Report of Foreign Issuer (6-k)

Date : 05/23/2019 @ 11:06AM
Source : Edgar (US Regulatory)
Stock : Seadrill Ltd (SDRL)
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Report of Foreign Issuer (6-k)

Table of Contents

 

 

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 2019

Commission File Number 333-224459

 

 

SEADRILL LIMITED

(Exact name of Registrant as specified in its Charter)

 

 

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  ☒            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):

Yes  ☐            No  ☒

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):

Yes  ☐            No  ☒

 

 

 


Table of Contents

Seadrill Limited

Report on Form 6-K for the three months ended March 31, 2019

EXPLANATORY NOTE

This Form 6-K contains the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the unaudited interim condensed consolidated financial statements and related information and data of the Company as of and for the three-month period ended March 31, 2019.

This Form 6-K is hereby incorporated by reference into our Registration Statements on (i) Form F-3 (Registration No. 333-224459), and (ii) Form S-8 (Registration No. 333-227101).

INDEX

 

Important Information Regarding Forward-Looking Statements

     3  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     5  

Interim Financial Statements (unaudited)

  

Unaudited Consolidated Statements of Operations for the three months ended March 31, 2019 (Successor) and for the three months ended March 31, 2018 (Predecessor)

     F-2  

Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 (Successor) and for the three months ended March 31, 2018 (Predecessor)

     F-3  

Unaudited Consolidated Balance Sheets as of March  31, 2019 (Successor) and December 31, 2018 (Successor)

     F-4  

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2019 (Successor) and the three months ended March 31, 2018 (Predecessor)

     F-5  

Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2019 (Successor) and the three months ended March 31, 2018 (Predecessor)

     F-7  

Notes to Unaudited Consolidated Financial Statements

     F-8  

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, or the PSLRA, and are including this cautionary statement in connection therewith. The PSLRA provides safe harbor protections for forward-looking statements to encourage companies to provide prospective information about their business.

Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical or present facts or conditions.

This report on Form 6-K and any other written or oral statements made by us or on our behalf may include forward-looking statements which reflect our current views with respect to future events and financial performance. The words “believe,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,” “may,” “should,” “expect” and similar expressions identify forward-looking statements.

The forward-looking statements in this document are based upon various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies that are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.

In addition to these important factors and matters discussed elsewhere in this report on Form 6-K, and in the documents incorporated by reference to this report, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include:

 

 

our ability to maintain relationships with suppliers, customers, employees and other third parties following our emergence from Chapter 11 proceedings;

 

 

our ability to maintain and obtain adequate financing to support our business plans following our emergence from Chapter 11;

 

 

factors related to the offshore drilling market, including changes in oil and gas prices and the state of the global economy on market outlook for our various geographical operating sectors and classes of rigs;

 

 

supply and demand for drilling units and competitive pressure on utilization rates and dayrates;

 

 

customer contracts, including contract backlog, contract commencements, contract terminations, contract option exercises, contract revenues, contract awards and rig mobilizations;

 

 

the repudiation, nullification, modification or renegotiation of drilling contracts;

 

 

delays in payments by, or disputes with, our customers under our drilling contracts;

 

 

fluctuations in the market value of our drilling units and the amount of debt we can incur under certain covenants in our debt financing agreements;

 

 

the liquidity and adequacy of cash flow for our obligations;

 

 

our ability to successfully employ our drilling units;

 

 

our ability to procure or have access to financing;

 

 

our expected debt levels;

 

 

our ability to satisfy our obligations, including certain covenants, under our debt financing agreements and if needed, to refinance our existing indebtedness;

 

 

credit risks of our key customers;

 

 

political and other uncertainties, including political unrest, risks of terrorist acts, war and civil disturbances, public health threats, piracy, corruption, significant governmental influence over many aspects of local economies, or the seizure, nationalization or expropriation of property or equipment;

 

 

the concentration of our revenues in certain geographical jurisdictions;

 

 

limitations on insurance coverage, such as war risk coverage, in certain regions;

 

 

any inability to repatriate income or capital;

 

 

the operation and maintenance of our drilling units, including complications associated with repairing and replacing equipment in remote locations and maintenance costs incurred while idle;

 

 

newbuildings, upgrades, shipyard and other capital projects, including the completion, delivery and commencement of operation dates;

 

 

import-export quotas;

 

 

wage and price controls and the imposition of trade barriers;

 

 

the recruitment and retention of personnel;

 

 

regulatory or financial requirements to comply with foreign bureaucratic actions, including potential limitations on drilling activity, changing taxation policies and other forms of government regulation and economic conditions that are beyond our control;

 

 

the level of expected capital expenditures, our expected financing of such capital expenditures, and the timing and cost of completion of capital projects;

 

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fluctuations in interest rates or exchange rates and currency devaluations relating to foreign or US monetary policy;

 

 

tax matters, changes in tax laws, treaties and regulations, tax assessments and liabilities for tax issues, including those associated with our activities in Bermuda, Brazil, Norway, the United Kingdom and the United States;

 

 

legal and regulatory matters, including the results and effects of legal proceedings, and the outcome and effects of internal and governmental investigations;

 

 

hazards inherent in the drilling industry and marine operations causing personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, claims by third parties or customers and the suspension of operations;

 

 

customs and environmental matters; and

 

 

other important factors described from time to time in the reports filed or furnished by us with the SEC.

We caution readers of this report on Form 6-K not to place undue reliance on these forward-looking statements, which speak to circumstances only as at their dates. We undertake no obligation to update any forward-looking statement or 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, we cannot assess the impact of each such factor on our 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.

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the interim Financial Statements presented in this report, as well as the historical Consolidated Financial Statements and related notes of Seadrill Limited included in our annual report on Form 20-F filed with the SEC on March 28, 2019 (SEC File No. 333-224459) (the “20-F”). Among other things, those financial statements include more detailed information regarding the basis of presentation for the following information. The unaudited Consolidated Financial Statements of Seadrill Limited included in this report have been prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”) and are presented in US Dollars.

Except where the context otherwise requires or where otherwise indicated, the terms “Seadrill,” “the Group,” “we,” “us,” “our,” “the Company” and “our Business” refer to either Seadrill Limited, any one or more of its consolidated subsidiaries, or to all such entities, and, for periods before emergence from Chapter 11 Proceedings on July 2, 2018, to Old Seadrill Limited, any one or more of its consolidated subsidiaries, or to all such entities.

References to the term “Predecessor” refers to the financial position and results of operations of Seadrill prior to, and including, July 1, 2018. This is also applicable to terms “Seadrill,” “the Group,” “we,” “us,” “our,” “the Company” or “our Business” in context of events before emergence from Chapter 11 Proceedings on July 2, 2018.

References to the term “Successor” refers to the financial position and results of operations of Seadrill after July 2, 2018. This is also applicable to terms “Seadrill,” “the Group.” “we,” “us,” “our,” “the Company” or “our Business” in context of events after emergence from Chapter 11 Proceedings on July 2, 2018.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of management. Our MD&A is presented in the following sections:

 

 

Overview

 

 

Significant developments

 

 

Contract backlog

 

 

Market overview and trends

 

 

Results of operations

 

 

Liquidity and capital resources

 

 

Borrowing activities

 

 

Contractual obligations

 

 

Quantitative and qualitative disclosures about market risk

 

 

Critical accounting estimates

Overview

We are an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. Our primary business is the ownership and operation of drillships, semi-submersible rigs and jack-up rigs for operations in shallow to ultra-deepwater areas in both benign and harsh environments. We contract our drilling units to drill wells for our customers on a dayrate basis. Typically, our customers are oil super-majors and major integrated oil and gas companies, state-owned national oil companies and independent oil and gas companies.

Through a number of acquisitions of companies, second-hand units and newbuildings, we have developed into one of the world’s largest international offshore drilling contractors. We own and operate 35 drilling rigs and we manage and operate 18 rigs on behalf of Seadrill Partners, SeaMex and Northern Drilling.

Significant Developments

Receipt of overdue receivable

In January 2019, we received $26 million for the final settlement of an overdue receivable which was fully provided in the Predecessor company. This receivable was not recognized as an asset as part of fresh start accounting, and has been recognized as other operating income in our first quarter 2019 results.

Sonadrill joint venture

In February 2019, we entered into an agreement to establish a 50:50 joint venture with Sonangol called Sonadrill. The joint venture will operate four drillships, focusing on opportunities in Angolan waters. Each of the joint venture parties will bareboat two drillships into Sonadrill and we will manage and operate all the units. Seadrill will also manage the delivery and mobilization to Angolan waters of the two Sonangol drillships, from the shipyard in Korea, under a separate commissioning and mobilization agreement with Sonangol.

 

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Tender offer of New Secured Notes

In March 2019 we launched a consent solicitation process to amend the Senior Secured Notes indenture which included a $341 million subsequent tender offer to purchase $311 million of principal amount outstanding. As a result of this process the $311 million being purchased was reclassified as a current liability at March 31, 2019 and, following completion of the offer in April 2019, we re-purchased $311 million of New Secured Notes at a price of 107.

Dalian Newbuilds

The Newbuild contracts for the remaining two jack-up rigs from the Dalian shipyard, the West Dione and West Mimas, were terminated in February 2019 and April 2019, respectively.

The Seadrill contracting parties have commenced arbitration proceedings in respect of the eight newbuild jack-up rigs previously contracted to be delivered from the Dalian shipyard and are claiming for repayment of yard installments plus interest and damages. Seadrill has filed claims for these amounts as part of the Dalian insolvency proceedings in China. Dalian has maintained it has a damages claim in respect of each of the rigs. The newbuild contracts are all with limited liability subsidiaries of Seadrill and there are no parent company guarantees.

Contract Backlog

We define contract backlog as the maximum contractual operating dayrate multiplied by the number of days remaining in the firm contract period, excluding revenues for mobilization, demobilization and contract preparation or other incentive provisions.

The contract backlog for our fleet was as follows as at the dates specified:

 

(In $ millions)              

Contract backlog

   May 23, 2019      February 28, 2019  

Floaters

     461        565  

Jack-ups

     1,441        1,362  
  

 

 

    

 

 

 

Total

     1,902        1,927  
  

 

 

    

 

 

 

Our contract backlog includes only firm commitments represented by signed drilling contracts. The full contractual operating dayrate may differ to the actual dayrate we ultimately receive. For example, an alternative contractual dayrate, such as a waiting-on-weather rate, repair rate, standby rate or force majeure rate, may apply under certain circumstances. The contractual operating dayrate may also differ to the actual dayrate we ultimately receive because of several other factors, including rig downtime or suspension of operations. In certain contracts, the dayrate may be reduced to zero if, for example, repairs extend beyond a stated period.

We project our May 23, 2019 contract backlog to unwind over the following periods:

 

(In $ millions)           Period ended December 31,  

Contract backlog

   Total      2019      2020      2021      2022+  

Floaters

     461        348        113        —          —    

Jack-ups

     1,441        187        171        169        914  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,902        535        284        169        914  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The actual amounts of revenues earned and the actual periods during which revenues are earned will differ from the amounts and periods shown in the tables above due to various factors, including shipyard and maintenance projects, unplanned downtime and other factors that result in lower applicable dayrates than the full contractual operating dayrate. Additional factors that could affect the amount and timing of actual revenue to be recognized include customer liquidity issues and contract terminations, which are available to our customers under certain circumstances.

 

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Market Overview and Trends

The below table shows the average oil price for the three months ended March 31, 2019 and for each year ended December 31 over the period 2015 to 2018. The Brent oil price at April 30, 2019 was $73.

 

     Dec-2015      Dec-2016      Dec-2017      Dec-2018      Mar-2019  

Average Brent oil price ($/bbl)

     54        45        55        71        64  

We have seen a stabilization in the oil and gas market in 2019 with Brent oil prices remaining above $60 per barrel for most of the period. When combined with efficiencies across the industry, this has led to continued improved economics for our customers, which has in turn led to increased tendering activity and a positive trend in dayrates. We expect these trends to continue as our customers continue to increase their levels of investment.

The below table shows the global number of rigs on contract and marketed utilization at March 31, 2019 and for each of the four preceding years ending December 31.

 

     Dec-2015     Dec-2016     Dec-2017     Dec-2018     Mar-2019  

Contracted rigs

          

Harsh environment floater

     45       35       30       31       33  

Benign environment floater

     196       139       120       116       119  

Jack-up 1

     180       152       154       168       191  

Marketed utilization

          

Harsh environment floater

     93     81     83     85     85

Benign environment floater

     83     71     71     73     76

Jack-up 1

     83     70     70     74     82

 

1  

Jack-up rigs capable of operating in water depth greater than 350 feet.

Floater

The net floater supply has continued to decline globally as the number of scrapped rigs continue to outweigh newbuild rigs entering the market. The net attrition has positively impacted the recovery in the floater market as total and marketed supply start to align. There is high demand for high specification harsh environment units relative to their supply, which has led to increased dayrates and higher utilization within this segment. There is still an excess supply of benign environment units which has delayed the recovery in that market.

Whilst we expect further newbuild rigs to enter the market in 2020 and beyond, there remains a number of older units with no follow-on work identified which will be prime scrapping candidates, as 35-year classing expenditures can be costly and will only be completed if the future contract economics satisfy the cost. Instead, many rig owners will choose to retire a unit rather than incur the cost without a visible near-term recovery in demand. Larger drilling companies with diversified fleets will find it easier to make economic decisions and cold stack idle rigs as each individual unit represents a smaller percentage of the overall fleet. Cold stacked units will generally require a sufficient improvement in dayrates to overcome reactivation costs before they are reintroduced into marketed supply.

Jack-up

We have seen an improvement in shallow water markets and this has led to an increase in the number of contracted jack-ups. The increase in demand and dayrates have seen newbuild rigs begin to enter the market. As newer rigs with high specifications enter the jack-up market, this will lead to the accelerated attrition of older units. The shorter-term contract profile in this market lends itself to higher rig turnover. As these contracts start to lengthen, we expect rig turnover to normalize, which will positively aid the jack-up market recoverability.

Results of Operations

The tables included below set out financial information for the three months ended March 31, 2019 (Successor) and March 31, 2018 (Predecessor). The three months ended March 31, 2019 and March 31, 2018 are distinct reporting periods because of the application of fresh start accounting upon emergence from Chapter 11 bankruptcy on July 2, 2018. These periods may not be comparable to each other.

 

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    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Operating revenues

    302       364  

Operating expenses

    (399     (442

Other operating items

    26       4  
 

 

 

   

 

 

 

Operating loss

    (71     (74

Interest expense

    (132     (19

Reorganization items

    —         (74

Other income and expense

    (75     (4
 

 

 

   

 

 

 

Loss before income taxes

    (278     (171

Income tax expense

    (18     (32
 

 

 

   

 

 

 

Net loss

    (296     (203
 

 

 

   

 

 

 

1) Operating revenues

Operating revenues consist of contract revenues, reimbursable revenues and other revenues. We have analyzed operating revenues between these categories in the table below:

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Contract revenues

    255       308  

Reimbursable revenues

    26       12  

Other revenues

    21       44  
 

 

 

   

 

 

 

Total operating revenues

    302       364  
 

 

 

   

 

 

 

a) Contract revenues

Contract revenues represent the revenues that we earn from contracting our drilling units to customers, primarily on a dayrate basis. We have analyzed contract revenues by segment in the table below.

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Floaters

    174       210  

Jack-ups

    81       98  
 

 

 

   

 

 

 

Contract revenues

    255       308  
 

 

 

   

 

 

 

Contract revenues are primarily driven by the average number of rigs under contract during a period, the average dayrates earned and economic utilization achieved by those rigs under contract. We have set out movements in these key indicators of performance in the sections below.

i. Average number of rigs on contract

We calculate the average number of rigs on contract by dividing the aggregate days our rigs were on contract during the reporting period by the number of days in that reporting period. The average number of rigs on contract for the periods covered is set out in the below table:

 

    Successor     Predecessor  
(Number)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Floaters

    8       8  

Jack-ups

    8       8  
 

 

 

   

 

 

 

Average number of rigs on contract

    16       16  
 

 

 

   

 

 

 

The average number of floaters on contract was the same for the three months ended March 31, 2019 and the three months ended March 31, 2018. We re-activated the West Hercules for a new contract in the North Sea in April 2018 and the Sevan Louisiana started work on a new contract in November 2018. This was offset by the West Eclipse and Sevan Brasil completing contracts in June 2018 and July 2018.

 

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The average number of jack-ups on contract was the same for the three months ended March 31, 2019 and the three months ended March 31, 2018. The West Telesto and West Tucana started new contracts in April 2018 and October 2018. This was offset by the West Ariel and West Castor completing contracts in March 2018 and May 2018, respectively.

ii. Average contractual dayrates

We calculate the average contractual dayrate by dividing the aggregate contractual dayrates during a reporting period by the aggregate number of rig operating days for the reporting period. We have set out the average contractual dayrates for the periods presented in the below table:

 

    Successor     Predecessor  
(In $ thousands)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Floaters

    224       297  

Jack-ups

    108       136  

The average contractual dayrate for floaters decreased by $73k per day between the three months ended March 31, 2019 and March 31, 2018 due to the West Carina and West Eclipse completing legacy contracts for Petronas and ExxonMobil in July 2018. The West Carina secured a new contract with Petronas in December 2018 at a lower dayrate.

The average contractual dayrate for jack-ups decreased by $28k per day between the three months ended March 31, 2019 and March 31, 2018 due to the West Linus moving to a lower dayrate as part of securing a long-term contract with ConocoPhillips, the West Ariel and West Castor completing legacy contracts and the West Callisto moving to a lower dayrate.

iii. Economic utilization for rigs on contract

We define economic utilization as dayrate revenue earned during the period, excluding bonuses, divided by the contractual operating dayrate multiplied by the number of days on contract in the period. If a drilling unit earns its full operating dayrate throughout a reporting period, its economic utilization would be 100%. However, there are many situations that give rise to a dayrate being earned that is less than the    contractual operating rate. In such situations economic utilization reduces below 100%.

As set out in the below table, economic utilization has remained in the range of 90% to 97% for each of the periods presented.

 

     Successor     Predecessor  
(Percentage)    Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Floaters

     91     90

Jack-ups

     97     97

The economic utilization for floaters for the three months ended March 31, 2019 was 91%. This was primarily due to operational downtime on the Sevan Louisiana related to a malfunction of its subsea equipment .

b) Reimbursable revenues

We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel and other services provided at their request in accordance with a drilling contract. We classify such revenues as reimbursable revenues.

Reimbursable revenues for the three months ended March 31, 2019 included revenue of $17 million for a contract to perform the first mobilization of the West Mira for Northern Drilling.

c) Other revenues

Other revenues include the following:

 

     Successor      Predecessor  
(In $ millions)    Three Months
Ended March 31,
2019
     Three Months
Ended March 31,
2018
 

Related party revenues (i)

     21        22  

Amortization of unfavorable contracts (ii)

     —          12  

Other (iii)

     —          10  
  

 

 

    

 

 

 

Total other revenues

     21        44  
  

 

 

    

 

 

 

 

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i. Related party revenues

Related party revenues represent income from management and technical support services provided to Seadrill Partners, SeaMex and Northern Drilling.

ii. Amortization of unfavorable contracts

We recognize an intangible asset or liability if we acquire a drilling contract in a business combination and the contract had a dayrate that was above or below market rates at the time of the business combination. For the periods before emergence from Chapter 11 we classified the amortization of these intangible assets or liabilities within other revenues. Post-emergence and after the application of fresh start accounting, we have applied a new accounting policy which classifies amortization of these intangible assets and liabilities within operating expenses.

iii. Other

Other revenues for the three months ended March 31, 2018 included early termination fee revenue for the West Pegasus .

2) Operating expenses

Total operating expenses include vessel and rig operating expenses, amortization of favorable and unfavorable contracts, reimbursable expenses, depreciation of drilling units and equipment, and general and administrative expenses. We have analyzed operating expenses between these categories in the table below:

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Vessel and rig operating expenses

    (199     (183

Reimbursable expense

    (26     (12

Depreciation

    (108     (196

Amortization of intangibles

    (35     —    

General and administrative expenses

    (31     (51
 

 

 

   

 

 

 

Total operating expenses

    (399     (442
 

 

 

   

 

 

 

i. Vessel and rig operating expenses

Vessel and rig operating expenses represent the costs we incur to operate a drilling unit that is either in operation or stacked. This includes the remuneration of offshore crews, rig supplies, expenses for repair and maintenance and onshore support costs.

For periods prior to emergence from Chapter 11 we classified certain operational support and information technology related costs incurred by our support functions within general and administrative expenses. As part of fresh start accounting and for periods after emergence we classified these costs within vessel and rig operating expenses. Vessel and rig operating expenses for the 2018 Predecessor and 2019 Successor periods are therefore not comparable.

We have analyzed vessel and rig operating expenses by segment in the table below.

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Floaters

    (132     (124

Jack-ups

    (56     (53

Other

    (11     (6
 

 

 

   

 

 

 

Vessel and rig operating expenses

    (199     (183
 

 

 

   

 

 

 

Vessel and rig operating expenses are mainly driven by rig activity. On average, we incur higher vessel and rig operating expenses when a rig is operating compared to when it is stacked. For stacked rigs we incur higher vessel and rig expenses for warm stacked rigs compared to cold stacked rigs. We incur one-time costs for activities such as preservation and severance when we cold stack a rig. We also incur significant costs when re-activating a rig from cold stack, a proportion of which is expensed as incurred.

Vessel and rig operating expenses allocated to the “Other” segment represent rig related onshore costs incurred in connection with our contracts to provide technical support services to Seadrill Partners, Seamex and Northern Drilling.

 

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We have analyzed the average number of rigs by status and segment over the reporting period in the table below:

 

    Successor     Predecessor  
(Number of rigs)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Floaters

     

Operating

    8       8  

Warm stacked

    2       1  

Cold stacked

    9       10  
 

 

 

   

 

 

 

Average number of Floaters

    19       19  
 

 

 

   

 

 

 

Jack-ups

     

Operating

    8       8  

Warm stacked

    2       3  

Cold stacked

    6       5  
 

 

 

   

 

 

 

Average number of Jack-ups

    16       16  
 

 

 

   

 

 

 

The number of cold stacked floaters decreased by one and the warm stacked floaters increased by one between the three months ended March 31, 2019 and March 31, 2018. The decrease in cold stacked floaters was due to the West Hercules and Sevan Louisiana which were reactivated in April 2018 and November 2018 respectively. This was offset by the Sevan Brasil which was cold stacked in January 2019.

The number of cold stacked jack-ups increased by one and the warm stacked jack-ups decreased by one between the three months ended March 31, 2019 and March 31, 2018. We cold stacked the West Freedom and West Ariel in July 2018 and re-activated the West Tucana for a new contract in October 2018.

ii. Depreciation of drilling units and equipment

We record depreciation expense to reduce the carrying value of drilling unit and equipment balances to their residual value over their expected remaining useful economic lives. We reduced the carrying value of drilling unit and equipment balances to their fair values when we applied fresh start accounting on emergence from Chapter 11. The depreciation expense for the three months ended March 31, 2019 is therefore based on lower carrying values of drilling units and equipment and is not comparable to the level of depreciation expense for the three months ended March 31, 2018.

iii. Amortization of intangibles

For periods before emergence from Chapter 11 we recognized intangible assets or liabilities only where we acquired a drilling contract in a business combination. The accounting policy we applied in the Predecessor was to classify amortization for such contracts within other revenues. On emergence from Chapter 11 and application of fresh start accounting, we recognized intangible assets and liabilities for favorable and unfavorable drilling contracts at fair value. We amortize these assets and liabilities over the remaining contract period and classify the amortization under operating expenses.

iv. General and administrative expenses

General and administrative expenses include the cost of our corporate and regional offices, certain legal and professional fees as well as the remuneration and other compensation of our officers, directors and employees engaged in central management and administration activities. Legal and professional fees incurred for our Chapter 11 reorganization post-petition were classified under reorganization items. As discussed above, we changed the classification of certain support function costs for periods after emergence. General and administrative expenses are therefore not comparable to between the Successor and Predecessor periods.

General and administrative expenses for the three months ended March 31, 2019 and March 31, 2018 were $31 million and $51 million, respectively. For the three months ended March 31, 2019 this includes $8 million (2018: $13 million) related to rigs we manage for our partners, which is charged out on a cost plus basis.

3) Other operating items

Other operating items for the three months ended March 31, 2019 represents cash received for the recovery of a receivable balance previously written down to nil on fresh start.

Other operating items for the three months ended March 31, 2018 represents amounts recognized for contingent consideration from the sales of the West Vela and West Polaris to Seadrill Partners in 2014 and 2015. On emergence from Chapter 11 we recognized receivables equal to the fair value of expected future cash flows under these arrangements and have therefore not recognized further income in the Successor periods.

 

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4) Interest expense

We have analyzed interest expense into the following components:

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Cash and payment-in-kind interest on debt facilities

    (120     (18

Unwind of discount on debt

    (12     —    

Loan fee amortization

    —         (1
 

 

 

   

 

 

 

Interest expense

    (132     (19
 

 

 

   

 

 

 

i. Cash and payment-in-kind interest on debt facilities

We incur cash and payment-in-kind interest on our debt facilities. This is summarized in the table below.

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Senior credit facilities

    (85     (55

Less: adequate protection payments

    —         49  

New secured notes

    (23     —    

Debt of consolidated variable interest entities

    (12     (12
 

 

 

   

 

 

 

Cash and payment-in-kind interest

    (120     (18
 

 

 

   

 

 

 

We are charged interest on our senior credit facilities at LIBOR plus a margin. This margin increased by one percentage point when we emerged from Chapter 11. There has also been an increase in LIBOR rates. Both factors increased the effective interest rate on our senior credit facilities.

During Chapter 11, we recorded contractual interest payments against debt held as subject to compromise (“adequate protection payments”) as a reduction to debt in the Consolidated Balance Sheet and not as an expense to the Consolidated Statement of Operations. We then expensed the adequate protection payments on emergence from Chapter 11 on July 2, 2018.

During the three months ended March 31, 2019, we had $769 million of principal outstanding of the New Secured Notes that we issued on emergence from Chapter 11. We incur 4% cash interest and 8% payment-in-kind interest on these notes.

Our Consolidated Balance Sheet includes approximately $1 billion of debt facilities held by subsidiaries of Ship Finance that we consolidate as variable interest entities. Our interest expense includes the interest incurred by these entities.

ii. Unwind of discount on debt

On emergence from Chapter 11 and application of fresh start accounting, we recorded a discount against our debt to reduce its carrying value to equal its fair value. The debt discount is unwound over the remaining terms of the debt facilities.

iii. Loan fee amortization

We amortize loan issuance costs over the expected term of the associated debt facility.

5) Reorganization items

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Advisory and professional fees

    —         (75

Interest income on surplus cash invested

    —         1  
 

 

 

   

 

 

 

Total reorganization items

    —         (74
 

 

 

   

 

 

 

 

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For the three months ended March 31, 2018, reorganization items included professional and advisory fees for post-petition Chapter 11 expenses and interest income generated from cash held by filed entities.

6) Other income and expense

We have analyzed other income and expense into the following components:

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Interest income

    20       10  

Share in results from associated companies

    (42     8  

Loss on derivative financial instruments

    (27     (3

Foreign exchange (loss)/gain

    (2     8  

Loss on marketable securities

    (21     (28

Other financial items

    (3     1  
 

 

 

   

 

 

 

Other income and expense

    (75     (4
 

 

 

   

 

 

 

i. Interest Income

Interest income relates to interest earned on cash deposits and other financial assets. During the period we were in Chapter 11 (September 12, 2017 to July 1, 2018), we classified interest income on cash held by filed entities within reorganization items. This totaled $1 million for the three months ended March 31, 2018.

ii. Share in results from associated companies

Share in results from associated companies represents our share of earnings or losses in our investments accounted under the equity method. We reduced the carrying value of our equity method investments when we applied fresh start accounting on emergence from Chapter 11. This led to differences between (i) the book value of rig and contract asset balances recorded in the balance sheets of our equity method investees and (ii) the implied value of these assets in our consolidated balance sheet. We refer to these differences as “basis differences”. We amortize basis differences over the expected lives of the associated assets or liabilities. We classify this amortization within when the “share in results of associated companies” line item in our statement of operations. Therefore, the share in results from associated companies for the three months ended March 31, 2019 is not comparable to the share in results from associated companies for the three months ended March 31, 2018.

We have analyzed our share of results in associated companies by equity method investment below:

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Seadrill Partners

    (42     (15

Seamex

    (8     3  

Seabras Sapura

    8       20  
 

 

 

   

 

 

 

Share of results from associated companies

    (42     8  
 

 

 

   

 

 

 

The share in after tax loss of associated companies for the three months ended March 31, 2019 reflected our share of the after-tax losses of our investments in Seadrill Partners and Seamex offset by our share of profits in the Seabras Sapura joint venture. This included a net expense for the amortization of basis differences of $28 million.

The share in after-tax profit for the three months ended March 31, 2018 reflected our share of the after-tax profit of our investments in Seamex and Seabras Sapura Joint venture offset by a share of losses in our investment in Seadrill Partners.

iii. Loss on derivative financial instruments

On May 11, 2018, we bought an interest rate cap from Citigroup for $68 million. The interest rate cap mitigates our exposure to future increases in LIBOR over 2.87%. We currently have exposure to LIBOR from our floating rate debt.

The loss on derivatives for the three months ended March 31, 2019 of $27 million comprised a fair value loss on our interest rate cap. The fair value loss on the interest rate cap was caused by a decrease in forward interest rates. There was an immaterial movement in the Archer share price which resulted in the value of the conversion option on the Archer convertible bond remaining stable.

 

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Table of Contents

The loss on derivatives for the three months ended March 31, 2018 of $3 million comprised a fair value loss on the conversation option on the Archer convertible bond.

iv. Foreign exchange (loss)/gain

Foreign exchange gains and losses relate to exchange differences on the settlement or revaluation of monetary balances denominated in currencies other than the US Dollar.

v. Loss on marketable securities

The loss on marketable securities for the three months ended March 31, 2019 and March 31, 2018 reflect the changes in mark to market movements in our investments in Seadrill Partners common units and our Archer shares.

vi. Other financial items

Other financial items for the three months ended March 31, 2019 primarily comprised an indenture fee incurred for a tender offer of our New Secured Notes. We did not incur significant other financial items for the three months ended March 31, 2018.

7) Income taxes

Income tax expense consists of taxes currently payable and changes in deferred tax assets and liabilities related to our ownership and operation of drilling units and may vary significantly depending on jurisdictions and contractual arrangements. In most cases the calculation of taxes is based on net income or deemed income, the latter generally being a function of gross revenue.

Liquidity and Capital Resources

1) Introduction

We operate in a capital-intensive industry. We have historically funded acquisitions of drilling units and investments in associated companies through a combination of debt and equity issuances and from cash generated from operations. Although we restructured our debt through the Chapter 11 Reorganization we remain a highly leveraged company with outstanding borrowings on our external debt facilities totaling $7.1 billion as of March 31, 2019.

Our liquidity requirements relate to servicing our debt, making capital investments, funding working capital requirements and maintaining adequate cash reserves to mitigate the effects of fluctuations in operating cash flows. Most of our contract and other revenues are received between 30 and 60 days in arrears, and most of our operating costs are paid monthly. We believe our current resources, available cash and cash from operations will be sufficient to meet our working capital requirements and other obligations as they fall due for at least the next twelve months.

Our funding and treasury activities are conducted in accordance with our corporate policies, which aim to maximize returns while maintaining appropriate liquidity for our operating requirements. Cash and cash equivalents are held mainly in U.S. dollars, with lesser amounts held in Norwegian Kroner, Brazilian Reais and Great British Pounds.

This section discusses the most important factors affecting our liquidity and capital resources.

2) Liquidity

Our level of liquidity fluctuates depending on a number of factors. These include, among others, our contract backlog, economic utilization achieved, average contract day rates, timing of accounts receivable collection, timing of payments for operating costs and other obligations. Our liquidity comprises cash and cash equivalents. The below table shows cash and restricted cash balances for each period presented.

 

    Successor     Successor  
(In $ millions)   As at March 31,
2019
    As at December 31,
2018
 

Cash and cash equivalents

    1,474       1,542  

Restricted cash

    428       461  
 

 

 

   

 

 

 

Cash and cash equivalents, including restricted cash

    1,902       2,003  
 

 

 

   

 

 

 

 

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We have shown our sources and uses of cash by category of cash flow in the below table.

 

    Successor     Predecessor  
(In $ millions)   Three months
ended March 31,
2019
    Three months
ended March 31,
2018
 

Cash flows from operating activities

    (99     4  

Cash flows from investing activities

    2       (2

Cash flows from financing activities

    (4     (73
 

 

 

   

 

 

 

Change in period

    (101     (71
 

 

 

   

 

 

 

This reconciles to the total cash and cash equivalents, including restricted, which is as follows:

 

    Successor     Predecessor  
(In $ millions)   Three months
ended March 31,
2019
    Three months
ended March 31,
2018
 

Opening cash and cash equivalents, included restricted

    2,003       1,359  

Change in period

    (101     (71
 

 

 

   

 

 

 

Closing cash and cash equivalents, included restricted

    1,902       1,288  
 

 

 

   

 

 

 

a) Cash flows from operating activities

Cash flows from operating activities can include cash receipts from customers, cash paid to employees and suppliers (except for capital expenditure), interest and dividends received (except for returns of capital), interest paid, income taxes paid and other operating cash payments and receipts.

We calculate cash flows from operating activities using the indirect method as summarized in the below table.

 

    Successor     Predecessor  
(In $ millions)   Three months
ended March 31,
2019
    Three months
ended March 31,
2018
 

Net loss

    (296     (203

Adjustments to reconcile net loss to net cash provided by operating activities (1)

    228       205  
 

 

 

   

 

 

 

Net loss after adjustments

    (68     2  

Distributions received from associated company

    1       5  

Payments for long-term maintenance

    (17     (28

Settlement of payment-in-kind interest on New Secured Notes

    (33     —    

Changes in operating assets and liabilities

    18       25  
 

 

 

   

 

 

 

Net cash (used in)/provided by operating activities

    (99     4  
 

 

 

   

 

 

 

 

(1)

Includes depreciation, amortization, share of results of joint ventures and associates, unrealized gains and losses on derivatives, unrealized gains and losses on marketable securities, deferred tax expense and other non-cash items shown under the sub-heading “adjustments to reconcile net loss to net cash provided by operating activities” in the Consolidated Statements of Cash Flows presented in the Consolidated Financial Statements included in this report.

Market conditions in the offshore drilling industry in recent years have led to materially lower levels of spending for offshore exploration and development. This has negatively affected our revenues, profitability and operating cash flows. During the three months ended March 31, 2019 our cash flows from operating activities were negative, as cash receipts from customers were insufficient to cover operating costs, payments for long-term maintenance of our rigs, interest payments and tax payments.

b) Cash flows from investing activities

Net cash flows from investing activities for the three months ended March 31, 2019 (Successor) were primarily generated by contingent consideration payments from Seadrill Partners from the sale of the drillship West Vela in 2015. These cash inflows were offset by capital expenditures.

Net cash flows from investing activities for the three months ended March 31, 2018 (Predecessor) were driven by contingent consideration payments from Seadrill Partners from the sale of the drillship West Vela in 2015, and related party loan repayments from Seadrill Partners. These cash inflows were partly offset by capital expenditures.

 

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Table of Contents

c) Cash flows from financing activities

Net cash flows from financing activities for the three months ended March 31, 2019 (Successor) and March 31, 2018 (Predecessor) were related to repayments of debt contained within three consolidated variable interest entities managed and financed by Ship Finance International Limited from whom we lease rigs under sale and leaseback arrangements.

Contractual Obligations

At March 31, 2019 (Successor), we had the following contractual obligations and commitments:

 

     Payment due by period  
     Period ended March 31  
(In $ millions)    2020      2021 - 2022      2023 - 2024      Thereafter      Total  

Interest bearing debt (1) (2)

     416        1,043        3,290        2,333        7,082  

Related party interest bearing debt

     —          —          193        121        314  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt repayments

     416        1,043        3,483        2,454        7,396  

Pension obligations (3)

     2        4        6        12        24  

Operating lease obligations

     10        16        6               32  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

     428        1,063        3,495        2,466        7,452  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)  

Debt principal repayments, excluding cash and payment-in-kind interest.

(2)  

The above table assumes that we will make amortization payments on our secured credit facilities from 2020. Under the terms of the bank financing agreements we have the ability to defer up to $500 million of amortization payments (Amortization Conversion Election facility or “ACE”) up to 120 days before such payment becomes due. The deferred amortization then becomes part of the balloon payment for each relevant facility. Based on the amortization schedule, the ACE has capacity to defer the first five quarters of amortization.

(3)  

Pension obligations are the forecasted employer’s contributions to our defined benefit plans, expected to be made over the next ten years.

In addition to the above, we have recognized liabilities for uncertain tax positions of $122 million including interest and penalties as at March 31, 2019.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to several market risks, including credit risk, foreign currency risk and interest rate risk. Our policy is to reduce our exposure to these risks, where possible, within boundaries deemed appropriate by our management team. This may include the use of derivative instruments.

Credit risk

We have financial assets, including cash and cash equivalents, marketable securities, other receivables and certain amounts receivable on derivative instruments. These assets expose us to credit risk arising from possible default by the counterparty. Most of the counterparties are creditworthy financial institutions or large oil and gas companies. We do not expect any significant loss to result from non-performance by such counterparties.

We do not demand collateral in the normal course of business. The credit exposure of derivative financial instruments 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, adjusted for counterparty non-performance credit risk assumptions. It is our policy to enter into master netting agreements with the counterparties to derivative financial instrument contracts, which give us the legal right to discharge all or a portion of amounts owed to a counterparty by offsetting them against amounts that the counterparty owes to us.

Concentration of risk

There is a concentration of credit risk with respect to cash and cash equivalents to the extent that most of the amounts are carried with Citibank, Nordea Bank Finland Plc, Danske Bank A/S, BNP Paribas and ING Bank N.V. We consider these risks to be remote. We also have a concentration of risk with respect to customers. For details on the customers with greater than 10% of contract revenues, refer to Note 4—Segment information.

Foreign exchange risk

As is customary in the oil and gas industry, most of our revenues and expenses are denominated in U.S. dollars, which is the functional currency of most of our subsidiaries and equity method investees. However, a portion of the revenues and expenses of certain of our subsidiaries and equity method investees are denominated in other currencies. We are therefore exposed to foreign exchange gains and losses that may arise on the revaluation or settlement of monetary balances denominated in foreign currencies.

 

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Table of Contents

Our foreign exchange exposure primarily relates to foreign denominated cash and working capital balances. We do not expect these exposures to cause a significant amount of fluctuation in net income and therefore do not currently hedge them. Further, the effect of fluctuations in currency exchange rates caused by our international operations generally has not had a material impact on our overall operating results.

Interest rate risk

Our exposure to interest rate risk relates mainly to our floating rate debt and balances of surplus funds placed with financial institutions. We manage this risk through the use of derivative arrangements. We have set out our exposure to interest rate risk on our net debt obligations at March 31, 2019 in the table below:

 

(In $ millions)    Principal
outstanding
     Hedging
instruments - see
below
     Net exposure      Impact of 1%
increase in rates - see

below
 

Senior Credit Facilities

     5,662        4,500        1,162        24  

Debt contained within VIEs

     651        —          651        6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total floating rate debt obligations

     6,313        4,500        1,813        30  

New Secured Notes

     769        —          —          —    

Less: Cash and Restricted Cash

     (1,902      —          (1,902      (19
  

 

 

    

 

 

    

 

 

    

 

 

 

Net debt

     5,180        4,500        (89      11  
  

 

 

    

 

 

    

 

 

    

 

 

 

On May 11, 2018, we purchased an interest rate cap for $68 million to mitigate our exposure to future increases in LIBOR on our Senior Credit Facility debt. The interest rate cap is not designated as a hedge and we do not apply hedge accounting. The capped rate against the 3-month US LIBOR is 2.87% and covers the period from June 15, 2018 to June 15, 2023.

The LIBOR rate applied on our debt at March 31, 2019 was 2.60%. Therefore, the interest cap would mitigate the impact of 73% of a theoretical 1% point increase in the LIBOR rate. This is set out in the table below:

 

(In $ millions)    Amount      Impact of 1%
point increase in
rates (before
impact of interest
rate cap)
     Less: impact of
LIBOR CAP
     Impact of 1%
point increase in
rates (after
impact of interest
rate cap)
 

Senior Credit Facility debt - hedged

     4,500        45        (33      12  

Senior Credit Facility debt - not hedged

     1,162        12        —          12  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Senior Credit Facility Debt

     5,662        57        (33      24  
  

 

 

    

 

 

    

 

 

    

 

 

 

One of the Ship Finance subsidiaries that we consolidate as a VIE (refer to Note 23– Variable Interest Entities (VIEs)) previously entered into interest rate swaps 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 matured on December 31, 2018.

Critical Accounting Estimates

The preparation of the Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures about contingent assets and liabilities. We base these estimates and assumptions on historical experience and on various other information and assumptions that we believe to be reasonable. Critical accounting estimates are important to the portrayal of both our financial position and results of operations and require us to make subjective or complex assumptions or estimates about matters that are uncertain. The basis of preparation and significant accounting policies are disclosed in our annual report on Form 20-F.

Critical accounting estimates that have significantly impacted the three months ended March 31, 2019 are as follows:

Drilling Units

Generally, the carrying amount of our drilling units including rigs, vessels and related equipment are recorded at historical cost less accumulated depreciation. However, drilling units acquired through a business combination or remeasured through the application of fresh start accounting are measured at fair value as of the date of acquisition or the date of emergence, respectively. Our drilling units are subject to various estimates, assumptions, and judgments related to capitalized costs, useful lives and residual values, and impairments.

Our estimates, assumptions, and judgments reflect both historical experience and expectations regarding future operations, utilization and performance. At March 31, 2019 (Successor) and December 31, 2018 (Successor), the carrying amount of our drilling units was $7 billion, representing 62% and 61% of our total assets, respectively.

 

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Table of Contents

Useful lives and residual value

The cost of our drilling units less estimated residual value is depreciated on a straight-line basis over their estimated remaining useful lives. The estimated useful life of our semi-submersible drilling rigs, drillships and jackup rigs, when new, is 30 years.

The useful lives of rigs and related equipment are difficult to estimate due to a variety of factors, including technological advances that impact the methods or cost of oil and gas exploration and development, changes in market or economic conditions and changes in laws or regulations affecting the drilling industry. We re-evaluate the remaining useful lives of our drilling units as and when events occur which may directly impact our assessment of their remaining useful lives. This includes changes in the operating condition or functional capability of our rigs as well as market and economic factors. The use of different estimates, assumptions and judgments in establishing estimated useful lives and residual values could result in significantly different carrying values for our drilling units which could materially affect our results of operations.

Redeemable non-controlling interests

Subsequent to filing bankruptcy petitions, the Predecessor executed a Transaction Support Agreement (“TSA”) on April 4, 2018 with a minority shareholder of one of our subsidiaries, Asia Offshore Drilling Limited (“AOD”). The purpose of the TSA was to provide a framework for a monetization event for the minority shareholder of AOD as well as obtain unanimous approval of the AOD board of directors (which included the minority shareholder) in order for AOD to become a party to the RSA and participate in the Predecessor’s broader debt restructuring under its Chapter 11 reorganization. The TSA executed between the parties provides an option to the holders of non-controlling interest shares to sell the shares it owns to Seadrill Limited subject to a price ceiling (“Put Option”). After the end of the effective period of the Put Option, if the right remains unexercised, Seadrill Limited has the option to purchase the non-controlling interest in AOD at a price subject to the floor price (“Call Option”). The Put Option generates a redemption feature for the non-controlling interest holder that is outside the control of Seadrill Limited.

To calculate the fair value of the non-controlling interest shares, we estimated the fair value of AOD in total and then allocated this between the shares held by us and by those held by the non-controlling interest. We estimated the fair values of AOD in total by adjusting the Consolidated Balance Sheet position of AOD as at each reporting period for an updated fair value of the three drilling units: AOD I, AOD II and AOD III . We derived the fair value of the three drilling units using a market approach discounted using a weighted average cost of capital of 11.40%. We derived the fair value of the external debt facilities with a discounted cash flow using a weighted average cost of debt of 6.15%.

Income taxes

Seadrill is a Bermuda company that has a number of subsidiaries and affiliates in various jurisdictions. We are not currently required to pay income taxes in Bermuda on ordinary income or capital gains because we qualify as an exempt company. We have received written assurance from the Minister of Finance in Bermuda that we will be exempt from taxation until March 2035. Certain of our subsidiaries operate in other jurisdictions where income taxes are imposed. Consequently, income taxes have been recorded in these jurisdictions when appropriate. Our income tax expense is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. We provide for income taxes based on the tax laws and rates in effect in the countries in which our operations are conducted and income is earned. The income tax rates and methods of computing taxable income vary substantially between jurisdictions. Our income tax expense is expected to fluctuate from year to year because our operations are conducted in different tax jurisdictions and the amount of pre-tax income fluctuations.

The determination and evaluation of our annual group income tax provision involves the interpretation of tax laws in the various jurisdictions in which we operate and requires significant judgment and the use of estimates and assumptions regarding significant future events, such as amounts, timing and the character of income, deductions and tax credits. There are certain transactions for which the ultimate tax determination is unclear due to uncertainty in the ordinary course of business. We recognize tax liabilities based on our assessment of whether our tax positions are more likely than not sustainable, based solely on the technical merits and considerations of the relevant taxing authorities widely understood administrative practices and precedence. Changes in tax laws (such as the 2017 US tax reform), regulations, agreements, treaties, foreign currency exchange restrictions or our levels of operations or profitability in each jurisdiction may impact our tax liability in any given year.

While our annual tax provision is based on the information available to us at the time, a number of years may elapse before the ultimate tax liabilities in certain tax jurisdictions are determined. Current income tax expense reflects an estimate of our income tax liability for the current year, withholding taxes, changes in prior year tax estimates as tax returns are filed or from tax audit adjustments. Our deferred tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reflected on the balance sheet. Valuation allowances are determined to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. To determine the amount of deferred tax assets and liabilities, as well as at the valuation allowances, we must make estimates and certain assumptions regarding future taxable income, including where our drilling units are expected to be deployed, as well as other assumptions related to our future tax position. A change in such estimates and assumptions, along with any changes in tax laws, could require us to adjust the deferred tax assets, liabilities or valuation allowances. In addition, our uncertain tax positions are estimated and presented within other current liabilities, other liabilities, and as reductions to our deferred tax assets within our Consolidated Balance Sheets. Refer to Note 6 – “Taxation” to our Consolidated Financial Statements included herein for further information.

 

 

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Table of Contents

Seadrill Limited

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Unaudited Consolidated Statements of Operations for the three months ended March 31, 2019 (Successor) and three months ended March 31, 2018 (Predecessor)

     F-2  

Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 (Successor) and three months ended March 31, 2018 (Predecessor)

     F-3  

Unaudited Consolidated Balance Sheets as of March  31, 2019 (Successor) and December 31, 2018 (Successor)

     F-4  

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2019 (Successor) and three months ended March 31, 2018 (Predecessor)

     F-5  

Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2019 (Successor) and three months ended March 31, 2018 (Predecessor)

     F-7  

Notes to Unaudited Consolidated Financial Statements

     F-8  

 

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Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

for the three months ended March 31, 2019 (Successor) and three months ended March 31, 2018 (Predecessor)

 

          Successor     Predecessor  
(In $ millions)   Notes     Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Operating revenues

       

Contract revenues

      255       308  

Reimbursable revenues

    *       26       12  

Other revenues

    *       21       44  
   

 

 

   

 

 

 

Total operating revenues

      302       364  
   

 

 

   

 

 

 

Operating expenses

       

Vessel and rig operating expenses

    *       (199     (183

Reimbursable expense

      (26     (12

Depreciation

      (108     (196

Amortization of intangibles

      (35     —    

General and administrative expenses

    *       (31     (51
   

 

 

   

 

 

 

Total operating expenses

      (399     (442
   

 

 

   

 

 

 

Other operating items

       

Other operating income

    *       26       4  
   

 

 

   

 

 

 

Total other operating items

      26       4  
   

 

 

   

 

 

 

Operating loss

      (71     (74

Financial items and other income

       

Interest income

    *       20       10  

Interest expenses

    *       (132     (19

Share in results from associated companies

    12       (42     8  

Loss on derivative financial instruments

    *       (27     (3

Foreign exchange (loss)/gain

      (2     8  

Loss on marketable securities

    9       (21     (28

Other financial items

    *       (3     1  

Reorganization items

      —         (74
   

 

 

   

 

 

 

Total financial items and other income

      (207     (97
   

 

 

   

 

 

 

Loss before income taxes

      (278     (171

Income tax expense

      (18     (32
   

 

 

   

 

 

 

Net loss

      (296     (203
   

 

 

   

 

 

 

Net loss attributable to the parent

      (295     (181

Net loss attributable to the non-controlling interest

      —         (22

Net loss attributable to redeemable non-controlling interest

      (1     —    

Basic loss per share (US dollar)

      (2.95     (0.36

Diluted loss per share (US dollar)

      (2.95     (0.36

 

*

Includes transactions with related parties. Refer to Note 24 – Related party transactions.

See accompanying notes that are an integral part of these unaudited Consolidated Financial Statements.

 

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Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

for the three months ended March 31, 2019 (Successor) and three months ended March 31, 2018 (Predecessor)

 

    Successor     Predecessor  
(In $ millions)   Three months
ended March 31,
2019
    Three months
ended March 31,
2018
 

Net loss

    (296     (203

Other comprehensive income, net of tax:

     

Change in fair value of debt component of Archer convertible bond

    5       —    

Share of other comprehensive loss from associated companies

    (4     9  
 

 

 

   

 

 

 

Other comprehensive income:

    1       9  
 

 

 

   

 

 

 

Total comprehensive loss for the period

    (295     (194
 

 

 

   

 

 

 

Comprehensive loss attributable to the parent

    (294     (172

Comprehensive loss attributable to the non-controlling interest

    —         (22

Comprehensive loss attributable to the redeemable non-controlling interest

    (1     —    

See accompanying notes that are an integral part of these unaudited Consolidated Financial Statements.

 

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Seadrill Limited

UNAUDITED CONSOLIDATED BALANCE SHEETS

as at March 31, 2019 and December 31, 2018

 

          Successor     Predecessor  
(In $ millions)    Notes    March 31,
2019
    December 31,
2018
 

ASSETS

         

Current assets

         

Cash and cash equivalents

        1,474       1,542  

Restricted cash

   8      428       461  

Marketable securities

   9      36       57  

Accounts receivables, net

   10      217       208  

Amounts due from related parties - current

   24      159       177  

Other current assets

   11      302       322  
     

 

 

   

 

 

 

Total current assets

        2,616       2,767  
     

 

 

   

 

 

 

Non-current assets

         

Investment in associated companies

   12      753       800  

Drilling units

   13      6,576       6,659  

Deferred tax assets

   6      18       18  

Equipment

   14      27       29  

Amounts due from related parties - non-current

   24      542       539  

Other non-current assets

   11      15       36  
     

 

 

   

 

 

 

Total non-current assets

        7,931       8,081  
     

 

 

   

 

 

 

Total assets

        10,547       10,848  
     

 

 

   

 

 

 

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY

         

Current liabilities

         

Debt due within one year

   17      416       33  

Trade accounts payable

        78       82  

Amounts due to related parties - current

   24      30       39  

Other current liabilities

   15      287       310  
     

 

 

   

 

 

 

Total current liabilities

        811       464  
     

 

 

   

 

 

 

Liabilities subject to compromise

        —         —    

Non-current liabilities

         

Long-term debt

   17      6,503       6,881  

Long-term debt due to related parties

   24      227       222  

Deferred tax liabilities

   6      72       87  

Other non-current liabilities

   15      155       121  
     

 

 

   

 

 

 

Total non-current liabilities

        6,957       7,311  
     

 

 

   

 

 

 

Commitments and contingencies (see note 25)

         

Redeemable non-controlling interest

   20      38       38  
     

 

 

   

 

 

 

Equity

         

Common shares of par value $0.10 per share: 111,000,000 shares authorized and 100,000,000 issued at March 31, 2019 (Common shares of par value $0.10 per share: 111,000,000 shares authorized and 100,000,000 issued at December 31, 2018)

   18      10       10  

Additional paid-in capital

        3,492       3,491  

Accumulated other comprehensive loss

        (6     (7

Retained loss

        (907     (611
     

 

 

   

 

 

 

Total shareholders’ equity

        2,589       2,883  
     

 

 

   

 

 

 

Non-controlling interest

   19      152       152  
     

 

 

   

 

 

 

Total equity

        2,741       3,035  
     

 

 

   

 

 

 

Total liabilities, redeemable non-controlling interest and equity

        10,547       10,848  
     

 

 

   

 

 

 

See accompanying notes that are an integral part of these unaudited Consolidated Financial Statements.

 

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Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the three months ended March 31, 2019 (Successor), and three months ended March 31, 2018 (Predecessor)

 

    Successor     Predecessor  
(In $ millions)   Three months
ended March 31,
2019
    Three months
ended March 31,
2018
 

Cash Flows from Operating Activities

     

Net loss

    (296     (203

Adjustments to reconcile net income to net cash provided by operating activities:

     

Depreciation

    108       196  

Amortization of unfavorable and favorable contracts

    35       (10

Share of results from associated companies

    42       (8

Share-based compensation expense

    1       2  

Contingent consideration recognized

    —         (4

Unrealized loss/(gain) related to derivative financial instruments

    27       (1

Deferred tax (benefit) expense

    (15     2  

Unrealized loss on marketable securities

    21       28  

Amortization of discount on debt

    9       —    

Other cash movements in operating activities

     

Distributions received from associated company

    1       5  

Payments for long-term maintenance

    (17     (28

Settlement of payment-in-kind interest on New Secured Notes

    (33     —    

Changes in operating assets and liabilities, net of effect of acquisitions and disposals

     

Trade accounts receivable

    (9     7  

Trade accounts payable

    (4     19  

Prepaid expenses

    (3     13  

Related party receivables

    12       (21

Related party payables

    (4     (25

Other assets

    (2     27  

Other liabilities

    11       18  

Deferred revenue

    19       (13

Other, net

    (2     —    
 

 

 

   

 

 

 

Net cash (used in)/provided by operating activities

    (99     4  
 

 

 

   

 

 

 

Cash Flows from Investing Activities

     

Cash Flows from Investing Activities

     

Additions to newbuildings

    —         (1

Additions to drilling units and equipment

    (6     (31

Contingent consideration received

    8       26  

Payments received from loans granted to related parties

    —         4  
 

 

 

   

 

 

 

Net cash provided by/(used in) investing activities

    2       (2
 

 

 

   

 

 

 

 

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Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the three months ended March 31, 2019 (Successor), and three months ended March 31, 2018 (Predecessor)

 

 

    Successor     Predecessor  
(In $ millions)   Three months
ended March 31,
2019
    Three months
ended March 31,
2018
 

Cash Flows from Financing Activities

     

Repayments of debt

    (4     (73
 

 

 

   

 

 

 

Net cash used in financing activities

    (4     (73
 

 

 

   

 

 

 

Effect of exchange rate changes on cash

    —         —    

Net decrease in cash and cash equivalents, including restricted cash

    (101     (71
 

 

 

   

 

 

 

Cash and cash equivalents, including restricted cash, at beginning of the period

    2,003       1,359  
 

 

 

   

 

 

 

Cash and cash equivalents, including restricted cash, at the end of period

    1,902       1,288  
 

 

 

   

 

 

 

Supplementary disclosure of cash flow information

     

Interest paid, net of capitalized interest

    (112     (20

Taxes paid

    (10     (12

See accompanying notes that are an integral part of these unaudited Consolidated Financial Statements.

 

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Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

for the three months ended March 31, 2019 (Successor) and three months ended March 31, 2018 (Predecessor)

 

(In $ millions)

   Common
shares
     Additional
paid-in
capital
     Contributed
surplus
     Accumulated
other
comprehensive
loss
    Retained
loss
    Total equity
before NCI
    NCI     Total
equity
 

Balance at January 1, 2018 (Predecessor)

     1,008        3,313        1,956        58       225       6,560       399       6,959  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

ASU 2016-01 - Financial Instruments

     —          —          —          (31     31       —         —         —    

ASU 2016-16 - Income Taxes

     —          —          —          —         (59     (59     (25     (84

ASU 2014-09 - Revenue from contracts

     —          —          —          —         7       7       —         7  

Other comprehensive income

     —          —          —          9       —         9       —         9  

Share-based compensation charge

     —          2        —          —         —         2       —         2  

Net loss

     —          —          —          —         (181     (181     (22     (203
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at March 31, 2018 (Predecessor)

     1,008        3,315        1,956        36       23       6,338       352       6,690  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(In $ millions)

   Common
shares
     Additional
paid-in
capital
     Contributed
surplus
     Accumulated
other
comprehensive
loss
    Retained
loss
    Total equity
before NCI
    NCI     Total
equity
 

Balance as at January 1, 2019 (Successor)

     10        3,491        —          (7     (611     2,883       152       3,035  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     —          —          —          1       —         1       —         1  

Share-based compensation charge

     —          1        —          —         —         1       —         1  

Fair Value adjustment AOD Redeemable NCI

     —          —          —          —         (1     (1     —         (1

Net loss

     —          —          —          —         (295     (295     —         (295
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at March 31, 2019 (Successor)

     10        3,492        —          (6     (907     2,589       152       2,741  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes that are an integral part of these unaudited Consolidated Financial Statements.

 

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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, 2019 we owned and operated 35 offshore drilling units and an option to acquire one semi-submersible rig. 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. We also provide management services to our related parties Seadrill Partners, Northern Drilling and SeaMex.

Except where the context otherwise requires or where otherwise indicated, the terms “Seadrill”, “the Group”, “we”, “us”, “our”, “the Company” and “our Business” refer to either Seadrill Limited, any one or more of its consolidated subsidiaries, or to all such entities, and, for periods before emergence from Chapter 11 Proceedings on July 2, 2018, to Old Seadrill Limited, any one or more of its consolidated subsidiaries, or to all such entities.

References to the term “Successor” refers to the financial position and results of operations of Seadrill after July 2, 2018. This is also applicable to terms “Seadrill”, “the Group”, “we”, “us”, “our”, “the Company” or “our Business” in context of events after emergence from Chapter 11 Proceedings on July 2, 2018. References to the term “the 2018 Successor period” refers to the period from July 2, 2018 to December 31, 2018.

References to the term “Predecessor” refers to the financial position and results of operations of Seadrill prior to, and including, July 1, 2018. This is also applicable to terms “Seadrill”, “the Group”, “we”, “us”, “our”, “the Company” or “our Business” in context of events before emergence from Chapter 11 Proceedings on July 2, 2018. References to the term “the 2018 Predecessor period” refers to the period from January 1, 2018 to July 1, 2018.

Basis of presentation

The Consolidated Financial Statements are presented in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). The amounts are presented in United States dollar (“U.S. dollar”, “$” or “US$”) rounded to the nearest million, unless otherwise stated. The accompanying Consolidated Financial Statements present the financial position of Seadrill Limited, the consolidated subsidiaries and our interests in associated entities. Investments in companies in which we control, or directly or indirectly hold more than 50% of the voting control are consolidated in the Consolidated Financial Statements, as well as certain variable interest entities of which we are deemed to be the primary beneficiary.

The accompanying unaudited interim financial statements, in the opinion of management, include all material 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. 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, 2018 (SEC File No. 333-224459).

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, 2018 except as discussed below or unless otherwise included in these unaudited interim financial statements as separate disclosures.

Leases

We adopted ASU 2016-02, Leases (Topic 842) on January 1, 2019. As a result, we now recognize right-of-use assets and lease liabilities on our balance sheet and disclose key information about leasing arrangements which are included within Note 16—Leases. Refer to Note 2 – Recent Accounting Pronouncements for more information on the adoption of this update and the changes to our accounting policy.

Note 2 – Recent accounting pronouncements

Recently adopted accounting standards

We adopted the following accounting standard updates (“ASUs”) since the reporting date of our Form 20-F report covering the period to December 31, 2018.

 

 

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Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

ASU 2016-02 Leases (also 2018-10, 2018-11, 2018-20, and 2019-01)

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 became effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years using a modified retrospective application.

We transitioned to the new standard using the modified retrospective approach as permitted by the standard. We determined that our drilling contracts contain a lease component as well as a revenue component. We have elected to apply the practical expedient provided to lessors and will not separate the lease and nonlease components within our drilling contracts. We will continue to apply the Topic 606 to our drilling contracts instead of Topic 842 because the nonlease component is the predominant component within our drilling contracts. As a result, our pattern of revenue recognition did not change significantly compared to prior accounting standards due to the adoption of this update.

In addition, within our operating leases, where we are lessees, we elected not to separate nonlease components from lease components and instead we account for each separate lease component and the nonlease components associated with that lease component as a single lease component in accordance with Topic 842. We have also elected not to apply the recognition requirements in Topic 842 to short-term leases, being leases lasting less than one year. Instead, we recognize short-term lease payments in our Consolidated Statement of Operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

We recognized an aggregate lease liability of $25 million and a right-of-use asset of $23 million on adoption on January 1, 2019. There was no impact to our opening retained earnings as a result of adopting this update. Prior period amounts are not adjusted and continue to be reported in accordance with the previous guidance in Topic 840.

Other ASUs

We additionally adopted the following accounting standard updates in the year which did not have any material impact on our Consolidated Financial Statements and related disclosures:

 

 

ASU 2018-07 Compensation—Stock compensation (Topic 718)

 

 

ASU 2018-16 Derivatives and Hedging (Topic 815)

Recently issued accounting standards

The FASB issued the following ASUs that we have not yet adopted but which could affect our Consolidated Financial Statements and related disclosures in future periods:

ASU 2016-13—Financial Instruments—Measurement of Credit Losses on Financial Instruments

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.

We are in the early stage of evaluating the impact of this standard update. Our customers are international oil companies, national oil companies and large independent oil companies. Our financial assets are primarily held with counter parties with high credit standing and we have historically had a low incidence of bad debt expense. Therefore, we do not currently expect this guidance to significantly affect our consolidated financial statements and related disclosures when we adopt it.

ASU 2018-13 Fair Value Measurement—Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The update is intended to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the US GAAP information requirements that are most important to users of an entity’s financial statements. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.

 

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Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

We are in the process of evaluating the impact of this standard update on our consolidated financial statements and related disclosures.

ASU 2018-14 Compensation - Changes to the Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The update is intended to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the US GAAP information requirements that are most important to users of an entity’s financial statements. The guidance will be effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted.

We are in the process of evaluating the impact of this standard update on our consolidated financial statements and related disclosures.

ASU 2018-15 Intangibles

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). The update is intended to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.

We are in the process of evaluating the impact of this standard update on our consolidated financial statements and related disclosures.

ASU 2018-17 Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The update is intended to improve general purpose financial reporting by considering indirect interests held through related parties in common control arrangements on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.

We are in the process of evaluating the impact of this standard update on our consolidated financial statements and related disclosures.

Note 3 – Chapter 11 proceedings and fresh start accounting

On September 12, 2017, Seadrill Limited and certain of its subsidiaries, “the Debtors”, filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. On February 26, 2018, the Debtors filed a proposed Second Amended Joint Chapter 11 Plan of Reorganization with the Bankruptcy Court and on April 17, 2018 the Bankruptcy Court entered an order confirming the Second Amended Joint Chapter 11 Plan (as modified) of Reorganization, as amended and supplemented the “Plan”. For further information on the Plan, please refer to the Seadrill Limited Annual Report on Form 20-F for the year ended December 31, 2018.

The Debtors’ subsequently emerged from bankruptcy on July 2, 2018 following the satisfaction of each of the conditions precedent to the Plan. Although we are no longer a debtor-in-possession, we were a debtor-in-possession for the entire period ended June 30, 2018.

On July 2, 2018, we had 100 million New Seadrill Common Shares outstanding, allocated as set forth below, in accordance with provisions of the Plan and issued on the Effective Date:

 

 

14.25% of the New Common Shares issued to holders of unsecured claims against the Company and certain of its Chapter 11 debtor affiliates;

 

 

23.75% of the New Common Shares issued to participants in the $200 million equity investment under the Plan;

 

 

54.625% of the New Common Shares issued to participants in the $880 million new secured notes investment under the Plan;

 

 

1.9% of the New Common Shares issued to holders of existing common equity interest in the Company as of the Effective Date, an effective exchange ratio of approximately 0.0037345 New Common Shares per each Existing Share, and

 

 

5.475% of the New Common Shares issued as a structuring fee to certain of the new money investors.

 

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Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Fresh start accounting

Upon emergence from bankruptcy, we applied fresh start accounting to our Consolidated Financial Statements in accordance with the provision set forth in ASC852 as (i) the holders of existing voting shares of the Company prior to emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the post-petition liabilities and allowed claims.

We elected to apply fresh start accounting effective July 1, 2018 (the “Convenience Date”), to coincide with the timing of the normal third quarter reporting period, which resulted in Seadrill becoming a new entity for financial reporting purposes. We evaluated and concluded that events between July 1, 2018 and July 2, 2018 were immaterial and that the use of an accounting Convenience Date of July 1, 2018 was appropriate.

The effects of the Plan and the application of fresh start accounting were applied as of July 2, 2018 and the new basis of our assets and liabilities are reflected in our Consolidated Balance Sheet and the related adjustments thereto were recorded in the Consolidated Statement of Operations of the Predecessor as “Reorganization items”. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the Consolidated Financial Statements for the period after July 1, 2018 (the “Successor”) will not be comparable with the Consolidated Financial Statements prior to that date.

The Plan presented on February 26, 2018, and confirmed by the Bankruptcy Court on April 17, 2018, estimated a range of distributable value for the Successor Company of between $10.2 billion and $11.8 billion. We derived the reorganization value based on the mid-point of this range of estimated distributable values. This was approximately $11.0 billion.

Reorganization items

Expenses and income directly associated with the Chapter 11 cases are reported separately in the Consolidated Statement of Operations as “Reorganization items” as required by ASC 852, Reorganizations . This category was used to reflect the net expenses and gains and losses that are the result of the reorganization of the business.

The following table summarizes the components included within reorganization items:

 

    Successor     Predecessor  
(In $ millions)   Three months ended
March 31, 2019
    Three months ended
March 31, 2018
 

Advisory and professional fees

    —         (75

Interest income on surplus cash invested

    —         1  
 

 

 

   

 

 

 

Total reorganization items

    —         (74
 

 

 

   

 

 

 

Advisory and professional fees - Professional and advisory fees incurred for post-petition Chapter 11 expenses. Professional and advisory expenses have been incurred post-emergence but relate to our Chapter 11 filing.

Interest income on surplus cash invested - Interest income recognized on cash held within entities that had filed for Chapter 11.

Note 4 – Segment information

Operating segments

We provide drilling and related services to the offshore oil and gas industry. We have been organized into three operating segments:

 

  1.

Floaters: Services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts relate to semi-submersible rigs and drillships for harsh and benign environments in mid-, deep- and ultra-deep waters;

 

  2.

Jack-ups: Services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts relate to jack-up rigs for operations in harsh and benign environments; and

 

  3.

Other: Operations including management services to third parties and related parties. Income and expenses from these management services are classified under this segment.

Segment results are evaluated on the basis of operating income, and the information given below is based on information used for internal management reporting.

 

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Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Total operating revenue

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Floaters

    181       239  

Jack-ups

    83       104  

Other

    38       21  
 

 

 

   

 

 

 

Total operating revenues

    302       364  
 

 

 

   

 

 

 

Depreciation

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Floaters

    89       149  

Jack-ups

    19       47  
 

 

 

   

 

 

 

Total

    108       196  
 

 

 

   

 

 

 

Amortization of intangibles

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Floaters

    24       —    

Jack-ups

    11       —    
 

 

 

   

 

 

 

Total

    35       —    
 

 

 

   

 

 

 

Operating loss - Net loss

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Floaters

    (87     (61

Jack-ups

    14       (15

Other

    2       2  
 

 

 

   

 

 

 

Operating loss

    (71     (74
 

 

 

   

 

 

 

Unallocated items:

   

Total financial items and other

    (207     (97

Income taxes

    (18     (32
 

 

 

   

 

 

 

Net loss

    (296     (203
 

 

 

   

 

 

 

 

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Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Drilling units - Total assets

 

    Successor     Successor  
(In $ millions)   As at March 31,
2019
    As at December 31,
2018
 

Floaters

    5,434       5,508  

Jack-ups

    1,142       1,151  
 

 

 

   

 

 

 

Total drilling units

    6,576       6,659  
 

 

 

   

 

 

 

Unallocated items:

   

Investments in associated companies

    753       800  

Marketable securities

    36       57  

Cash and restricted cash

    1,902       2,003  

Other assets

    1,280       1,329  
 

 

 

   

 

 

 

Total assets

    10,547       10,848  
 

 

 

   

 

 

 

Drilling units - Capital expenditures (1)

 

    Successor     Predecessor  
(In $ millions)   Three months ended
March 31, 2019
    Three months ended
March 31, 2018
 

Floaters

    17       44  

Jack-ups

    6       12  
 

 

 

   

 

 

 

Total

    23       56  
 

 

 

   

 

 

 

 

(1)

The Successor period includes additions to equipment.

Geographic segment data

Revenues are attributed to geographical segments based on the country of operations for drilling activities, i.e. the country where the revenues are generated. The following information presents our revenues and fixed assets by geographic area:

Revenues

 

    Successor     Predecessor  
(In $ millions)   Three months
ended March 31, 2019
    Three months
ended March 31, 2018
 

Norway

    67       56  

Nigeria

    51       44  

Brazil

    42       101  

Saudi Arabia

    34       39  

United States

    17       15  

Angola

    15       51  

Others (1)

    76       58  
 

 

 

   

 

 

 

Total

    302       364  
 

 

 

   

 

 

 

 

(1)  

Other countries represent countries in which we operate that individually had revenues representing less than 10% of total revenues earned for any of the periods presented.

 

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Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Fixed assets – drilling units (1)

 

    Successor     Successor  
(In $ millions)   As at March 31,
2019
    As at December 31,
2018
 

Norway

    1,301       1,326  

Malaysia

    1,062       1,070  

Spain

    864       875  

Brazil

    679       688  

United States

    650       658  

Other (2)

    2,020       2,042  
 

 

 

   

 

 

 

Total

    6,576       6,659  
 

 

 

   

 

 

 

 

(1)  

The countries in this table represent the location of the drilling unit at the end of the reporting period and are not necessarily indicative of the geographic distribution of the revenues or operating profits generated by the assets during the period. In most cases these locations are different to the country in which the Company that owns the drilling unit is registered.

(2)  

“Other countries” represent countries in which we operate that individually had fixed assets representing less than 10% of total fixed assets for any of the periods presented.

Major Customers

We had the following customers with contract revenues greater than 10% in any of the periods presented:

 

(In $ millions)   Successor     Predecessor  
  Three months
ended March 31,
2019
    Three months
ended March 31,
2018
 

Total

    25     18

ConocoPhillips

    15     10

Petrobras

    15     27

Equinor

    14     6

Saudi Aramco

    13     12

ExxonMobil

        11

Note 5 – Revenue from Contracts with Customers

The following table provides information about receivables, contract assets and contract liabilities from our contracts with customers:

 

    Successor     Successor  
(In $ millions)   As at March 31,
2019
    As at December 31,
2018
 

Accounts receivable, net

    217       208  

Current contract assets (1)

    2       1  

Non-current contract assets (1)

    —         —    

Current contract liabilities (deferred revenue) (1)

    (33     (12

Non-current contract liabilities (deferred revenue) (1)

    (7     (9

 

(1)  

Current contract assets and liabilities balances are included in “other current assets” and “other current liabilities,” respectively in our unaudited Consolidated Balance Sheet.

 

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Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Significant changes in the contract assets and the contract liabilities balances during the three months ended March 31, 2018 (Predecessor) are as follows:

 

(In $ millions)    Net Contract
Balances
 

Contract assets at January 1, 2018 (Predecessor)

     7  

Contract liabilities at January 1, 2018 (Predecessor)

     (55
  

 

 

 

Net contract liability at January 1, 2018 (Predecessor)

     (48
  

 

 

 

Amortization of revenue that was included in the beginning contract liability balance

     25  

Cash received, excluding amounts recognized as revenue

     (12

Cash received against the beginning contract asset balance

     (7
  

 

 

 

Net contract liability at March 31, 2018 (Predecessor)

     (42
  

 

 

 

Contract assets at March 31, 2018 (Predecessor)

     —    

Contract liabilities at March 31, 2018 (Predecessor)

     (42

Significant changes in the contract assets and the contract liabilities balances during the three months ended March 31, 2019 (Successor) are as follows:

 

(In $ millions)    Net Contract
Balances
 

Contract assets at January 1, 2019 (Successor)

     1  

Contract liabilities at January 1, 2019 (Successor)

     (21
  

 

 

 

Net contract liability at January 1, 2019 (Successor)

     (20
  

 

 

 

Amortization of revenue that was included in the beginning contract liability balance

     5  

Cash received, excluding amounts recognized as revenue

     (24

Cash received against the beginning contract asset balance

     (1

Contract assets recognized during the period

     2  
  

 

 

 

Net contract liability at March 31, 2019 (Successor)

     (38
  

 

 

 

Contract assets at March 31, 2019 (Successor)

     2  

Contract liabilities at March 31, 2019 (Successor)

     (40

Certain direct and incremental costs that are expected to be recovered, relate directly to a contract, and enhance resources that will be used in satisfying our performance obligations in the future. Such costs are deferred and amortized ratably to contract drilling expense as services are rendered over the initial term of the related drilling contract.

Deferred contract costs during the three months ended March 31, 2018 (Predecessor) were as follows:

 

(In $ millions)    Net deferred
contract costs
 

As at January 1, 2018 (Predecessor)

     20  
  

 

 

 

Additional deferred contract costs

     —    

Amortization of deferred contract costs

     (6
  

 

 

 

As at March 31, 2018 (Predecessor)

     14  
  

 

 

 

Deferred contract costs during the three months ended March 31, 2019 (Successor) were as follows:

 

(In $ millions)    Net deferred
contract costs
 

As at January 1, 2019 (Successor)

     15  
  

 

 

 

Additional deferred contract costs

     9  

Amortization of deferred contract costs

     (11
  

 

 

 

As at March 31, 2019 (Successor)

     13  
  

 

 

 

 

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Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the demobilization process. Costs incurred for rig modifications or upgrades required for a contract, which are considered to be capital improvements, are capitalized as drilling and other property and equipment and depreciated over the estimated useful life of the improvement. Refer to Note 13 – Drilling units for more information.

Deferred revenue - The deferred revenue balance of $33 million reported in “Other current liabilities” at March 31, 2019 (Successor) is expected to be realized within the next twelve months and $7 million reported in “Other non-current liabilities” is expected to be realized within the following next twelve months. The deferred revenue included above consists primarily of mobilization and upgrade revenue for both wholly and partially unsatisfied performance obligations as well as expected variable mobilization and upgrade revenue for partially unsatisfied performance obligations, which has been estimated for purposes of allocating across the entire corresponding performance obligations. The amounts are derived from the specific terms within drilling contracts that contain such provisions, and the expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract based on information known at March 31, 2019. The actual timing of recognition of such amounts may vary due to factors outside of our control.

Practical expedient - We have applied the disclosure practical expedient in ASC 606-10-50-14A(b) and have not included estimated variable consideration related to wholly unsatisfied performance obligations or to distinct future time increments within our contracts, including dayrate revenue. The duration of our performance obligations varies by contract.

Note 6 – Taxation

Income tax expense for the three months ended March 31, 2019 was $18 million (three months ended March 31, 2018: $32 million).

Seadrill Limited is incorporated in Bermuda, where a tax exemption has been granted until 2035. Other jurisdictions in which Seadrill’s subsidiaries operate are taxable based on rig operations. A loss in one jurisdiction may not be offset against taxable income in other jurisdictions. Thus, we may pay tax within some jurisdictions even though we might have losses in others.

Tax authorities in certain jurisdictions examine our tax returns and some have issued assessments. We are defending our tax positions in those jurisdictions.

The Brazilian tax authorities have issued a series of assessments with respect to our returns for certain years up to 2012 for an aggregate amount equivalent to $161 million including interest and penalties. The relevant group companies are robustly contesting these assessments including filing relevant appeals. An adverse outcome on these proposed assessments could result in a material adverse impact on our Consolidated Balance Sheet, Statement of Operations or Statement of Cash Flow. On May 6, 2019, we received notice that we would need to post approximately $81 million of collateral with a financial institution in order to continue with our appeal against certain years. We expect to make this payment on or before May 26, 2019.

The Nigerian tax authorities have issued a series of claims and assessments both directly and lodged through the Chapter 11 process with respect to returns for subsidiaries for certain years up to 2016 for an aggregate amount equivalent to $171 million. The relevant group companies are robustly contesting these assessments including filing relevant appeals in Nigeria and it is also intended that one or more formal objections against these claims for distribution purposes may be filed in the US court. An adverse outcome on these proposed assessments could result in a material adverse impact on our Consolidated Balance Sheet, Statement of Operations or Statement of Cash Flow.

Note 7 – Loss per share

The computation of basic (loss)/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 were as follows:

 

    Successor     Predecessor  
(In $ millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Net loss attributable to parent

    (295     (181

Effect of dilution

    —          
 

 

 

   

 

 

 

Diluted net loss available to stockholders

    (295     (181
 

 

 

   

 

 

 

 

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Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

    Successor     Predecessor  
(In millions)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Basic earnings per share:

     

Weighted average number of common shares outstanding

    100       504  

Diluted earnings per share:

     

Effect of dilution

    —         —    
 

 

 

   

 

 

 

Weighted average number of common shares outstanding adjusted for the effects of dilution

    100       504  
 

 

 

   

 

 

 

The basic and diluted loss per share were as follows:

 

    Successor     Predecessor  
(In $)   Three Months
Ended March 31,
2019
    Three Months
Ended March 31,
2018
 

Basic loss per share

    (2.95     (0.36

Diluted loss per share

    (2.95     (0.36

Note 8 – Restricted cash

Restricted cash as at March 31, 2019 (Successor) and December 31, 2018 (Successor) was as follows:

 

    Successor     Successor  
(In $ millions)   As at March 31,
2019
    As at December 31,
2018
 

Funding Escrow for NSN (1)

    296       328  

Cash pledged as collateral (2)

    101       101  

Other

    31       32  
 

 

 

   

 

 

 

Total restricted cash

    428       461  
 

 

 

   

 

 

 

 

(1)  

Comprised of (i) $231 million of initial proceeds from issuing the notes plus interest income, (ii) $55 million deferred consideration received from Sapura Energy and (iii) $43 million shareholder loan repayment from Seabras Sapura offset by (iv) $33 million of restricted cash repaid in January 2019 to the holders of the secured notes for accrued payment-in-kind interest.

(2)  

Comprised of amounts held as collateral against bank guarantees.

Note 9 – Marketable securities

We hold investments in certain marketable securities which we record at fair value and recognize any changes directly in net income. The below table shows the carrying value of our investments in marketable securities for periods presented in this report.

 

    Successor     Successor  
(In $ millions)   As at March 31,
2019
    As at December
31, 2018
 

Seadrill Partners - Common units

    22       45  

Archer

    14       12  
 

 

 

   

 

 

 

Total marketable securities

    36       57  
 

 

 

   

 

 

 

 

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Table of Contents

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The below table shows the gain and losses recognized through net income for the periods presented in this report since the adoption of ASU 2016-01.

 

    Successor     Predecessor  
(In $ millions)   Three months
ended March 31,
2019
    Three months
ended March 31,
2018
 

Seadrill Partners Common Units - unrealized loss on marketable securities

    (23     (24

Archer - unrealized gain/(loss) on marketable securities

    2       (4
 

 

 

   

 

 

 

Total unrealized loss on marketable securities

    (21     (28
 

 

 

   

 

 

 

Note 10 – Accounts receivable

Accounts receivable are held at their nominal amount less an allowance for doubtful amounts. Doubtful amounts are recognized when it is unlikely that required payments of specific amounts will occur as a result of the financial condition of the customer. As at March 31, 2019 (Successor) we had no allowances for doubtful accounts netted against our accounts receivable (December 31, 2018 (Successor): nil).

We recognized no bad debt expense for the three months ended March 31, 2019 (Successor) (three months ended March 31, 2018 (Predecessor): nil).

Note 11 - Other Assets

As at March 31, 2019 (Successor) and December 31, 2018 (Successor), we had the following other asset balances.

 

    Successor     Successor  
(In $ millions)   As at March 31,
2019
    As at December
31, 2018
 

Favorable contracts to be amortized

    142       186  

Taxes receivable

    42       50  

Prepaid Expenses

    35       32  

Right of use asset

    25        

Reimbursable amounts due from customers

    16       10  

Deferred contract costs

    13       15  

Derivative asset - Interest rate cap

    12       39  

Other

    32       26  
 

 

 

   

 

 

 

Total other assets

    317       358  
 

 

 

   

 

 

 

In January 2019, there was a loss incident on the Sevan Louisiana related to a malfunction of its subsea equipment. We incurred $10 million of costs to repair the equipment, of which $9 million will be recoverable under our physical damage insurance. As such, we have recognized this insurance receivable within ‘Other assets’ in our Consolidated Balance Sheet as at March 31, 2019. This was categorized within “Other” in the above table.

Other assets were presented in our Consolidated Balance Sheet as follows:

 

    Successor     Successor  
(In $ millions)   As at March 31,
2019
    As at December 31,
2018
 

Other current assets

    302       322  

Other non-current assets

    15       36  
 

 

 

   

 

 

 

Total other assets

    317       358  
 

 

 

   

 

 

 

 

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Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 12 – Investment in associated companies

As at March 31, 2019 (Successor) and December 31, 2018 (Successor), the carrying values of our investments in associated companies were as follows.

 

     Successor     Successor  
(In $ millions)    As at March 31,
2019
    As at December 31,
2018
 

Seabras Sapura Participacoes S.A

     9       8  

Seabras Sapura Holding GmbH

     72       69  

Seabras Sapura Holding GmbH - Shareholder loans (1)

     132       132  

Seadrill Partners - Total direct ownership interests

     442       479  

Seadrill Partners - Subordinated units

     11       17  

Seadrill Partners - Seadrill Limited member interest and IDRs (1)

     54       54  

SeaMex Ltd

     33       41  
  

 

 

   

 

 

 

Total investment in associated companies

     753       800  
  

 

 

   

 

 

 

 

(1)  

These balances are recorded at cost less impairment as (i) they do not represent common stock interests and (ii) their fair values are not readily determinable.

Note 13 – Drilling units

The following table summarizes the movement for the three months ended March 31, 2018 (Predecessor).

 

(In $ millions)    Cost      Accumulated
depreciation
     Net book value  

As at January 1, 2018 (Predecessor)

     17,335        (4,119      13,216  

Additions

     56        —          56  

Depreciation

     —          (195      (195
  

 

 

    

 

 

    

 

 

 

As at March 31, 2018 (Predecessor)

     17,391        (4,314      13,077  
  

 

 

    

 

 

    

 

 

 

The following table summarizes the movement for the three months ended March 31, 2019 (Successor)

 

(In $ millions)    Cost      Accumulated
depreciation
     Net book value  

As at January 1, 2019 (Successor)

     6,890        (231      6,659  

Additions

     22        —          22  

Depreciation

     —          (105      (105
  

 

 

    

 

 

    

 

 

 

As at March 31, 2019 (Successor)

     6,912        (336      6,576  
  

 

 

    

 

 

    

 

 

 

Note 14 – Equipment

Equipment consists of office equipment, software, furniture and fittings.

The following table summarizes the movement for the three months ended March 31, 2018 (Predecessor).

 

(In $ millions)    Cost      Accumulated
depreciation
     Net book value  

As at January 1, 2018 (Predecessor)

     84        (55      29  

Additions

     3        —          3  

Depreciation

     —          (1      (1
  

 

 

    

 

 

    

 

 

 

As at March 31, 2018 (Predecessor)

     87        (56      31  
  

 

 

    

 

 

    

 

 

 

 

F-19


Table of Contents

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The following table summarizes the movement for the three months ended March 31, 2019 (Successor)

 

(In $ millions)    Cost      Accumulated
depreciation
     Net book value  

As at January 1, 2019 (Successor)

     34        (5      29  

Additions

     1        —          1  

Depreciation

     —          (3      (3
  

 

 

    

 

 

    

 

 

 

As at March 31, 2019 (Successor)

     35        (8      27  
  

 

 

    

 

 

    

 

 

 

Note 15 – Other Liabilities

As at March 31, 2019 (Successor) and December 31, 2018 (Successor), we had the following other liability balances.

 

     Successor      Successor  
(In $ millions)    As at March 31,
2019
     As at December 31,
2018
 

Taxes payable

     34        42  

Deferred mobilization revenues

     40        21  

Unfavorable contracts to be amortized

     18        27  

Employee withheld taxes, social security and vacation payments

     35        40  

Accrued interest expense

     36        61  

Accrued expenses

     104        107  

Lease liabilities

     23         

Uncertain tax positions

     122        100  

Other liabilities

     30        33  
  

 

 

    

 

 

 

Total Other Liabilities

     442        431  
  

 

 

    

 

 

 

Other liabilities were presented in our Consolidated Balance Sheet as follows:

 

     Successor      Successor  
(In $ millions)    As at March 31,
2019
     As at December 31,
2018
 

Other current liabilities

     287        310  

Other non-current liabilities

     155        121  
  

 

 

    

 

 

 

Total Other Liabilities

     442        431  
  

 

 

    

 

 

 

Note 16 – Leases

We have operating leases relating to our premises, the most significant being our offices in London, Liverpool, Oslo, Stavanger, Singapore, Houston, Rio de Janeiro and Dubai. Rent expense for the three months ended March 31, 2019 (Successor) was $3 million and for the three months ended March 31, 2018 (Predecessor), was $5 million.

Below are the significant assumptions and judgments we applied to account for our leases in accordance with Topic 842.

 

  1.

We apply judgment in determination whether a contract contains a lease or a lease component as defined by Topic 842.

 

  2.

We have elected to combine leases and non-lease components. As a result, we do not allocate our consideration between leases and non-lease components.

 

  3.

The discount rate applied to our operating leases is our incremental borrowing rate. We estimated our incremental borrowing rate based on the rate for our traded debt.

 

  4.

Within the terms and conditions of some of our operating leases we have options to extend or terminate the lease. In instances where we are reasonably certain to exercise available options to extend or terminate, then the option was included in determining the appropriate lease term to apply. Options to renew our lease terms are included in determining the right-of-use asset and lease liability when it is reasonably certain that we will exercise that option.

 

F-20


Table of Contents

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

For operating leases where we are the lessee, our future undiscounted cash flows are as follows:

 

     Successor  
(In $ millions)    Year ended March 31,  

2020

     10  

2021

     8  

2022

     8  

2023

     4  

2024 and thereafter

     2  
  

 

 

 

Total

     32  
  

 

 

 

The following table gives a reconciliation between the undiscounted cash flows and the related operating lease liability recognized in our Consolidated Balance Sheet as at March 31, 2019:

 

     Successor  
(In $ millions)    As at March 31,
2019
 

Total undiscounted cash flows

     32  

Less short term leases

     (2

Less discount

     (7
  

 

 

 

Operating lease liability

     23  
  

 

 

 

Of which:

  

Current

     7  

Non-current

     16  

The following table gives supplementary information regarding our lease accounting at March 31, 2019:

 

     Successor  
(In $ million)    Three Months Ended
March 31, 2019
 

Operating Lease Cost:

  

Operating lease cost

     2  

Short-term lease cost

     1  
  

 

 

 

Total Lease cost

     3  
  

 

 

 

Other information:

  

Cash paid for amounts included in the measurement of lease liabilities- Operating Cash flows

     3  

Right-of-use assets obtained in exchange for operating lease liabilities during the period

     1  

Weighted-average remaining lease term in months

     46  

Weighted-average discount rate

     13

We also have operating subleases, where we are the lessor, relating to some of our premises. The most significant subleases being our offices in Stavanger and Houston. We do not expect to derive further value from the subleased portion of our right-of-use assets following the end of the sublease term. These subleases do not include variable payments, and do not include options for a lessee to purchase the underlying asset. We do not allocate lease consideration between lease and non-lease components because we have elected not to separate lease and non-lease components for our operating leases where Seadrill is the lessor.

 

F-21


Table of Contents

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

For our operating subleases, the future undiscounted cash flows are as follows:

 

     Successor  
(In $ millions)    Year ended March 31,  

2020

     1  

2021

     1  

2022

     1  

2023

     —    

2024 and thereafter

     —    
  

 

 

 

Total

     3  
  

 

 

 

Note 17 – Debt

As at March 31, 2019 (Successor) and December 31, 2018 (Successor), we had the following liabilities for third party debt agreements:

 

     Successor      Successor  
(In $ millions)    As at March 31,
2019
     As at December
31, 2018
 

Secured credit facilities

     5,662        5,662  

New secured notes

     769        769  

Credit facilities contained within variable interest entities

     651        655  
  

 

 

    

 

 

 

Total debt principal

     7,082        7,086  

Less: debt discount and fees

     (163      (172
  

 

 

    

 

 

 

Carrying value

     6,919        6,914  
  

 

 

    

 

 

 

This was presented in our Consolidated Balance Sheet as follows:

 

     Successor      Successor  
(In $ millions)    As at March 31,
2019
     As at December 31,
2018
 

Debt due within one year

     416        33  

Long-term debt

     6,503        6,881  
  

 

 

    

 

 

 

Total debt principal

     6,919        6,914  
  

 

 

    

 

 

 

Key changes to borrowing facilities

Tender Offer for secured notes

In March 2019, we launched a tender offer for our New Secured Notes. Following the completion of the offer, in April 2019, we re-purchased $311 million of New Secured Note at a price of 107. As such we have reclassified $311 million of notes from non-current to current on the Consolidated Balance Sheet.

Collateral

Our credit facilities are secured by, among other things, liens on our drilling units. Our credit facility agreements contain cross-default provisions, meaning that if we defaulted and amounts became due and payable under one of our credit agreements, this would trigger a cross-default in our other facilities so that amounts outstanding under our other credit facility agreements become due and payable and capable of being accelerated.

 

F-22


Table of Contents

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Debt maturities

The outstanding debt as at March 31, 2019 is repayable as follows:

 

     Successor  
(In $ millions)    Year ended
March 31,
 

2020

     416  

2021

     474  

2022

     569  

2023

     1,574  

2024

     1,716  

2025 and thereafter

     2,333  
  

 

 

 

Total debt principal (1) (2)

     7,082  
  

 

 

 

 

(1)

Debt principal repayments, excluding cash and payment-in-kind interest.

(2)

The above table assumes that we will make amortization payments on our secured credit facilities from 2020. Per the terms of our senior secured credit facilities, we can elect to defer up to $500 million of such amortization payments until 2021 through the initiation of new loans.

Note 18 – Common shares

Share capital for the three months ended March 31, 2019 (Successor) and March 31, 2018 (Predecessor) was as follows:

 

     Issued and fully paid share
capital $0.10 par value each
     Issued and fully paid share
capital $2.00 par value each
     Treasury shares held by
the Company - $2.00 par
value each
 
     Shares      $ millions      Shares      $ millions      Shares     $ millions  

At January 1, 2018 and March 31, 2018 (Predecessor)

     —          —          508,763,020        1,017        (4,244,080     (9
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

At January 1, 2019 and March 31, 2019 (Successor)

     100,000,000        10        —          —          —         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Note 19 – Non-controlling interest

Changes in non-controlling interest for the period from January 1, 2018 (Predecessor) through to March 31, 2018 (Predecessor) were as follows:

 

(In $ millions)

   North
Atlantic
Drilling Ltd
    Sevan
Drilling
Limited
    Asia
Offshore
Drilling
Ltd
     Ship Finance
International
Ltd VIEs
    Seadrill
Nigeria
Operations
Limited
     Total  

As at January 1, 2018 (Predecessor)

     76       226       149        (59     7        399  

Adoption of new accounting standard ASU 2016-16 - Income Taxes

     (25     —         —          —         —          (25

Net income attributable to non-controlling interest

     (17     (10     —          4       1        (22
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

As at March 31, 2018 (Predecessor)

     34       216       149        (55     8        352  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

F-23


Table of Contents

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Changes in non-controlling interest for the period from December 31, 2018 (Successor) through to March 31, 2019 (Successor) were as follows:

 

(In $ millions)

   Ship
Finance
International
Ltd VIEs
     Seadrill
Nigeria
Operations
Limited
     Total  

As at December 31, 2018 (Successor)

     145        7        152  
  

 

 

    

 

 

    

 

 

 

Net income attributable to non-controlling interest

     —          —          —    
  

 

 

    

 

 

    

 

 

 

As at March 31, 2019 (Successor)

     145        7        152  
  

 

 

    

 

 

    

 

 

 

Note 20 – Redeemable non-controlling interest

Changes in redeemable non-controlling interest for the period from December 31, 2018 to March 31, 2019 are set out in the table below.

 

(In $ millions)    Asia Offshore
Drilling Ltd
 

As at December 31, 2018 (Successor)

     38  

Net loss attributable to redeemable non-controlling interest in the period

     (1

Fair value adjustment

     1  
  

 

 

 

As at March 31, 2019 (Successor)

     38  
  

 

 

 

On April 4, 2018, the Predecessor executed a Transaction Support Agreement (“TSA”) with a minority shareholder of one of Seadrill Limited’s subsidiaries, Asia Offshore Drilling Limited (“AOD”). The TSA provided a put option to the holders of non-controlling interest shares. The put option may be exercised from October 1, 2019 until September 30, 2020.

The put option gave the holders the right (with no obligation) to sell the shares it owns to Seadrill subject to a price ceiling. After the end of the effective period of the put option, if the right remains unexercised, Seadrill gets the right (with no obligation) to purchase the non-controlling interest in AOD at a price subject to the floor price (“Call Option”). The call option may be exercised from October 1, 2020 until March 31, 2021. While the Call Option provides for a redemption mechanism, the redemption option is made by Seadrill. The put option, however, generates a redemption feature for the non-controlling interest holder that is outside the control of Seadrill.

The redemption feature caused the non-controlling interest held in AOD to be reclassified from equity to “Redeemable non-controlling interest” within the Consolidated Balance Sheet. We record the redeemable non-controlling interest at fair value. Any fair value adjustment to generate an expected redemption value has been recognized through retained earnings.

Note 21 – Accumulated other comprehensive income / (loss)

Accumulated other comprehensive income as at March 31, 2019 (Successor) and December 31, 2018 (Successor) was as follows:

 

(In $ millions)    Unrealized
gain on
marketable
securities
    Unrealized
gain on
foreign
exchange
     Actuarial
(loss) /
gain
relating to
pension
    Share in
unrealized
gain from
associated
companies
    Change in
unrealized
gain on
interest
rate swaps

in VIEs
     Change in
debt
component
on Archer
facility
    Total  

As at December 31, 2017 (Predecessor)

     31       36        (26     15       2        —         58  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Adoption of new accounting standard ASU 2016-01 - Financial Instruments

     (31     —          —         —         —          —         (31

Other comprehensive income

     —         —          —         9       —          —         9  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

As at March 31, 2018 (Predecessor)

     —         36        (26     24       2        —         36  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

As at December 31, 2018 (Successor)

     —         —          1       (5     —          (3     (7
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive income

     —         —          —         (4     —          5       1  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

As at March 31, 2019 (Successor)

     —         —          1       (9     —          2       (6
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

F-24


Table of Contents

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Effective January 1, 2018, we adopted ASU 2016-01, which applies to equity investments that are neither (i) accounted for under the equity method or (ii) result in consolidation. Under ASU 2016-01 we record such investments at fair value and recognize any changes directly in net income, unless there is no readily ascertainable fair value, in which case we record the investment at cost less impairment. For fiscal periods beginning prior to January 1, 2018, marketable securities not accounted for under the equity method were classified as available-for-sale. Unrealized gains and losses on equity securities classified as available-for-sale were recognized in other comprehensive income. When we adopted ASU 2016-01 on January 1, 2018, we reclassified $31 million of previously recognized fair value gains from accumulated other comprehensive income to retained earnings.

Income taxes associated with each component of other comprehensive income were nil for the three months ended March 31, 2019 (Successor) (March 31, 2018 (Predecessor): nil).

Note 22 – Risk management and financial instruments

We are exposed to several market risks, including credit risk, foreign currency risk and interest rate risk. Our policy is to reduce our exposure to these risks, where possible, within boundaries deemed appropriate by our management team. This may include the use of derivative instruments.

Credit risk

We have financial assets, including cash and cash equivalents, marketable securities, other receivables and certain amounts receivable on derivative instruments. These assets expose us to credit risk arising from possible default by the counterparty. Most of the counterparties are creditworthy financial institutions or large oil and gas companies. We do not expect any significant loss to result from non-performance by such counterparties.

We do not demand collateral in the normal course of business. The credit exposure of derivative financial instruments 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, adjusted for counterparty non-performance credit risk assumptions. It is our policy to enter into master netting agreements with the counterparties to derivative financial instrument contracts, which give us the legal right to discharge all or a portion of amounts owed to a counterparty by offsetting them against amounts that the counterparty owes to us.

Concentration of risk

There is a concentration of credit risk with respect to cash and cash equivalents to the extent that most of the amounts are carried with Citibank, Nordea Bank Finland Plc, Danske Bank A/S, BNP Paribas and ING Bank N.V. We consider these risks to be remote. We also have a concentration of risk with respect to customers. For details on the customers with greater than 10% of contract revenues, refer to Note 4 - Segment information.

Foreign exchange risk

As is customary in the oil and gas industry, most of our revenues and expenses are denominated in U.S. dollars, which is the functional currency of most of our subsidiaries and equity method investees. However, a portion of the revenues and expenses of certain of our subsidiaries and equity method investees are denominated in other currencies. We are therefore exposed to foreign exchange gains and losses that may arise on the revaluation or settlement of monetary balances denominated in foreign currencies.

Our foreign exchange exposure primarily relates to foreign denominated cash and working capital balances. We do not expect these exposures to cause a significant amount of fluctuation in net income and therefore do not currently hedge them. Further, the effect of fluctuations in currency exchange rates caused by our international operations generally has not had a material impact on our overall operating results.

Interest rate risk

Our exposure to interest rate risk relates mainly to our floating rate debt and balances of surplus funds placed with financial institutions. We manage this risk through the use of derivative arrangements. We have set out our exposure to interest rate risk on our net debt obligations at March 31, 2019 in the table below:

 

(In $ millions)    Principal
outstanding
     Hedging
instruments
- see below
     Net exposure      Impact of 1%
increase in rates -
see below
 

Senior Credit Facilities

     5,662        4,500        1,162        24  

Debt contained within VIEs

     651        —          651        6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total floating rate debt obligations

     6,313        4,500        1,813        30  

New Secured Notes

     769        —          —          —    

Less: Cash and Restricted Cash

     (1,902      —          (1,902      (19
  

 

 

    

 

 

    

 

 

    

 

 

 

Net debt

     5,180        4,500        (89      11  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

F-25


Table of Contents

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

On May 11, 2018, we purchased an interest rate cap for $68 million to mitigate our exposure to future increases in LIBOR on our Senior Credit Facility debt. The interest rate cap is not designated as a hedge and we do not apply hedge accounting. The capped rate against the 3-month US LIBOR is 2.87% and covers the period from June 15, 2018 to June 15, 2023.

The LIBOR rate applied on our debt at March 31, 2019 was 2.60%. Therefore, the interest cap would mitigate the impact of 73% of a theoretical 1% point increase in the LIBOR rate. This is set out in the below table.

 

(In $ millions)    Amount      Impact of 1%
point increase in
rates (before
impact of interest
rate cap)
     Less: impact of
LIBOR CAP
     Impact of 1%
point increase in
rates (after impact
of interest

rate cap)
 

Senior Credit Facility debt - hedged

     4,500        45        (33      12  

Senior Credit Facility debt - not hedged

     1,162        12        —          12  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Senior Credit Facility Debt

     5,662        57        (33      24  
  

 

 

    

 

 

    

 

 

    

 

 

 

One of the Ship Finance subsidiaries that we consolidate as a VIE (refer to Note 23– Variable Interest Entities (VIEs)) previously entered into interest rate swaps 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 matured on December 31, 2018.

Gains and losses on derivatives reported in Consolidated Statement of Operations

Gains and losses on derivatives reported in our Consolidated Statement of Operations included the following:

 

(In $ millions)   Successor     Predecessor  
(Loss)/gain recognized in the Consolidated Statement of Operations relating to
derivative financial instruments
  Three months ended
March 31, 2019
    Three months
ended March 31,

2018
 

Interest rate cap agreement

    (27     —    

Archer convertible debt instrument

    —         (3
 

 

 

   

 

 

 

Loss on derivative financial instruments

    (27     (3
 

 

 

   

 

 

 

Interest rate cap - This represents changes in fair value on our interest rate cap agreement referred above.

Archer convertible debt instrument - This represents gains and losses on the conversion option included within a $45 million convertible bond issued to us by Archer. Please see Note 24 – Related party transactions for further details.

Derivative financial instruments included in our Consolidated Balance Sheet

Derivative financial instruments included in our Consolidated Balance Sheet, within “Other Assets” included the following:

 

(In $ millions)    Maturity
date
     Applicable rate      Outstanding
principal -
March 31,
2019
     As at
March 31,
2019
     As at
December 31,
2018
 

Interest rate cap

     June 2023        2.87% LIBOR cap        4,500        12        39  
           

 

 

    

 

 

 
              12        39  
           

 

 

    

 

 

 

 

F-26


Table of Contents

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Fair values of financial instruments

Fair value of financial instruments measured at amortized cost

The carrying value and estimated fair value of our financial instruments that are measured at amortized cost at March 31, 2019 and December 31, 2018 are as follows:

 

     Successor      Successor  
     As at March 31, 2019      As at December 31, 2018  
(In $ millions)    Fair
value
     Carrying
value
     Fair
value
     Carrying
value
 

Assets

           

Related party loans receivable (1) (Level 2)

     480        480        476        476  

Liabilities

           

Secured credit facilities (Level 2)

     5,557        5,527        5,388        5,519  

Credit facilities contained within variable interest entities (Level 2)

     626        623        612        626  

New secured notes (Level 1)

     792        769        770        769  

Related party loans payable by the VIE (Level 2)

     224        230        222        226  

 

(1)

Excludes Archer convertible debt receivable, which is measured at fair value on a recurring basis

Level 1

The fair value of the secured notes were derived using market traded value. We have categorized this at level 1 on the fair value measurement hierarchy. Refer to Note 17 – Debt for further information.

Level 2

Upon the adoption of fresh start accounting, the related party loans receivable from Seadrill Partners, SeaMex and Seabras Sapura were recorded at fair value. We estimated that the fair value continues to be equal to the carrying value as at March 31, 2019 as the debt is not freely tradable and cannot be recalled by us at prices other than specified in the loan note agreements and the loans were entered into at market rates. They are categorized as level 2 on the fair value measurement hierarchy. Other trading balances with related parties are not shown in the table above and are covered under Note 24 – Related party transactions. The fair value of other trading balances with related parties are also assumed to be equal to their carrying value.

The fair value of the secured credit facilities and Ship Finance loans were derived using the discounted cash flow model, using a cost of debt of 6%.

The fair value of the loans provided by Ship Finance to our VIE’s were derived using the discounted cash flow model, using a cost of debt of 11%. We have categorized this at level 2 on the fair value measurement hierarchy. Refer to Note 24 – Related party transactions for further information.

Financial instruments measured at fair value on a recurring basis

The carrying value and estimated fair value of our financial instruments that are measured at fair value on a recurring basis at March 31, 2019 (Successor) and December 31, 2018 (Successor) are as follows:

 

     Successor      Successor  
     As at March 31, 2019      As at December 31, 2018  
(In $ millions)   

Fair

value

    

Carrying

value

    

Fair

value

    

Carrying

value

 

Assets

           

Cash and cash equivalents (Level 1)

     1,474        1,474        1,542        1,542  

Restricted cash (Level 1)

     428        428        461        461  

Marketable securities (Level 1)

     36        36        57        57  

Related party loans receivable - Archer convertible debt (Level 3)

     48        48        43        43  

Interest rate cap (Level 2)

     12        12        39        39  

Temporary equity

           

Redeemable non-controlling interest (Level 3)

     38        38        38        38  

 

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Table of Contents

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Level 1

The carrying value of cash and cash equivalents and restricted cash, which are highly liquid, was a reasonable estimate of fair value and categorized at level 1 on the fair value measurement hierarchy. Quoted market prices were used to estimate the fair value of marketable securities, which were valued at fair value on a recurring basis.

Level 2

The fair value of the interest rate cap as at March 31, 2019 was calculated using well-established independent valuation techniques and counterparty non-performance credit risk assumptions. We have categorized these transactions as level 2 on the fair value measurement hierarchy.

Level 3

The Archer convertible debt instrument is bifurcated into two elements. The fair value of the embedded derivative option was calculated using a modified version of the Black-Scholes formula for a currency translated option. Assumptions include Archer’s share price in NOK, NOK/USD FX volatility and dividend yield. The fair value of the debt component was derived using the discounted cash flow model including assumptions relating to cost of debt and credit risk associated to the instrument.

The redeemable non-controlling interest in AOD was calculated by applying a fair value to the three AOD rigs and debt facility using a discounted cash flow model. The rig values were determined using an income approach based on projected future dayrates, contract probabilities, economic utilization, capital and operating expenditures, applicable tax rates and asset lives, discounted using a weighted average cost of capital of 11%. The fair value of the debt was derived using the discounted cash flow model, using a cost of debt of 6%.

Note 23 – Variable Interest Entities (VIEs)

The assets and liabilities in the financial statements of the VIEs as at March 31, 2019 (Successor) and as at December 31, 2018 (Successor) are as follows:

 

     Successor      Successor  
     As at March 31, 2019      As at December 31, 2018  

(In $ millions)
   SFL
Deepwater
Limited
     SFL
Hercules
Limited
     SFL
Linus
Limited
     SFL
Deepwater
Limited
     SFL
Hercules
Limited
     SFL
Linus
Limited
 
Name of unit    West
Taurus
     West
Hercules
     West
Linus
     West
Taurus
     West
Hercules
     West
Linus
 

Investment in finance lease

     317        305        389        320        307        397  

Other assets (1)

     4        2        4        2        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets of the VIEs

     321        307        393        322        307        397  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Short-term interest bearing debt

     16        12        13        16        8        9  

Long-term interest bearing debt

     175        189        218        179        193        221  

Other liabilities

     2        —          —          2        —          —    

Short-term amounts due to related parties

     —          9        15        —          10        21  

Long-term debt due to related parties (2)

     87        63        77        84        62        76  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities of the VIEs

     280        273        323        281        273        327  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity of the VIEs

     41        34        70        41        34        70  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Book value of units in the Company’s consolidated financial statements

     282        335        193        286        343        194  

 

(1)  

Includes cash balance of $10 million as at March 31, 2019 (Successor) (December 31, 2018 (Successor): $2 million). These have been consolidated into the Consolidated Balance Sheet within “Cash and cash equivalents”.

 

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Table of Contents

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

(2)  

We present balances due to/from Ship Finance on a net basis, due to the fact that there is a right to offset established in the long-term loan agreements, and the balances are intended to be settled on a net basis as shown in the table below:

 

     Successor     Successor  
(In $ millions)    As at March 31, 2019     As at December 31, 2018  
     SFL
Deepwater
Limited
    SFL
Hercules
Limited
    SFL
Linus
Limited
    SFL
Deepwater
Limited
    SFL
Hercules
Limited
    SFL
Linus
Limited
 

Debt principal outstanding

     113       80       121       113       80       121  

Debt discount

     (23     (17     (44     (25     (18     (45

Trading asset positions held against long-term loan

     (3     —         —         (4     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Long-term loan due to related parties

     87       63       77       84       62       76  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Note 24 – Related party transactions

Our main related parties include (i) affiliated companies over which we hold significant influence and (ii) companies who are either controlled by or whose operating policies may be significantly influenced by our largest shareholder, Hemen.

Companies in which we hold significant influence include (i) Seadrill Partners, (ii) SeaMex and (iii) Seabras Sapura. Companies that are controlled by or whose operating policies may be significantly influenced by Hemen include (i) Ship Finance, (ii) Archer, (iii) Frontline, (iv) Seatankers and (v) Northern Drilling. In the following sections we provide an analysis of (i) transactions with related parties and (ii) balances outstanding with related parties.

Related party revenue

The below table provides an analysis of related party revenues for periods presented in this report.

 

    Successor     Predecessor  
(In $ millions)   Three months
ended March 31,
2019
    Three months
ended March 31,
2018
 

Management fees revenues (a)

    21       21  

In country support services revenues

    —         1  
 

 

 

   

 

 

 

Total related party operating revenues

    21       22  
 

 

 

   

 

 

 

 

(a)

We provide management and administrative services to Seadrill Partners and SeaMex and operation and technical support services to Seadrill Partners, SeaMex and Northern Drilling. We charge our affiliates for support services provided either on a cost-plus mark up or dayrate basis.

(b)

In addition to the amounts shown above, we recognized reimbursable revenues from Northern Drilling of $17 million in the three months ended March 31, 2019 for work performed to mobilize the Northern Drilling rig, West Mira, for its first drilling contract.

Related party operating expenses

The below table provides an analysis of related party operating expenses for periods presented in this report.

 

    Successor     Predecessor  
(In $ millions)   Three months
ended March 31,
2019
    Three months
ended March 31,
2018
 

Related party inventory purchases

    —         1  
 

 

 

   

 

 

 

Total related party operating expenses

    —         1