Borr Drilling — Audit Report / Information 2017

Apr 12, 2018

subsidiaries, the "Group" or "Borr Drilling") is an international up d ng of 31 December 2017, the Company's fleet consisted of 26 jack up

Borr Drilling's strategy is to build a substantial fleet of jack up

non

The first rig from PPL, the "Galar", was delivered on November 15, 31, 2017, of the "Gerd", the second rig from PPL on January 4, 2018. On January 5, 2018, the first rig from Keppel, the "Saga", was delivered.

that is relevant to employees' duties and responsibilities. We strive

2017, 7 .

basis. n

, up Transocean's entire jack Transocean's fleet and five newbuild

, 228,600,000

,

, v

, up . o

construction at Keppel FELS Limited ("Keppel") from Transocean up .

"Galar" of US\$87.0 million.

up

instalments of US\$159.5 million for the delivery of the "Galar" and the "Saga" from PPL and Keppel, respectively, in Q4 2017 (payment for the "Saga" was made in December 2017, rig delivered January

US\$87.0 million for the "Galar".

As of December 31, 2017, the Company's cash and cash equivalents

, 2017 Also in , 228,600,000 incentive program for the Company's employees.

warrants ("Warrants") to Schlumberg

In December 2017, the "Frigg", a 2013 built KFELS Super A class

In January 2018, "Norve", a 2011 built BMC Pacific Class 400 jack BW Energy Dussafu B.V. ("BW Energy") 160 days.

Market

d During 2017,

Outlook

22 , .

savings realised in our client base's supply chains, and anticipated – 2018.

\$

, d, up two ,

Risk Factors

companies exploring for or producing oil and/or natural gas ("E&P Companies") are sensitive to changes in oil and natural gas prices. The Group's focus will be on operations in the shallow water . have a material adverse effect on the demand for the Group's Group's operations.

he Group's revenue , pany's business, financial condition, results of

Company's control. n adverse effect on the Company's

1	75,658,500		Holdings
2	69,604,141
3	36,786,801
4	23,319,900
5	21,250,000
6	18,781,437
7	17,071,440
8	15,662,000
9	11,126,800
10	9,096,082
11	8,750,000
12	8,113,785
13	7,840,658
14	7,496,000
15	6,486,532
16	5,344,283
17	5,107,200		Dnb Luxembourg S.A.
18	4,642,850
19	4,290,700		J.P. Morgan Bank Lux.
20	4,273,958
	360,703,067		75.5% Total top 20 shareholders
	2,670 117,589,433	24.5
	2,690 478,292,500	100.0%

On January 4, 2018, the Company took delivery of "Gerd", the

On January 5, 2018, the company took delivery of "Saga" the first

In January 2018, the "Norve" commenced operations for BW

On February 23, 2018, the Company took delivery of the "Gersemi",

On March 22, 2018, it was announced that Simon Johnson's contract

As a consequence of the listing of Borr Drilling's shares on the Oslo

Board

on '

' Company's objects and purposes as unrestricted. This deviates from

'

' ' '

' " " '

'

.

' .

• x
• x
• x
• x

independent of the Company's main shareholders. Further, i

ng such Director's

Drilling's website –

The work of the Board

of and the risks related to the Borr Group's operations.

The Board supervises the Company's internal control systems.

four components. The first component is each individual's fixed ividual's position and

Company's results.

valuation of the Company's shares to the financial markets on a

parties will find the Company's latest news releases, financial

–

Information to Borr Drilling's shareholders shall be published on the Company's website at the same time as it is sent to the shareholders.

The Board will seek to ensure that the Company's business

CORPORATE SOCIAL RESPONSIBILITY

Borr Drilling is committed to conducting its operations ethically and in compliance to applicable laws and regulations.

All activities on board are risk assessed to identify hazard and potential risk to persons on board and the environment and adequate control measures taken to mitigate such risks.

Borr Drilling Vision, Mission and Values are as follows:

• Vision To be the leading offshore drilling company
• Mission To apply talent, entrepreneurial spirit and commitment to performance throughout our modern fleet creating value for customers and investors
• Values Adaptability, Teamwork, integrity and commitment.

Our People

Our fleet is growing and so is our Company.

Borr Drilling Employees by Region as of 31 December 2017

In Borr Drilling we believe that our employees are our most important resource. We have a diverse work force and believe in working together and benefit from each other's strengths.

By increasing the competence base of our organization, we will produce confident, highly qualified staff working as an effective and efficient team to enable the organization to achieve its goals and objectives.

Personnel are provided training necessary to improve and maintain their competency at work.

Management maintains an open line of communication with personnel, providing them with key updates related to the company. Personnel are also encouraged to provide feedback on company management system and processes.

We provide safe and healthy working environment to personnel by implementing several health and safety measures as per the Company Management System.

Health, Safety and Environment

Borr Drilling is committed to protecting the health and safety of all our people and conservation of the environment.

Borr Drilling continuously pursues the goal of zero harm to people and the environment by taking proactive measures to prevent work related injuries and illnesses and uncontrolled discharges. Such measures include:

• Providing the necessary resources to ensure that operations can be conducted safely
• Promoting active risk management to mitigate foreseeable hazards.
• Ensuring plant, equipment and machinery are safe to operate.
• Providing information, instruction and training to ensure personnel are competent to carry out their duties and responsibilities.
• Continuous monitoring of activities to ensure that compliance to Company Management System and all applicable health, safety and environmental regulations.

Operations offshore are supported by HSE personnel on the installation and in the corporate office. During 2017, 3 personnel suffered minor injuries requiring first aid treatment. No uncontrolled discharges to the environment were reported for the year.

A daily review of all HSE Events and monthly review of HSE performance is carried out by the Corporate Management team. The key performance indicators for HSE include:

• Personnel Injury Incidents
• Dropped Object Incidents
• Near Miss incidents
• Spills to Environment
• Participation of personnel in the safety observation program

Every incident and near miss is investigated to identify root cause and corrective actions are implemented to prevent reoccurrence. Learnings from such incidents are also shared across the fleet through safety alerts.

These incidents and learnings from the same are discussed with crew during safety meetings and corrective actions implemented. These are verified through management visits and internal HSE audits.

Monthly performance reports are provided to Board, Senior management and company personnel. Performance reports is provided to clients for the relevant rigs on their contract.

All subcontractors working on Borr Drilling offshore installation are required to follow the Borr Company Management System requirements. They are made aware of the company safety requirements and monitored for compliance.

Emergency response procedures and systems are in place at rig and corporate level. Frequent drills are conducted offshore to ensure robustness of the arrangements and the readiness of the crew.

• x

• x

• x

• x
• x
• x
• x

Supply Chains Act and/or the U.S. Government's Federal

Borr Drilling conducts appropriate due diligence or "vetting" of Borr party' agents who perform

• x

• x

• x

• x (ii) that would affect the individual's objectivity in carrying
• x
• x

n

ling's designated Compliance Risks Officer, who has o

• x
• x

		2017
		0.1
	6
	17
	3	21.7
		21.7
	4
	5
Diluted loss per share	5
		(88.0)
	11

		2017	2016
	19	164.0	138.1
	10, 19	39.1
	12, 13	22.4
		225.5	138.1
		0.1
	6	783.3
	7	642.7
	11	20.7
rigs	6		20.0
		1,446.8	20.0
		1,672.3	158.1
	16	9.6
	16	11.5	0.2
		21.1	0.2
	8, 14	87.0
	14	71.3
		158.3
		179.4	0.2
	7, 8, 21
		4.8	0.8
		1,587.8	157.8
		2.0
		1,492.9	157.8
		1,672.3	158.1

		2017	31, 2016
		8.2	0.4
	6	47.9
	12
		20.1	0.2
	10
	9
	11
	7
up	6
		1,415.0	139.2
	18	12.7	13.0
	8	87.0
		1,506.3	152.2
equivalents		25.9	138.1
		138.1
		164.0	138.1

Statements of Changes in Shareholders' Equity

					Comprehensive	Accumulated		equity
	5
	5,000
	77,500,000	0.8		151.4				152.2
				10.7				10.7
	77,505,000	0.8		157.8				157.8
	228,600,000	2.3		797.8				800.1
x	162,500,000	1.6		648,4				650.0
v	9,687,500	0.1						0.1
				7.7				7.7
			1.7	1.8				3.5
non							2.0	2.0
	478,292,500	4.8		1,587.8			2.0	1,492.9

v.

'Common shares and warrants issued subject to put option agreements' and were then transferred back to equity upon completion of the

x.

ss otherwise required by the context, the term "Borr Drilling" refers to Borr Drilling Limited and the terms "Company," "we," "Group," "our" and words of similar import refer to Borr Drilling and its consolidated companies. The use herein of such term "group", "organisation", "we", "us", "our" and "its", or references to specific entities, is not intended to be a precise description

.

Unrealized gains and losses arising from transactions with associates are eliminated to the extent of the Company's

n

investments that are deemed to increase an asset's value for its remaining useful life are capitalized and depreciated over t

two methods; a. income approach in which the fair value was estimated based on a calculation of the rig's discounted future n

Onerous contracts

an asset or a liability at the purchase date. The Company's onerous contracts relates to contracts for newbuildings

share options issued under the Company's employee

of accumulated other comprehensive income in shareholders' equity. Gains and losses are not realized until the securities are .

Borr Drilling Limited and subsidiaries Consolidated Financial Statements

Notes to the Consolidated Financial Statements For the year ended December 31, 2017 (Comparatives August 8, 2016 (date of inception) to December 31, 2016)

other-than-temporary declines in value when the value is not anticipated to recover above the cost within a reasonable period after the measurement date, unless there are mitigating factors that indicate impairment may not be required. If an impairment charge is recorded, subsequent recoveries in value are not reflected in earnings until sale of the securities held as available for sale occurs.

Other-than temporary impairment of investments

Where there are indicators that fair value is below carrying value of our investments, we will evaluate these for other-than-temporary impairment. Consideration will be given to $(1)$ the length of time and the extent to which fair value is below carrying value, $(2)$ the financial condition and nearterm prospects of the investee, and (3) our intent and ability to hold the investment until any anticipated recovery. Where determined other-thantemporary impairment, we will recognize an impairment loss in the period.

Foreign currencies

The Company and the majority of its subsidiaries use the U.S. dollar as their functional currency because the majority of their revenues and expenses are denominated in U.S. dollars. Accordingly, the Company's reporting currency is also U.S. dollars. For subsidiaries that maintain their accounts in currencies other than U.S. dollars, the Company uses the current method of translation whereby the statements of operations are translated using the average exchange rate for the period and the assets and liabilities are translated using the period end exchange rate. Foreign currency translation gains or losses on consolidation are recorded as a separate component of other comprehensive income in shareholders' equity.

Transactions in foreign currencies are translated into U.S. dollars at the rates of exchange in effect at the date of the transaction. Foreign currency assets and liabilities are translated using rates of exchange at the balance sheet date. Gains and losses on foreign currency transactions are included in the consolidated statement of operations.

Current and non-current classification

Assets and liabilities (excluding deferred taxes) are classified as current assets and liabilities respectively, if their maturity is within 1 year of the balance sheet date. Otherwise, they are classified as non-current assets and liabilities.

Other intangible assets and liabilities

Other intangible assets and liabilities are recorded at fair value on the date of acquisition less accumulated amortization. The amounts of these assets and liabilities less the estimated residual value, if any, is generally amortized on a straight-line basis over the estimated remaining economic useful life or contractual period. Other intangible assets include technology, customer relationships and favourable contracts. Other intangible liabilities include unfavourable contracts (see below).

Cash and cash equivalents

Cash and cash equivalents consist of cash, bank deposits and highly liquid financial instruments with original maturities of three months or less.

Restricted cash

Restricted cash consists of bank deposits which have been pledged as collateral for certain guarantees issued by a bank or minimum deposits which must be maintained in accordance with contractual arrangements. Restricted cash amounts with maturities longer than one year are classified as noncurrent assets.

Trade receivables

Trade receivables are presented net of allowances for doubtful balances. At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts.

Fair Value

The Company accounts for fair value in accordance with ASC 820, Fair Value Measurements and Disclosures ("ASC 820"). Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a three-tier hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Borr Drilling Limited and subsidiaries Consolidated Financial Statements

Notes to the Consolidated Financial Statements For the year ended December 31, 2017 (Comparatives August 8, 2016 (date of inception) to December 31, 2016)

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The first two levels in the hierarchy are considered observable inputs and the last is considered unobservable. The Company's cash and cash equivalents and restricted cash, which were held in operating bank accounts, are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. The carrying value of accounts receivable and payables approximates fair value due to the short time to expected payment or receipt of cash.

Income taxes

Borr Drilling is a Bermuda company that has a number of subsidiaries in various jurisdictions. Currently, the Company is not required to pay taxes in Bermuda on ordinary income or capital gains as they qualify as exempt companies. The Company and its subsidiaries and affiliates have received written assurance from the M inister of Finance in Bermuda that it will be exempt from taxation until March 2035. Certain subsidiaries operate in other jurisdictions where taxes are imposed. Consequently, income taxes have been recorded in these jurisdictions when appropriate. Our income tax expense is based on our income and statutory taxrates 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 operations are conducted and income is earned.

The determination and evaluation of our annual group income tax provision involves interpretation of tax laws in various jurisdictions in which we operate and requires significant judgment and use of estimates and assumptions regarding significant future events, such as amounts, timing and 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 recognise 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, 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 period, withholding taxes, changes in prior year tax estimates as tax returns are filed, or from tax audit adjustments.

Income tax expense consists of taxes currently payable and changes in deferred tax assets and liabilities calculated according to local tax rules.

Deferred tax assets and liabilities are based on temporary differences that arise between carrying values used for financial reporting purposes and amounts used for taxation purposes of assets and liabilities and the future tax benefits of tax loss carry forwards.

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 of 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. The amount of deferred tax provided is based upon the expected manner of settlement of the carrying amount of assets and liabilities, using tax rates enacted at the balance sheet date. The impact of tax law changes is recognized in periods when the change is enacted

Provisions

A provision is recognised in the balance sheet when the Company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Related parties

Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also related if they are subject to common control or common significant influence.

Borr Drilling Limited and subsidiaries Consolidated Financial Statements

Notes to the Consolidated Financial Statements For the year ended December 31, 2017 (Comparatives August 8, 2016 (date of inception) to December 31, 2016)

Warrants (Equity-based payments to non-employees)

Warrants require all non-employee stock-based transactions, in which goods or services are the consideration received in exchange for equity instruments, to be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

Performance is complete when the counterparty has delivered or, in the case of sales incentives, purchased the goods or services, despite the fact that at that date the quantity or all the terms of the equity instruments may yet depend on other events (this would occur, for example, if a target stock price requirement has not been met when the counterparty has delivered the goods or services).

The company recognizes the fair value of the equity instruments that are issued. An asset/liability, expense, debt and issuance cost or sales discount as applicable is generally recognized in the same period and in the same manner as if the company paid cash to a vendor in exchange for goods or services, or paid cash to a customer as a sales incentive or discount.

Earnings per share

Basic earnings per share ("EPS") is calculated based on the loss for the period available to common stockholders divided by the weighted average number of shares outstanding for basic EPS for the period. Diluted EPS includes the effect of the assumed conversion of potentially dilutive instruments which for the Company includes share options and warrants. The determination of dilutive earnings per share requires the Company to potentially make certain adjustments to net income and for the weighted average shares outstanding used to compute basic earnings per share unless anti-dilutive.

Interest-bearing debt

Interest-bearing debt is recognised initially at fair value less directly attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost. Transaction costs are amortized over the tenor of the loan.

Debt and Equity issuance costs

Issuance costs are allocated to the debt and equity components in proportion to the allocation of proceeds to those components. Allocated costs are accounted for as debt issuance costs (capitalized and amortized to interest expense using the interest method) and equity issuance costs (charged to equity) recorded as a reduction of the share balance/additional paid-in capital, respectively.

Segments

The Company has one operating segment, and this is reviewed by the Chief Operating Decision Maker, which is the Company's board of directors, as an aggregated sum of assets, liabilities and activities that exists to generate cash flows.

Treasury shares

Treasury shares are recognized as a separate component of equity at cost. Upon subsequent disposal of treasury shares, any consideration is recognized directly in equity.

Recently Issued Accounting Standards

Adoption of new accounting standards

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which made targeted improvements to the recognition and measurement of financial assets and financial liabilities. The update changes how entities measure equity investments that do not result in consolidation and are not accounted for under the equity method and how they present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. The new guidance also changes certain disclosure requirements and other aspects of current US GAAP. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted in some cases. The adoption did not have a material impact on the Consolidated Financial Statements and related Disclosures.

In March 2016, the FASB issued ASU 2016-07, Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The update eliminates the requirement that an investor retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for use of the equity method. The guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years and early adoption is permitted. The adoption did not have a material

09,

In September 2015, the FASB issued ASU 2015 16, which amends Topic 805, "Business Combinations." This amendment eliminates the requirement

40, "Disclosure of Uncertainties about an Entity's Ability to continue as a Going Concern." The amendments in this ASU provide guidance related to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The a

17, which amends ASC Topic 740, "Income Taxes." This amendment aligns the present

ntracts with Customers," supersedes the revenue recognition requirements in Topic 605, "Revenue Recognition," including most 9 supe 35, "Revenue Recognition— Type Contracts," and creates new Subtopic 340 40, "Other —Contracts with Customers." In summary, the core principle of Topic 606 is 16 scind certain SEC Staff Observer comments that are codified in Topic 605, "Revenue Recognition," and Topic 932, "Extractive Activities—Oil and Gas" and provide improvements to narrow aspects of ASU No. 2014

15,

18,

.

2017	31, 2016
3.2
4.4
14.9
21.7

,

The computation of basic loss per share ("EPS") is based on the weighted average number of shares outstanding during the peri

2017	31, 2016
478,292,500	77,505,000
258,631,442	10,096,146

10 2016 is 609,531 436,762.

Jack

	688.4
Asset transfers ("Galar")	142.8
	783.3

up

.

	937.7
Asset transfer ("Galar")
	642.7

for Hull B364 (TBN "Saga") and Hull B365 (TBN "Skald"), respectively. A fu as newbuildings milestone payments for Hull B364 (TBN "Saga") and Hull B365 (TBN "Skald"), respectively. Of the remaining US\$

onerous contracts for Hull B366 (TBN "Tivar"), Hull B367 (TBN "Vale") and Hull B368 (TBN "Var").

up drilling rigs "Galar" and "Saga", which were delivered in Nov

Acquisition of Hercules Triumph ("Ran") and Hercules Resilience ("Frigg")

("Hercules") to purchase the , "Business Combinations"

The PPL Rigs "Galar", "Gerd" "Gersemi" ,

"Business Combinations"

Transocean Inc ("Transocean"). The transaction consisted of Transocean's entire jack g eight rig owning companies in Transocean's

Name of acquired company

547.7
0.5
324.5
32.0
288.7
3.8
324.5
324.5
324.5

y 1, 2017, 31, 2017, for an understanding of the Group's financial position. The calculated depreciation in Q1 2 \$ 1, 1, 2017, Borr \$

20.0
19.1
39.1

recognized in "Other comprehensive income" ("OCI").

–

.

2.6
10.3
4.4
5.1
22.4

87.0
71.3
158.3

financing of the PPL rigs are not subject to financial covenants. The rig "Galar" 31, 2017,

Hull B366 (TBN "Tivar"), Hull B367 (TBN " ") and Hull B368 (TBN "Var"). When entering into the agreement with Transocean a

.

2016			2017
	WAEP		WAEP
		9,155,000	3.60
		9,155,000	3.60

Expected future volatility	25%
Expected dividend rate	$\sim$
Risk-free rate	$1.5\% - 2\%$
Expected annual turnover of employees

of the Company's financial instruments were as follows:

	1	164.0	164.0	138.1	138.1
	1	39.1	39.1
				13.0	13.0
– non	1	20.7	20.7
	1	15.4	15.4
	2	60.6	60.6
	2	87.0	87.0
	1	9.6	9.6
	1	11.5	11.5	0.2	0.2
	2	56.2	56.2

Financial instruments included in the table above are included within 'Level 1 and 2' of the fair value hierarchy because the

(Bermuda) Limited ("Magni Partners") and 1,937,500 warrants were issued to Ubon Partners AS ("Ubon").

0.01
2.00
0.41 1.9
25
May 1, 2019
July 5, 2019

,

s in Shareholders'

In October 2017, the Company issued a further 4,736,887 warrants ("Warrants") to Schlumberger as a consequence of a final col

	Of Shares	Share		Contractual
	9,687,500		0.01	5
	9,473,774
	9,473,774
	9,687,500		0.01
31, 2017

Related party transactions

Holdings Limited (" ")

Taran Holdings Limited ("Taran"),

against Taran's subscription of shares in the Company's first private placement in Decem

an's payment obligations for its subscription of shares in the Company's private placement in March 2017.

Advokatfirmaet Wiersholm AS ("Wiersholm")

2.1 2017 ,

016.

.0

s into the Statement of Changes in Shareholders' Equity in the second quarter of 2017.

from Magni and Ubon ("Grantors") through their individual companies, Primato AS (Rune Magnus Lundetr US\$2.0. The employees' companies shall pay an option premium o

Meritus Trust Company Limited ("Meritus")

The majority of the Company's transactions, assets and liabilities are denominated in U.S. negative effect on the value of the Company's cash flows. The Company has not entered into derivative agreements to mitigate

The Group's listed equity securities are susceptible to market price risk arising from uncertainties about future values of t

n n

newbuildings could have a negative impact on the Group's reputation and customer relationships. the Group's business, financial condition and results of ope

g . low.

basis, the "Frigg"

2017
0.27
0.10
0.37

Share capital and shareholders

• The realizable value of the company's assets would thereby be less its liabilities

1	75,658,500	15.8%
2	69,604,141	14.6%
3	36,786,801
4	23,319,900
5	21,250,000		Skagen Kon
6	18,781,437
7	17,071,440
8	15,662,000
9	11,126,800
10	9,096,082
11	8,750,000
12	8,113,785		Brown Brothers
13	7,840,658
14	7,496,000
15	6,486,532
16	5,344,283
17	5,107,200		Dnb Luxembourg S.A.
18	4,642,850
19	4,290,700		J.P. Morgan Bank Luxembourg S.A.
20	4,273,958
	360,703,067	75.5%
2,670	117,589,433	24.5
2,690	478,292,500	100.0%

n \$241.3 43 no 29, 2018.

Acquis at US\$5

3, 2018 54,347,827 4.6

of "Gerd", "Saga" and "Gersemi"

The newbuildings "Gerd" and "Gersemi" were delivered in January and February, respectively, from PPL. "Saga" was delivered in January 2018 from

27 17.0 on

" "

In January 2018, the rig "Norve" commenced operation for BW Energy Dussafu B.V. ("BW Energy") in Gabon. The contract duration of 140 160 days

at the Board of Director's Report includes a true and fair review of the development and performance of the business and the

_________________ ___________________

__________________ ___________________

8

Rask

To the General Meeting of Borr Drilling Limited

Independent Auditor's Report

Opinion

We have audited the consolidated financial statements of Borr Drilling Limited which comprise the balance sheet as at 31 December 2017, statement of operations, statement of comprehensive loss, statement of changes in equity and statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements are prepared in accordance with law and regulations and present fairly, in all material respects, the financial position of the group as at 31 December 2017, and its financial performance and its cash flows for the year then ended in accordance with the accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group as required by laws and regulations, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key Audit Matter

Impairment Assessment for jack-up drilling rigs

Refer to note 2 (Accounting policies) and note 6 (Jack-up drilling rigs).

The Group owns 13 jack-up drilling rigs and 13 newbuildings. The jack-up drilling rigs have a combined carrying amount of USD 783.3 million and the newbuilding contracts have a carrying amount of USD 642.7 million, and constitute the majority of the values in the balance sheet.

Impairment indicators were considered present at December 31, 2017. Several of the rigs were currently stacked and rates for jack-up drilling rigs are at historically low levels. As a result an impairment test was performed by management. The Group recognized an impairment of USD 26.7 million on two of the cold stacked

How our audit addressed the Key Audit Matter

We evaluated and challenged management's impairment assessment and the process by which this was performed. We assessed management's accounting policy against US GAAP and obtained explanations from management as to how the specific requirements of the standards, in particular ASC $360-10-35$ – Impairment of long-lived assets, were met.

Management considers each jack-up drilling rig to be a separate cash generating unit ("CGU" or "rig") and in line with ASC 360, first calculated the undiscounted value in use on an income basis. Where carrying value was in excess of this undiscounted cash flow, management proceeded to step 2 and estimated fair value of the jack-up drilling rig.

In order to assess each of the assumptions in management's undiscounted value in use forecast for both jack-up drilling rigs and newbuildings, we interviewed management and challenged their

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jack-up drilling rigs in 2017. No impairment was recognized on the newbuildings.

We focused on this area due to the significant carrying value of the jack-up drilling rigs and newbuildings and the judgement inherent in the impairment review. Management made judgements on the undiscounted future cash flow forecasts in the value in use model and certain key inputs including, future day rates, operating expenses, maintenance, overhaul costs and scrap value of the jackup drilling rig at the end of its useful economic life.

Where step 2 was performed for the impairment assessment on the two cold stacked jack-up drilling rigs management estimated scrap value less cost of disposal.

We note that changes in any of the assumptions above would have a direct impact on the impairment assessment.

assessments. For certain key assumptions we specifically used:

• Management's authorized budgets and forecasting and where possible compared these to current and historical market data to corroborate the reasonableness of cash flows used by management. In addition, we verified the mathematical accuracy of the model. We found that the cash flows were reasonable.
• Comparisons to an implied required day rate estimation. The implied rate was calculated by estimating cash flows on a hypothetical newbuilding and extrapolating the implied day rate required for a rational actor to recover the cost of an investment in a newbuilding at prices prevailing at December 31, 2017 with a reasonable rate of return. We have compared the implied rate to newbuilding transactions during 2017. We considered that day rates used by management were within an appropriate range.
• External market reports and valuation reports to corroborate the value in use that management arrived at. We obtained several of these reports from management. In addition we obtained a market and valuation report direct from a reputable broker.
• Market information including industry practice to $\bullet$ assess the scrapping proceeds and the costs of scrapping jack-up drilling rigs. We were able to satisfy ourselves that management used reasonable estimates.

Business Combinations

We refer to note 2 (Accounting policies) and note 9 (Business acquisition).

On May 31, 2017 the group completed the transaction with Transocean, taking 100% ownership of the eight rig owning entities described in note 9. The total purchase consideration was USD 324.5 million in cash.

The business combination led to a material increase in the value of both tangible assets and onerous contracts. Due to the size of the transaction and the significant judgement required by management in determining the purchase price allocation

We evaluated and challenged management's PPA assessment and the process by which this was performed. Management engaged a third party for assistance with the PPA. We have assessed the third party's competence, capacity and objectivity and we did this by among other, meeting with the third party and performing the procedures described below related to the PPA report issued to management.

We assessed management's accounting policy against the codification and obtained explanations from management as to how the specific requirements of the standards, in particular ASC 805 - Business Combinations, were met. In order to assess each of the assumptions in management's purchase price allocation, we discussed with management and challenged their

(PPA), this has been an area of focus. In particular, we focused on the assessments made regarding valuation of jack-up drilling rigs and newbuildings that were acquired.

assessments, especially related to their valuation assessment for jack-up drilling rigs and newbuildings.

For certain key assumptions in arriving at the fair value estimated on an income basis we specifically used the sources of data and performed among other the procedures outlined below:

• We reviewed management's authorized budgets and forecasting and where possible compared these to current and historical market data to corroborate the reasonableness of cash flows used by management. In addition, we verified the mathematical accuracy of the model. We found that the cash flows were reasonable.
• We used our internal valuation specialists and external market data to assess the assumptions used to build the discount rate. We considered that the assessment made by management was within a reasonable range. We checked the consistency of the use of the discount rate against all identifiable assets and ensured the mathematical accuracy of its application in the cash flow projections.
• Comparisons to an implied required day rate estimation. The implied rate was calculated by estimating cash flows on a hypothetical newbuilding and extrapolating the implied day rate required for a rational actor to recover the cost of an investment in a newbuilding at prices prevailing at the acquisition date, with a reasonable rate of return. We have compared the implied rate to newbuilding transactions during 2017, which serve to corroborate assessments made by management. We considered that day rates used by management were within an appropriate range.

We evaluated the appropriateness of the related disclosures in note 9 to the consolidated financial statements to the requirements of the applicable financial reporting framework, US GAAP in particular ASC 805 - Business Combinations. We satisfied ourselves that the disclosure appropriately explained the transactions.

Other information

Management is responsible for the other information. The other information comprises the Board of Directors' report, the statements on Corporate Governance and Corporate Social Responsibility, but does not include the consolidated financial statements and our auditor's report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors for the consolidated Financial Statements

The Board of Directors (management) is responsible for the preparation in accordance with law and regulations, including fair presentation of the consolidated financial statements in accordance with the accounting principles generally accepted in the United States of America, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the group or to cease operations, or has no realistic alternative but to do so.

Auditor's Responsibilities for the Audit of the consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. We design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting $\bullet$ estimates and related disclosures made by management.
• conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a

going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• obtain sufficient appropriate evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Stavanger, 28 March 2018 PricewaterhouseCoopers AS

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