Company's form 20-F filed on April 27, 2017.

Note 2 – Recent accounting pronouncements

Recently adopted accounting standards

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 adoption of this standard did not have a material impact on the Company's 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 adoption of this standard did not have a material impact on 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 at the date of adoption.  Early adoption is not permitted until periods beginning after December 15, 2016.

During 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations   (Reporting Revenue Gross versus Net) , ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing , ASU 2016- 12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients , which do not change the core principle of the Standard Update, but instead clarify the implementation guidance and provide narrow-scope improvements.  In December 2016, the FASB also issued ASU  2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers , which includes additional guidance for disclosures related to remaining performance obligations.  Based on the analysis to date, the Company has assessed there is significant interaction between ASC 606 and ASC 842 relating to Leases; therefore, the Company expects to adopt the updates concurrently, effective January 1, 2018.  The Company continues to make significant progress on its review of the standard to determine the effect the requirements may have on its consolidated financial statements, according to its contract-specific facts and circumstances.

Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company is consulting with other drilling companies to fully determine recognition and disclosure under the new standard. At present, the Company does not expect the pattern of revenue recognition under the new guidance to materially differ from its current revenue recognition pattern and expects to transition using a modified retrospective approach whereby it will record the cumulative effect of applying the new standard to all outstanding contracts as at January 1, 2018 as an adjustment to opening retained earnings. The Company's initial assessment may change as it continues to refine these assumptions.

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 U.S. 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, using a modified retrospective application.  The Company has started assessing the impact of this standard update on its consolidated financial statements and related disclosures and has determined that its drilling contracts contain a lease component. The adoption of this standard will result in increased disclosure of the Company's leasing arrangements and may affect the way the Company recognizes revenues associated with the lease and revenue components, according to its contract-specific facts and circumstances. The standard update could also introduce variability to the timing of the Company's revenue recognition compared to current accounting standards. Based on the analysis to date, the Company has assessed there is significant interaction between ASC 606 relating to revenue recognition from contracts with customers and ASC 842; therefore, the Company expects to adopt the updates concurrently, effective January 1, 2018, using the modified retrospective approach.

The Company is consulting with other drilling companies to fully determine recognition and disclosure under the new standard. The Company continues to make significant progress on its review of the standard to determine the effect the requirements could have on its consolidated financial statements and may change its initial assessment as it completes this process.

In June 2016, the FASB issued ASU 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 for annual and interim periods beginning after December 15, 2019, with early adoption permitted only from January 1, 2019. Entities are required to apply the standard's provisions as a cumulative-effect adjustment to retained earnings as at 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 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 standard 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.

Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Income taxes Intra-Entity Transfers of Assets other than Inventory, which requires companies to recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period of sale or transfer occurs. The exception to recognizing the income tax effects of intercompany sales or transfers of assets remains in place for intercompany inventory sales and transfers, i.e. companies will still be required to defer the income tax effects of intercompany inventory transactions. The standard will be effective for annual periods beginning after 15 December 2017, with early adoption permitted. Entities are required to apply the guidance on a modified retrospective basis, with the cumulative effect adjustment to retained earnings at the beginning of the period of adoption. The Company is not early adopting this standard and expects to implement in the first quarter of 2018.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash , to address classification of activity related to restricted cash and restricted cash equivalents in the cash flows.  The standard eliminates the presentation of transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents and restricted cash equivalents are presented in more than one line item on the balance sheet, a reconciliation of the totals in the cash flows to the related captions in the balance sheet are required, either on the face of the cash flow or in the notes to the Consolidated Financial Statements. Additional disclosures are required for the nature of the restricted cash and restricted cash equivalents. The standard will be effective for fiscal years beginning after 15 December 2017, and interim periods within those years. 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.

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.

·

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.

Drilling units and Newbuildings - Total assets

Capital expenditures – fixed assets

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.

In relation to the sale, the Company may be entitled to receive a contingent consideration from Seadrill Partners, consisting of (a) any day rates earned by Seadrill Partners in excess of $450,000 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 $450,000 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 $653,000 per day to $490,000 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 March 31, 2017, the Company has recognized $42 million in contingent consideration, as it became realized, within "Contingent consideration realized" included within operating income in the consolidated statement of operations.

Disposal of the West Vela

On November 4, 2014, the Company sold the entities that own and operate the West Vela (the "Vela business") to Seadrill Capricorn Holdings LLC, a consolidated subsidiary of Seadrill Partners and 49% owned by the Company. The entities continue to be related parties subsequent to the sale.

As part of the consideration of the sale, the Company may be entitled to receive a contingent amount of up to $40 thousand per day for the remainder of the BP contract, depending on the actual amount of contract revenue received from BP.

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 Vela on November 4, 2014 to March 31, 2017, the Company has recognized $31 million.

Note 5 – Taxation

The effective tax rate for the three months ended March 31, 2017 and 2016 was (9.6)% and 36.1%, respectively.

The provision for income taxes during the three months ended March 31, 2017 is calculated by applying an estimate of the annual effective tax rate for the full year to "ordinary" income or loss for this reporting period. The reported figure for Income tax reflects the relative proportion of group results earned in this period out of the currently estimated projected results for the full year.

The components of the denominator for the calculation of basic and diluted EPS are as follows:

Marketable securities and changes in their carrying value are as follows:

The Company's ownership interest in Seadrill Partners' common units is 28.6% of total outstanding units as at March 31, 2017.

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 March 31, 2017, where the market price was at $3.60.

Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 recognized an other than temporary impairment charge of $153 million on Seadrill Partners Common Units.

During the period between September 30, 2016 and March 31, 2017 the Seadrill Partners' share price has increased by 2% from $3.53 to $3.60.  As at March 31, 2017 an accumulated unrealized gain of $1 million has been recognized in accumulated other comprehensive income.

On a quarterly basis the share price has fallen from $4.20 as at December 31, 2016 to $3.60 as at March 31, 2017, resulting in a quarterly loss of $16 million recognized in other comprehensive income.

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 consolidated financial statements:

* The Seadrill Partners - Seadrill member interest and Incentive Distribution Rights ("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 are 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 and therefore categorized at level three on the fair value hierarchy. 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.

During the year ended December 31, 2016, as a result of 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, the Company recognized other than temporary impairment charges of $180 million on the subordinated units and $400 million on the direct ownership interests. In the year ended December 31, 2015, the Company recognized an other than temporary impairment charges of $125 million on the subordinated units and $302 million on the direct ownership interests. The Company recognized this impairment of the investments within "Loss on impairment of Investments" in the Statement of Operations.

Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The fair value of these investments were 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% (2015: 8.5%).  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. 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.

For the three months ended March 31, 2017, and March 31, 2016, no other than temporary impairment has been identified.

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 at the deconsolidation date.

During the year ended December 31, 2016, the Company recognized an impairment of the investments in the IDRs $73 million. During the year ended December 31, 2015, an impairment charge of $106 million on the IDRs was recorded. The Company has recognized this impairment within "Loss on impairment of Investments" in the consolidated statement of operations.The fair value of the investment was determined using a Monte Carlo model, using  assumptions 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.

For the three months ended March 31, 2017, and March 31, 2016, no other than temporary impairment has been identified.

SeaMex Limited

The Company holds a 50% ownership interest in Seamex, 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 are included within the joint venture. The Company's investment in Seamex was recognized at fair value on the deconsolidation of Seamex in March 2015, and subsequently accounted for under the equity method.

During the year ended December 31, 2016, as a result of the deteriorating market conditions in the oil and gas industry and supply and demand conditions in the offshore drilling sector in which SeaMex operates the Company recognized an other than temporary impairment of the investment in SeaMex of $76 million. The Company recognized this impairment of the investments within "Loss on impairment of investments" in the consolidated statement of operations.

Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The fair value was derived using the 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 assumptions used in the DCF model were derived from unobservable inputs (level three) and are based on management's judgments and assumptions available at the time of performing the impairment test.

For the three months ended March 31, 2017, and March 31, 2016, no other than temporary impairment has been identified.

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 year ended December 31, 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 recognized this impairment within "Loss on impairment of investments" in the consolidated statement of operations.

The table below summarizes the total impairments made during the three months ended March 31, 2017 and 2016:

¹            Additions of $12 million in the quarter to March 31, 2017 were predominantly due to capitalized interest.

The depreciation expense on drilling units was $198 million for the three months ended March 31, 2017, and $198 million and for the three months ended March 31, 2016.

In addition the depreciation expense on equipment was $10 million for the three months ended March 31, 2017, and $2 million for the three months ended March 31, 2016.

The outstanding debt as at March 31, 2017 is repayable as follows:

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 three months ended March 31, 2017 are explained below.

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, 2016.

Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

April 2017 amendments to senior secured credit facilities

On April 4, 2017, 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:

·

Extensions:

o

$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 April 30, 2017 to August 15, 2017. The outstanding balance on the credit facility of $278 million is classified as debt due within one year in the consolidated balance sheet as at March 31, 2017.

o

$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 May 31, 2017 to August 31, 2017. The outstanding balance on the credit facility of $190 million is classified as debt due within one year in the consolidated balance sheet as at March 31, 2017.

o

$2 billion Senior Secured Credit Facility : The maturity of the $2 billion senior secured credit facility of our majority-owned subsidiary North Atlantic Drilling Limited (NADL) has been extended from June 30, 2017 to September 14, 2017. The outstanding balance on the credit facility of $992 million is classified as debt due within one year in the consolidated balance sheet as at March 31, 2017.

·

Key amendments and waivers:

o

Equity ratio : The Company is required to maintain a total equity to total assets ratio of at least 30.0%.  Following this amendment, the need to adjust for the difference between the book and market values of drilling units from the calculation of total equity and total assets, as determined by independent broker valuations, has been removed until September 30, 2017.

o

Leverage ratio : The Company is required to maintain a ratio of net debt to EBITDA. The amendment extends the maintained ratio of 6.5:1 until September 30, 2017.

o

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 September 30, 2017.

o

Minimum Liquidity : The Company has previously been required to maintain a minimum of $150 million of liquidity. This has been reset to $250 million.

Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

·

Additional undertakings:

o

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.

o

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;

§

acquisitions;

§

dispositions;

§

prepayment, repayment or repurchase of any debt obligations;

§

granting security; and

§

payments in respect of newbuild drilling units in each case, subject to limited exceptions.

·

Other changes and provisions:

o

Undrawn availability : The Company has agreed to refrain from borrowing any undrawn commitments under its senior secured credit facilities.

o

Fees : The Company has agreed to pay certain fees to its lenders in consideration of these extensions and amendments.

The unrealized gains on marketable securities relates to the accumulated gains on the Company's investment in Seadrill Partners Common Units as at March 31, 2017 and December 31, 2016. 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 $1 million as at March 31, 2017 and $1 million as at December 31, 2016.

Note 14 – 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.

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 placed into 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.

Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Interest rate swap agreements not qualified for hedge accounting

At March 31, 2017 the Company had interest rate swap agreements with an outstanding principal of $6,356 million (December 31, 2016: $6,372 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 $158 million (December 31, 2016: $162 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/(gain) on derivative financial instruments". The total fair value of the interest rate swaps outstanding at March 31, 2017 amounted to a gross liability of $46 million, a net liability of $23 million due to master netting agreements with our counterparties, and a net asset of $5 million (December 31, 2016: a gross liability of $64 million, a net liability of $41 million and an asset of $4 million). The fair value of the interest rate swaps are classified as either "Other current liabilities" or "Other current assets" in the consolidated balance sheet.

Cross currency interest rate swaps not qualified as hedge accounting

At March 31, 2017 the Company had outstanding cross currency interest rate swaps with a principal amount of $807 million (December 31, 2016: $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/(gain) on derivative financial instruments". The total fair value of cross currency interest swaps outstanding at March 31, 2017 amounted to a gross and net liability of $179 million (December 31, 2016: gross and net liability of $194 million). The fair value of the cross currency interest swaps are classified as "Other current liabilities" in the consolidated balance sheet.

Interest rate swaps agreements qualified for hedge accounting

A Ship Finance subsidiary consolidated by the Company as a Variable Interest Entity ("VIE") (refer to Note 15 "Variable Interest Entities") 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 OCI. Below is a summary of the notional amount, fixed interest rate payable and duration of the outstanding principal as at March 31, 2017.

The total fair value of interest swaps under hedge accounting at March 31, 2017 amounted to a liability of $1 million (December 31, 2016: liability of $1 million), classified as "Other non-current liabilities" in the consolidated balance sheet.

In the three months ended March 31, 2017, the VIE Ship Finance subsidiary recorded $1 million fair value gains (three months ended March 31, 2016: $2 million fair value gains). Any such gains or losses recorded by the VIE in OCI 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 months ended March 31, 2017 (three months ended March 31, 2016: no fair value gain or loss). The net interest paid on these swaps for the three months ended March 31, 2017 was $0.3 million (three months ended March 31, 2016: net interest of $0.6 million).

Seadrill Limited
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 for hedge accounting

As at March 31, 2017 the Company had no outstanding forward currency agreements.

Realized and unrealized 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 months ended March 31, 2017 and 2016 are as follows:

Fair values of financial instruments

The carrying value and estimated fair value of the Company's financial instruments as at March 31, 2017 and December 31, 2016 were as follows: