Seadrill Limited — Annual Report 2015

Apr 28, 2016

Annual Report and Financial Statements For the Period Ended 31 December 2015

Table of Contents

Board of Directors Report	3
Corporate Governance	12
Corporate Social Responsibility	16
Responsibility Statement	17
Consolidated Financial Statements	19
Notes to Consolidated Financial Statements	23
Parent Company Financial Statements	50
Notes to Parent Company Financial Statements	54
Auditor's Report	60

BOARD OF DIRECTORS REPORT

Sevan Drilling Limited (the "Company" and, together with its subsidiaries, the "Group" or "Sevan") is an international offshore drilling contractor specialising in operations in the ultra deep-water segment. The Group owns three ultra deep-water cylindrical drilling units Sevan Driller, Sevan Brasil, and Sevan Louisiana. Sevan also has one additional rig constructed and ready for delivery, Sevan Developer.

Sevan generated operating revenues of USD 366.8 million and a net loss for the period of USD 151.8 million. Excluding non-cash asset impairments, the result for the year was a net income of USD 44.7 million.

STRUCTURE

Sevan Drilling Limited is the parent company of the Sevan Drilling Group. The Company is a Bermuda company with management services provided through Sevan Drilling Management AS at Drammensveien 288, Oslo, Norway.

On 30 June 2015 Sevan Drilling Limited became the parent company of the Sevan Drilling Group and listed its shares on the Oslo Stock Exchange (the "OSE") in continuous trading under the Group's symbol "SEVDR". Through this parent company migration, shareholders of the former parent company, Sevan Drilling ASA, received the same ownership percentage and Sevan Drilling ASA's shares were delisted from the OSE on 30 June 2015.

The Company's website is: www.sevandrilling.com.

OVERVIEW

The Group has entered management service agreements with the Seadrill Group for the operations of its drilling rigs and has regional representation in Rio de Janeiro, Brazil, Houston, USA and Singapore. The Company has operating subsidiaries in these countries and in Bermuda, Hungary, Singapore and United Kingdom.

Sevan Drilling Management AS provides management support to all entities in the Group. The Group's rigs are managed by subsidiaries of Seadrill Limited in Brazil, the United States and Singapore. The terms for these assignments are set out in written management agreements.

The Group also has a marketing agreement with Seadrill Management Ltd. ("Seadrill Management") pursuant to which the Seadrill Group is responsible for the marketing of the Group's fleet. Lastly, Seadrill Management provides general administrative support to the Group.

Two of the Group's drilling rigs operate in Brazil and the third operates in the U.S. Gulf of Mexico.

The fourth rig is on order with Cosco (Qidong) Offshore Co. Limited ("Cosco"). The rig is ready for delivery and quayside at the Cosco shipyard in China. On 14 April 2016, the delivery deferral agreement for the Sevan Developer was extended to 15 October 2016. Sevan continues marketing the rig for an acceptable drilling contract.

VISION AND VALUES

The Company's vision is to take advantage of its unique cylindrical design for offshore drilling rigs and capture a share of the global market for offshore drilling in the ultra deep-water segment. This vision shall be achieved by maintaining a high operational and ethical standards in all of the Group's relations with customers, suppliers and employees.

The Board has defined the Company's values and has adopted ethical guidelines, which apply to all employees in the Group. The Company's vision and values are set out in further detail on the Company's website. Ethical guidelines applicable to all the Group's employees can also be found there.

OPERATIONS REVIEW

The Group's first rig, "Sevan Driller", continued operations in Brazil under a six-year contract with Petroleo Brasileiro S.A. ("Petrobras") which commenced in June 2010 until a mutually agreed termination effective 1 December 2015 was put in place. In March 2016, Shell do Brasil ("Shell") awarded the Sevan Driller a well intervention contract for 60 days with two 30 day options, and expected commencement in May 2016. Technical utilisation for the Sevan Driller for the year until 1 December 2015 was at 96.34%. Economical utilisation for the same period was at 96.3%.

The Group's second rig, "Sevan Brasil", continued operations in Brazil under a six-year contract with Petrobras, which commenced in July 2012. The Company completed commercial negotiations with Petrobras in March 2016, the Sevan Brasil contract dayrate has been reduced to USD 250,000 per day effective 26 February 2016 through the remaining term of the contract, ending July 2018 and a portion of the dayrate continues to be denominated in Brazilian reais. Technical utilisation for the rig during the year was at 92.04%. Economical utilisation was at 93.13%.

The Group's third rig, "Sevan Louisiana", continued operations in the U.S. Gulf of Mexico under a three-year contract with LLOG Bluewater Holdings LLC ("LLOG"), which commenced in May 2014. In November 2014, the contract term was extended by 12 months to May 2018, cancellable by the client with a 365-day notice until May 2016. The Company recently received notification from LLOG to cancel the extension period. Technical utilisation for the rig during the year was at 92.49%. Economical utilisation was at 91.95%.

The fleet's technical utilization has improved significantly in 2015 at 93.6% versus 86.2% in 2014. The Company is fully benefiting from the previous year's integration with Seadrill and restructuring activities, and it expects to continue safe, efficient and reliable operations.

At 28 April 2016, the fleet's contracted backlog revenue was USD 360.5 million, including recent changes in contracting status with Petrobras and LLOG.

The Group has a fourth rig, "Sevan Developer", on order from Cosco pursuant to an all-in, turn-key construction contract at a price of USD 526 million. The contractual delivery date was 30 April 2014. The Company has entered into a delivery deferral agreement with Cosco that extends the delivery period to 15 October 2016, and has two six-month options remaining to extend the delivery period to October 2017.

Under the deferral agreement, the Sevan Developer will remain in China at the Cosco shipyard at their costs and Sevan provides management services to support the shipyard during the deferral period. Sevan has the ability to take delivery should an acceptable drilling contract be secured that can support support financing of the final delivery instalment. If no contract has been secured and no mutual agreement reached to extend further, the contract will terminate at the end of the deferral period. The Group will receive, in such case, a refund of the remaining initial investment plus associated costs. Cosco has provided guarantees from commercial banks for its liability to repay the Group, effective through the maximum 36-month deferred delivery period.

On 29 October 2015 the deferral period was extended to 15 April 2016, and the final delivery instalment was amended to USD 447.1 million, representing 85% of the contract price. In Q4 2015 Cosco refunded USD 26.3 million, representing 5% of the contract price, and other associated costs.

On 14 April 2016 the deferral period was extended to 15 October 2016, and the final delivery instalment was amended to USD 473.4 million, representing 90% of the contract price. Cosco will refund USD 26.3 million, representing 5% of the contract price, and other associated costs by 25 May 2016.

Sevan Drilling ASA, the former parent of the Group, has been accused of breaches of Sections 276 (a) and 276 (b) of the Norwegian Criminal Code in respect of payments made in connection with the performance during 2012 to 2015 of drilling contracts originally awarded by Petrobras to subsidiaries of Sevan Marine ASA in the period between 2005-2008, which was prior to the separation from the Sevan Marine Group and subsequent listing in 2011. In connection with the accusation, THE Norwegian Authority for Investigation and Prosecution of Economic and Environmental Crime ("ØKOKRIM") performed a search and seizure exercise in the Company's offices.

The Company is co-operating with the authorities in identifying and making available all documents, which the authorities consider relevant. Reference is made to Note 22 of the financial statements for further details.

The Group remains committed to the highest ethical standards and continues to cooperate with authorities in all relevant jurisdictions.

FINANCIAL REVIEW

The following constitutes a brief summary of the Group's financial performance and results during the 12 months ending 31 December 2015 versus the same period ending 31 December 2014.

Income statement

The Group's operating revenue in 2015 was USD 366.8 million (2014: USD 321.0 million). The result for the period was a loss of USD 151.8 million (2014: USD 125.0 million), excluding non-cash asset impairments the result was a net income of USD 44.7 million (2014: net loss USD 23.4 million). The Group's EBITDA (operating profit less depreciation, amortisation and impairment) in 2015 was USD 186.8 million (2014: USD 124.9 million).

The increase in revenue is related to the Sevan Louisiana operating for a full year in 2015, after commencing operations in May 2014 and experiencing significant downtime in the third quarter 2014. Additionally, performance across the fleet has improved in 2015 and operating expenses have been reduced due to continued cost saving initiatives. General and administrative costs were lower from the conclusion of the integration and restructuring and was a positive contribution to EBITDA in 2015.

The Group recognised a non-cash asset impairment of USD 196.5 million in 2015 (2014: USD 101.6 million). The impairment was a result of lower value-in-use estimates for the Sevan Driller and the Sevan Brasil compared to their carrying values following the recent decline in the rate levels in the ultra deepwater market and subsequent contractual changes in 2016.

Net financial items in 2015 amounted to USD 67.3 million (2014: USD 70.2 million). Interest expenses on the senior secured credit facility decreased because of a reduced outstanding balance due to instalments paid and decreases in the floating interest rate.

Tax expense in 2015 was USD 0.9 million (2014: USD 6.5 million) and consisted of a USD 1.8 million of income tax credit as a consequence of operating in Brazil and U.S. Gulf of Mexico offset by prior year adjustments of USD 2.7 million.

Balance sheet

Total assets decreased from USD 1,991.6 million in 2014 to USD 1,753.7 million in 2015. The decrease is primarily caused by the USD 196.5 million non-cash asset impairment of Sevan Driller and Sevan Brasil, and a USD 26.3 million reduction to the Sevan Developer asset which was partially offset by other movements in working capital.

The Group reviews the carrying values of its tangible assets at the end of each reporting period to determine whether there is any indication that such assets may be impaired. The net asset value of the Group exceeded its market capitalisation as of 31 December 2015. This is identified as an indicator for impairment of assets. As a result, each of the Group's rigs was identified as a cash generating unit and tested for impairment, as of 31 December 2015.

The key assumptions applied in relation to rigs in operation include a discount rate and expected future cashflows. To discount future cash-flows, management used a pre-tax weighted average cost of capital of 10.0%. Estimated future cash-flows are based on the Group's five year forecast and utilise several assumptions (including forecasted operational expense, operational taxes, utilisation and day-rates). Day-rates are based on current contract amounts for the remaining term and expected market rates for the period beyond the contracted periods. The Company has assumed long-term day rates based on cyclical averages, but no growth above these expected market rates has been assumed for the remainder of the rigs' lives beyond the forecast period.

Due to the significant decline in demand in the ultra deep-water drilling market, the timeline for a projected recovery thereof, and subsequent changes in contracting status, management concluded that recoverable values of the Sevan Driller and the Sevan Brasil are less than their carrying amounts. Therefore, the carrying amounts of these rigs have been reduced to their estimated recoverable values through a non-cash impairment charge. Accordingly, the Sevan Driller was impaired by USD 149.6 million and the Sevan Brasil was impaired by USD 46.9 million.

Based on sensitivity analysis performed, the Company believes that reasonable movements in the key assumptions could result in a further impairment loss to be recognised. Thus there is a possibility the Group may recognise impairment in the following year if the facts underlying the key assumptions change over the coming year. An increase in the weighted average cost of capital ("WACC") of 100 basis points to 11% would increase the impairment by approximately USD 76.6 million, and a reduction of expected market rates in the re-contract years of 5% would increase the impairment by approximately USD 63.3 million across the fleet.

Total liabilities decreased from USD 1,433.9 million in 2014 to USD 1,347.8 million in 2015. Of this amount, USD 1,242.3 million represented outstanding debt (71% of total equity and liabilities). The decrease in total liabilities is primarily caused by repayments of principal under the Group's senior secured credit facility, USD 140.0 million and amortisation of deferred financing fees, USD 6.5 million, and repayment of the revolving credit facility ("RCF"), USD 40.0 million. This is offset by USD 95.0 million of drawdowns of the RCF. The Group's RCF is made available by its majority shareholder, Seadrill, in the amount of USD 300.0 million, of which USD 130.0 million is undrawn at year end.

Cash flows

The Group's cash and cash equivalents amounted to USD 42.4 million as of 31 December 2015 (2014: USD 30.2 million). The Group used cash generated from its operations and the drawings made under the RCF to fund investment and financing activities throughout 2015.

Net cash generated from operating activities during 2015 was USD 97.4 million (2014: used USD 9.5 million). This was primarily driven by increased revenues on the Sevan Louisiana and reduced operating costs across the rigs due to cost saving initiatives.

Net cash generated from operating activities is USD 248.3 million more than the Group's total loss before taxes. The difference is primarily caused by the non-cash asset impairment, USD 196.5 million, and depreciation and amortisation charges, USD 73.9 million offset by movements in working capital.

Net cash generated used in investing activities during 2015 was USD 1.8 million (2014: USD 29.0 million). This was primarily a result of USD 29.0 million in proceeds from the deferral agreement for Sevan Developer offset by the purchase of property, plant and equipment, USD 30.8 million.

Net cash used in financing activities during 2015 was USD 85.0 million (2014: USD 60.0 million). The increase is attributable to higher repayments in the year offset by the further drawdown on the RCF facility.

RELATIONSHIP WITH SEADRILL

Seadrill Limited ("Seadrill") owns 50.11% of the shares in the Company and is thus our parent company from a corporate law point of view. Seadrill is represented on the Board through Mr. Per Wullf, Chief Executive Officer and Mr. Svend Anton Maier, Senior Vice President Special Projects of Seadrill. Financial reporting is fully coordinated with Seadrill and Seadrill consolidates the accounts of the Group with its own.

Financial support

Seadrill has guaranteed the Group's senior secured credit facility. The terms of the guarantee are set out in a written guarantee agreement. The Company pays a guarantee fee to Seadrill of 1.0% of the outstanding amount of the loan. The total fee paid in 2015 was USD 11.3 million. Under the terms of the agreement, Seadrill guarantees the bank credit facility in exchange for the financial covenants being measured at the Seadrill consolidated level. Seadrill's support of the Group's financing means that the costs of the bank financing are significantly lower than what could be achieved had the Group had been a stand-alone entity. The Group is, however, exposed to the risk of Seadrill not meeting its financial covenants and other terms in the guarantee and its own loan agreements due to the cross-default provision in the Group's loan agreement.

Seadrill has provided the Group with the RCF in order to meet the Group's short term liquidity needs beyond what is covered by the Group's bank credit facility. The terms of the RCF are set out in a loan agreement, which was revised in April 2016. The main terms are an interest rate of 6.0% plus LIBOR, a commitment fee of 2.4% on any undrawn amounts and a term expiring 31 December 2017. The cost of this financing is significantly lower than what the Group would have incurred if such financing would have been arranged on a stand-alone basis.

On 28 April 2016, as part of Seadrill's refinancing efforts, the Company executed an amendment to the covenants contained within its bank credit facility where Seadrill is the guarantor. The amendment, which among other things, amend the equity ratio, leverage ratio, minimum-value-clauses, and minimum liquidity requirements. The covenant amendments are in place until 30 June 2017.

Seadrill and the Board plans to announce the refinancing plan of the bank facility later in the year, which is expected to provide additional financial strength.

Management services

The Group is party to several management agreements with subsidiaries of Seadrill. These make Seadrill's organisation fully responsible for the day-to-day operation of the Group (through its subsidiaries in Brazil and the United States) and the marketing of the rigs in operation and the Sevan Developer (through Seadrill Management in the UK). Further, Seadrill Management supports management at the general administrative level.

The terms of these management agreements are market based. Total payments to Seadrill Management under these agreements in 2015 were USD 25.0 million.

Operationally, the Group continues to benefit from Seadrill's management systems driving improved safety and operational performance. The Group has access to a larger labour resource pool, improved pricing for insurance, savings through access to vendor master service agreements and increased reliance on internal resources in maintenance and engineering (as opposed to contracting from third parties). The Group has been able to reduce costs to address the current depressed market through Seadrill's cost saving initiatives, while continuing to maintain safe, efficient operations and preserving the quality of the assets.

The Seadrill marketing function provides the Group's rig fleet with the benefit of Seadrill's extensive client relationships and access to geographical regions where Seadrill has a presence and proven performance history. The Seadrill organisation actively markets the Group's fleet in all geographical regions and towards all of its own clients, highlighting the advantages of the Group's unique cylindrical design.

Administratively, the Group relies on the Seadrill corporate functions for administrative support, in areas such as accounting, treasury, supply chain and human resource management. The Group's general and administrative costs for 2015 were reduced 27% compared to 2014. The Board expects to be able to continue these efficiencies in the years to come through the support of Seadrill.

The Board is satisfied with the manner in which the Group has been integrated in Seadrill's management systems, as this is the second year of full integration. This has both financially and operationally been a significant benefit for the Group and its stakeholders.

The Board is monitoring the quality and costs of all services provided by the Seadrill organisation and continually evaluates the level of service provided by Seadrill. The Board is aware of the potential conflict of interest of Seadrill but is confident that the Seadrill organisation treats the Group's rigs on par with other rigs in the overall Seadrill fleet.

RESTRUCTURING AND MIGRATION

The Board reviewed the Group's corporate organisation during 2014 and concluded that it was not optimal to maintain the previous parent, Sevan Drilling ASA , company function in Norway.

Arestructuring process took place in 2014 to prepare for the migration to a new parent company, Sevan Drilling Limited domiciled in Bermuda. Sevan Drilling ASA's assets and liabilities which related to its subsidiaries and revolving credit facility were contributed to the Company. This was followed by the transfer of the management function for the Group to Sevan Drilling Management AS, including the transfer of related assets and liabilities, corporate employees, responsibilities for compliance with stock exchange obligations, and relevant management service agreements. After the restructuring was complete Sevan Drilling ASA's assets consisted of the shares in the Company and limited cash.

The board of directors of Sevan Drilling ASA then proposed a migration to the shareholders, whereby it was resolved to relocate the parent level from Norway to Bermuda by distributing all of Sevan Drilling ASA's shares in the Company to Sevan Drilling ASA's shareholders as a capital reduction. The shareholders of Sevan Drilling ASA approved the migration in the annual general meeting ("AGM") of Sevan Drilling ASA held 15 May 2015.

The Company's share capital reduced from NOK 594,623,436 to share capital of NOK 1,000,000 through a reduction of the nominal value of the Company's shares from NOK 1 to NOK 0.001681737. The share capital reduction allowed adequate equity to remain to cover losses and distribute the shares of the Company to Sevan Drilling ASA's shareholders.

The Company's shares were distributed to Sevan Drilling ASA's shareholders simultaneously with the listing of the Company on a pro rata basis on 30 June 2015. Upon completion of the capital decrease the shareholders held approximately the same ownership of the Company as they had in Sevan Drilling ASA. Sevan Drilling ASA

was simultaneously delisted and its board is expected to propose to its shareholders alternatives regarding their ownership in the first half of 2016.

OUTLOOK

During 2015 the Company has continued its efforts to improve safety, financial stability and operational performance, in addition to successfully completing the migration of the parent company function in June 2015.

Revenues increased from improving operating performance, as the rigs did not experience significant downtime events in 2015. Operating costs have been significantly reduced without impacting safety or integrity of the assets. The Company benefited from savings initiatives executed under the Seadrill management agreements based on Seadrill's saving programme as well as reduced administration cost of the Company achieved through the agreements.

The extension of the delivery deferral agreement for the Sevan Developer further improves liquidity through the refunds from Cosco, while the Company maintains the ability to terminate the contract or take delivery should an acceptable contract be secured.

The offshore drilling market has become significantly more challenging in 2015 and is expected to continue through 2016 in this prolonged industry-wide downturn. In the last year contracting activity has decreased significantly and more rigs have become available through early terminations. While companies have decided to scrap older rigs to reduce further investments, the pace of scrapping coupled with approximately 80 undelivered rigs in the shipyards has not been enough to balance supply. The market is expected to remain oversupplied for the next couple years, which continues to depress dayrates and possibly prolongs the period before for the market will recover.

The Company entered extended commercial negotiations with Petrobras in mid-2015, and as a result the Board mutually agreed to early terminate the Sevan Driller contract and lower the dayrate of the Sevan Brasil in March 2016. This was the preferred alternative to potentially having both contracts terminated and exposing the Company to a protracted legal challenge with an uncertain outcome. With the Sevan Driller being available earlier, the Company secured short-term employment with Shell, and looks to build a new relationship and further demonstrate the capabilities of the cylindrical rig design.

Recently the Company received notification from LLOG to cancel the one year extension period beginning May 2017. This extension was agreed in November 2014 prior to the significant market downturn and was cancellable with a 365-day notice before the commencement of the extension period. The Company continues working under its original term through May 2017. The Sevan design has shown efficiencies in the seasonal loop currents of the US Gulf of Mexico, which further demonstrates the benefits for customers in a competitive market.

The RCF extension to December 2017 furthermore secures the Group's short to medium term financing needs, and in April 2016 the Company has approved amendments to the bank facility that provide relief to certain the Seadrill consolidated financial covenants. The Seadrill Board plans to announce its refinancing plan which will include certain amendments to the Company's bank facility later in the year.

On the backdrop of the events, the Board believes the Company is positioned to meet the financial needs of the next 12-18 months. However, the Group remains sensitive to operating performance of its rigs and the ability to continue access to the RCF. Therefore, the Company has prepared its accounts on the assumption that the Group is a going concern.

RISK FACTORS

The Group's activities expose it to a variety of risks, many of which are beyond the Company's control. The Group has a risk management program covering these factors (among others) and seeks to minimise overall exposure to risk and the impact of external factors on performance.

Market risk

The offshore contract drilling industry is cyclical and volatile. Our business in the offshore drilling sector depends on the level of activity in oil and gas exploration, development and production in offshore areas worldwide. The availability of quality drilling prospects, exploration success, relative production costs, the stage of reservoir development and political and regulatory environments affect our customers' drilling programs. Oil and gas prices and market expectations of potential changes in these prices also significantly affect this level of activity and demand for drilling units.

Declines in oil and gas prices for an extended period of time, or market expectations of potential decreases in these prices, have and could continue to negatively affect our business in the offshore drilling sector. Sustained periods of low oil prices have resulted in reduced exploration and drilling because oil and gas companies' capital expenditure budgets are subject to cash flow from such activities and are therefore sensitive to changes in energy prices. These changes in commodity prices can have a dramatic effect on rig demand, and periods of low demand can cause excess rig supply and intensify the competition in the industry that often results in drilling units, particularly older and less technologically advanced drilling units, being idle for long periods of time. We cannot predict the future level of demand for our services or future conditions of the oil and gas industry. In response to the recent decrease in the prices of oil and gas, a number of our oil and gas company customers have recently announced decreases in budgeted expenditures for offshore drilling. Any future decrease in exploration, development or production expenditures by oil and gas companies could reduce our revenues and materially harm our business and results of operations.

Some of our offshore drilling contracts may be terminated early due to certain events. One of our customers has the right to terminate its drilling contract upon the payment of an early termination fee. Under certain circumstances, our contracts may permit customers to terminate contracts early without the payment of any termination fees, as a result of non-performance, longer periods of downtime or impaired performance caused by equipment or operational issues, or sustained periods of downtime due to force majeure events beyond our control. During periods of challenging market conditions, we may be subject to an increased risk of our customers seeking to repudiate their contracts, including through claims of non-performance. Our customers' ability to perform their obligations under their drilling contracts with us may also be negatively impacted by the prevailing uncertainty surrounding the development of the world economy and the credit markets. If our customers cancel contracts, and we are unable to secure new contracts on a timely basis and on substantially similar terms, or if contracts are suspended for an extended period of time or if a number of our contracts are renegotiated, it could adversely affect our consolidated statement of financial position, results of operations or cash flows.

Operational risk

Drilling operations

The operation of drilling rigs requires very high standards of safety. Such operations are associated with considerable risks and liabilities. These include technical, operational, commercial and political risks. Our insurance policies and contractual rights to indemnity may not adequately cover losses, and we do not have insurance coverage or rights to indemnity for all risks. Consistent with standard industry practice, our customers generally assume, and indemnify us against, well control and subsurface risks under dayrate contracts. However, there can be no assurances that these customers will be willing or financially able to indemnify us against all these risks. In addition, a court may decide that certain indemnities in our current or future contracts are not enforceable. The Group may also incur liability for pollution and other environmental damage without being able to recover said liabilities through insurance.

Small fleet size

Since the Group's fleet consists of only three units in operation, any operational downtime or any failure to secure employment at satisfactory rates will affect the Group's results more significantly than for a group with a larger fleet. Furthermore, frequent rig mobilisations could be disruptive to the Group's financial results if we experience delays due to adverse weather, third party services or physical damage to our rigs.

Financial risk

The Group's activities expose us to a variety of financial risks including liquidity and foreign exchange risk. The Group's overall risk management program seeks to minimise potential adverse effects on the Group's financial performance.

Risk management for the Group is carried out by the treasury function that is integrated in Seadrill's management organisation. Final authority is, however, retained within the Company. Treasury identifies, evaluates and hedges financial risks in close co-operation with the operating units within the Group. The Board approves the principles for overall risk management, as well as policies covering specific areas, such as foreign currency risk, price risk, interest rate risk, credit risk and liquidity risk.

Liquidity risk

The Group's objective is to maintain flexibility of financing by providing sufficient credit lines when managing liquidity. This may include maintaining sufficient cash and marketable securities, the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions. Liquidity is sensitive to operational uptime on the units performing contracts. Reference is made to Note 23 for a maturity analysis of the Group's financial liabilities.

After the Sevan Developer delivery deferral agreement was extended on 14 April 2016, the Group will have to finance the USD 473.4 million (31 December 2015: USD 447.1 million) of the final instalment of the Sevan Developer and any mobilisation costs and customer required variations, if and when delivery of the rig occurs. This, however, will only be done if a satisfactory employment contract has been secured upon which external financing can be raised. If the contract is terminated, the paid instalments of USD 52.6 million will be refunded. Under the April 2016 extension, the shipyard has to refund USD 26.3 million of the instalments by 25 May 2016.

Seadrill has provided the Group with the RCF in order to meet the Group's short term liquidity needs beyond what is covered by the Group's senior secured credit facility. Effective 29 December 2014, the RCF with Seadrill was increased to USD 300.0 million and on 28 April 2016 the RCF was extended to 31 December 2017. There are no changes to the terms of the RCF facility under the extension. At year-end, USD 170.0 million was drawn thereunder. With the amended RCF terms, cash flow from operations and the shipyard deferral agreement, the Company is forecasting adequate liquidity for the next 12 to 18 months. If the RCF cannot be renewed at expiry or replaced with another facility on similar or better terms or additional contracts cannot be secured for rigs there is a risk that the Company does not have adequate liquidity beyond the end of 2017.

Seadrill has guaranteed the Group's senior secured credit facility. Under the terms of the agreement, Seadrill guarantees the bank credit facility in exchange for the financial covenants being measured at the Seadrill consolidated level. The Group is exposed to the risk of Seadrill not meeting its financial covenants and other terms in the guarantee and its own loan agreements due to the cross-default provision in the Group's loan agreement.

In April 2016 Seadrill amended its secured credit facilities, which provides relief to certain Seadrill consolidated financial covenants. Seadrill and the Board plans to announce the refinancing plan of the bank facility later in the year, which is expected to provide additional financial strength.

Foreign Currency risk

The Group's assets are denominated in U.S. dollar and most of the Group's revenues are also denominated in U.S. dollar. The daily contract operating rates under the Group's contract with LLOG is in U.S. dollar, and the day rates under its contracts with Petrobras are payable in a combination of U.S. dollar and Brazilian reais. The Group incurs operating costs mainly in U.S. dollar and Brazilian reais. The revenues nominated in Brazilian reais are more or less equal to operating costs in Brazilian reais and therefore constitutes a natural hedge. All interest bearing debt is denominated in U.S. dollar.

The Group may use forward contracts to manage the foreign exchange risk arising from future commercial transactions and recognised assets and liabilities. As of 31 December 2015, no forward contracts have been entered into.

The consequence of a +/- 5% change in exchange rates on profit or loss and equity for the U.S. dollar to Brazilian Real exchange rate is USD 1.9 million (2014: USD 0.3 million).

Price risk

Changes to the price level of goods and services acquired may affect the Group, whereafter price developments are carefully monitored. The Group seeks to handle the risk through contract clauses with its customers. Furthermore, operating cost inflation is mitigated through annual dayrate adjustments for the Sevan Driller and the Sevan Brasil.

Interest rate risk

All of the Group's debt is subject to interest rates, which fluctuate with the market. A change in interest rate of +/- 100 basis points ("bps") would affect the Group's interest cost with +/- USD 12.4 million (2014: USD 15.2 million). This sensitivity analysis has been determined based on an assumption that the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A100 bps increase or decrease is used when reporting interest rate risk internally to the Board and represents management's assessment of a reasonably expected change in interest rates.

The Group continuously considers whether part of the interest rate exposure should be hedged. As of 31 December 2015, no interest rate hedges have been entered into.

Credit risk

Credit risk arises from deposits with banks and financial institutions, as well as exposures to customers. The Group has no significant concentration of credit risk towards any single financial institution and has policies that limit the amount of credit exposure to individual institutions.

The Company's customers are all engaged in the offshore oil and gas industry and consist primarily of major integrated oil companies, independent oil and gas producers and government-owned oil companies. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for amounts outstanding. The Company's current counterparties are Shell for the Sevan Driller, Petrobras for the Sevan Brasil, and LLOG for the Sevan Louisiana. The Group has not had a history of collection problems or significant disputes, and continues to closely monitor ongoing material matters with these customers. No provision for doubtful accounts has been recognised in the periods presented.

The Group is also exposed to the risk of Seadrill not meeting its financial covenants and other terms in the guarantee and its own loan agreements due to the cross-default provision in the Group's loan agreement.

REMUNERATION AND BENEFITS

The remuneration payable to the directors will be set by the annual general meeting. No member of the Board is entitled to severance pay or other benefits upon termination of his/her term.

The CEO receives a base salary, bonus and benefits, which are evaluated in accordance with Section 16 of the Company's Corporate Governance and disclosed in Note 6 to the Consolidated Financial Statements.

The Company does not have an established long-term incentive scheme based on grants of share options. At this date the Board does not intend to develop such a scheme but does have the ability to do so. The share scheme in Sevan Drilling ASA remained with that entity on migration which is no longer in the Sevan Group.

As of 31 December 2015 the Company had not set aside or accrued any amounts for pensions, retirement or similar benefits, except from what is specified in Note 6 to the Consolidated Financial Statements.

CORPORATE GOVERNANCE

The Company is committed to strong corporate governance principles to ensure the creation of optimal shareholder value over time. The objective of the Company's corporate governance is to regulate the interaction between the Company's shareholders, the Board of Directors (the "Board"), the Chief Executive Officer (the "CEO") and the Company's senior management team (the "Executive Management Team").

1. Implementation and reporting on corporate governance

The Norwegian Accounting Act includes provisions on corporate governance in its Section 3-3b which impose a duty on the Company to issue an annual statement on its principles and practice for corporate governance. These provisions also stipulate minimum requirements for the content of this report.

As a company incorporated in Bermuda, the Company is also subject to Bermuda laws and regulations with respect to corporate governance.

The Norwegian Corporate Governance Board has issued the Norwegian Code of Practice for Corporate Governance (the "Code"). Adherence to the Code is based on the "comply or explain" principle, which means that a company must comply with the recommendations of the Code or explain why it has chosen an alternative approach to specific recommendations. The Code may be found at www.nues.no.

Oslo Børs (the Norwegian Stock Exchange) requires listed companies to publish an annual statement of their policy on corporate governance in accordance with the Code in force at the time. The Continuing Obligations of listed companies are available on www.oslobors.no.

The Company complies with the above mentioned rules and regulations, including the current Code, in all material respects, where deviations exist these are noted in the relevant section below.

The Company has not established separate guidelines for corporate social responsibility as recommended by the Code.

2. Business activity

In compliance with the Bermuda Companies Act, the Company's Memorandum of Association describes its objects and purposes as unrestricted. This represents a deviation from the Code, but the Company has clear values and objectives as described below under point 3 which are communicated to the shareholders.

The Company's bye-laws are available at the Company's website, www.sevandrilling.com.

3. Values and objectives

The Company's long term objective, following the clause above, is to become a premier drilling contractor owning units specialising in offshore drilling in ultra-deep water. The Company will pursue the following main strategies to reach its overall objective (1) monetise its current design and technology by delivering safe, efficient and cost effective service to its customers, (2) pursue technological advancements with its unique hull design and (3) develop a strong and motivated work force that delivers outstanding service and results.

4. Health, safety and environment guidelines

The Company believes that all incidents and accidents that cause personal injury or environmental damage should be prevented. It strives to achieve zero incidents and accidents by developing a culture where all employees take responsibility for their own safety, for the safety of their co-workers, for process safety and to protect the environment. The Company encourages all employees to report all unsafe activity or conditions and to stop activities until appropriate risk measures are in place. A management system is established in cooperation with the employees, ensuring commitment to health, safety, the environment, quality management, continuous improvement of operations and risk management.

5. Ethical guidelines

The Company will aim to maintain a high ethical standard in its business concept and relations with customers, suppliers and employees.

6. Company capital and dividend

The Board aims to maintain a satisfactory equity ratio in the Company in light of the Company's goals, strategy and risk profile, thereby ensuring that there is an appropriate balance between equity and other sources of financing. The Board shall regularly assess the Company's capital requirements in light of the Company's strategy and risk profile.

It is an objective for the Company to generate return to the shareholders in the form of dividends and capital appreciation, at a level which is at least equal to other investment possibilities with comparable risk. The Board will establish a dividend policy at a point when the Company is in a position to pay dividends.

According to the Bye-laws, the Board may declare cash dividends or distributions out of contributed surplus to be paid to the shareholders according to their rights and interests including such interim dividends as appear to the Board to be justified by the position of the Company. This is a deviation from section 3 of the Code which states that the background to any proposal for the Board to be given a mandate to approve a distribution of dividends should be explained, but is in accordance with Bermudian law.

The Board is authorised to repurchase treasury shares and to issue any unissued shares within the limits of the authorised share capital. These authorities are neither limited to specific purposes nor to a specific period as recommended in the Code. This constitutes a deviation from section 3 of the Code, but is in accordance with Bermudian law.

7. One class of shares

The Company has one class of shares with equal rights.

8. Transactions with related parties

Any transactions, agreements or arrangements between the Company and its shareholders, members of the Board, members of the Executive Management Team or close associates of any such parties shall only be entered into as part of the ordinary course of business and on an arm's length basis. The Board shall consider to arrange for a valuation to be obtained from an independent third party unless the transaction, agreement or arrangement in question must be considered to be immaterial. The Company's financial statements will in accordance with applicable accounting principles provide further information about transactions with related parties.

Board Members and members of the Executive Management Team shall immediately notify the Board if they have any material direct or indirect interest in any transaction entered into by the Company

9. Transfer of shares

The shares in the Company are freely tradable.

10. The general meeting

All registered shareholders have the right to participate in the General Meetings of the Company, which exercise the highest authority of the Company.

The Bye-laws of the Company provide that at least 7 days' notice of a general meeting shall be given to each shareholder entitled to attend and vote thereat, stating the date, time, place and the general nature of the business to be considered at the meeting. This is a deviation from section 6 of the Code, which requires a minimum of 21 days' notice period but in line with practice for Bermuda companies. The Company will aim to give shareholders longer notice of general meetings than the minimum requirement. Where appropriate, efforts should be made to arrange for representatives from the Board and the Company's auditor to be present at General Meetings.

The Bye-laws of the Company provide that the Chairman of the Board shall preside as chairman at every general meeting. This is a deviation from section 6 of the Code, which requires routines to ensure an independent chairing in the general meeting, but in line with practice for Bermuda companies.

Notices for a General Meeting shall provide information on the procedures shareholders must observe in order to participate in and vote at the General Meeting. The notice should also set out: (i) the procedure for representation at the meeting through a proxy, including a form to appoint a proxy, to allow for shareholders who are unable to attend in person will be able to vote by proxy and (ii) the right for shareholders to propose resolutions in respect of matters to be dealt with at the General Meeting.

11. Nomination Committee

The Company has not established a nomination committee. This is a deviation from Section 7 of the Code which recommends that all listed companies shall have a Nomination Committee. The reason for the deviation is that the Company is of the view that a nomination committee is not required with the current shareholder structure. Members of the Board identify and evaluate proposed candidates for nomination to the Board which are to be appointed at the Annual General Meeting. The Board will consult shareholders with respect to nominations of new directors to the Board.

12. The board composition

The Board is appointed by the General Meeting and under the Bye-laws a Director can be appointed by the Board to fill a casual vacancy. The Board should have the requisite competency to independently evaluate the cases presented by the Executive Management Team as well as the Company's operations, and function well as a body of colleagues.

The composition of the Board should as far as possible ensure that the Board can attend to the common interests of all shareholders and meets the Company's need for expertise, capacity and diversity. Attention should be paid to ensuring that the Board can function effectively as a collegiate body.

Board Members shall be encouraged to own shares in the Company. Board Members may, subject to shareholder approval, also receive options for shares.

13. Sub-committees of the board

The Company shall have a remuneration committee appointed by the Board.

The Company shall have an audit committee appointed by the Board.

The Board may from to time also appoint other sub-committees, as deemed necessary or appropriate.

14. Responsibility of the Board of Directors

The Board shall prepare an annual plan for its work with special emphasis on goals, strategy and implementation. The Board's primary responsibility shall be (i) participating in the development and approval of the Company's strategy, (ii) performing necessary monitoring functions and (iii) acting as an advisory body for the Executive Management Team. Its duties are not static, and the focus will depend on the Company's ongoing needs. The Board is also responsible for ensuring that the operation of the Company is in compliance with the Company's values and ethical guidelines. The Chairman of the Board shall be responsible for ensuring that the Board's work is performed in an effective and correct manner.

The Board shall ensure that the Company has a good management with clear internal distribution of responsibilities and duties. The CEO is responsible for the executive management and day-to-day operations of the Company.

All members of the Board shall on a monthly basis receive information about the Company's operational and financial development. The Company's strategies shall regularly be subject to review and evaluation by the Board.

The Board shall evaluate its work on an annual basis.

15. Risk management and internal control

The Board shall seek to ensure that the Company has sound internal control and systems for risk management that are appropriate in relation to the extent and nature of the Company's activities. The internal control and the systems should also encompass the Company's corporate values and ethical guidelines. The objective of the risk management and internal control shall be to manage exposure to risks in order to ensure successful conduct of the Company's business and to support the quality of its financial reporting.

The Board shall seek to ensure that reviews of the Company's most important areas of exposure to risk and its internal control arrangements are carried out at least annually.

The Board shall seek to provide an account in the annual report of the main features of the Company's internal control and risk management systems as they relate to the Company's financial reporting.

16. Board compensation

The General Meeting shall from time to time determine the Board's remuneration. Remuneration of Board Members shall be reasonable and based on the Board's responsibilities, work, time invested and the complexity of the enterprise. The compensation shall be a fixed annual amount. The Chairman of the Board may receive a higher compensation than the other Board Members. The Board shall be informed if individual Board Members perform other tasks for the Company than exercising their role as Board Members. Work in sub-committees may be compensated in addition to the remuneration received for Board membership.

The Company's financial statements shall provide information about the Board's compensation.

17. Compensation to executive management

The Board decides the salary and other compensation to the CEO, however any compensation linked to the value of the Company's shares shall be approved by the General Meeting. The CEO's salary and bonus shall be determined on the basis of an evaluation with emphasis on the following factors: financial results, business development, employee and customer satisfaction. Any fringe benefits shall be in line with market practice, and should not be substantial in relation to the CEO's basic salary. The Board shall annually carry out an assessment of the salary and other remuneration to the CEO.

The Company's financial statements shall provide information about salary and other compensation to the CEO.

18. Information and communication

The Board and the Executive Management Team assign considerable importance to giving the shareholders quick, relevant and current information about the Company and its activity areas. Emphasis is placed on ensuring that the shareholders receive identical and simultaneous information.

Sensitive information will be handled internally in a manner that minimises the risk of leaks. All contracts to which the Company becomes a party, should contain confidentiality clauses.

The Company shall have clear routines for who is allowed to speak on behalf of the Company on different subjects, and who shall be responsible for submitting information to the market and investor community. The CEO and the CFO shall be the main contact persons of the Company in such respects.

19. Auditor

Each year the auditor shall present to the Board a plan for the audit work and confirm that the auditor satisfies established requirements as to independence and objectivity.

When deemed necessary by the Board, the auditor shall be present at Board meetings where the annual accounts are on the agenda. Whenever necessary, the Board shall meet with the auditor to review the auditor's view on the Company's accounting principles, risk areas, internal control routines etc.

The use of the auditor as a financial advisor to the Company should be sought limited to cases where such use of the auditor does not have the ability to affect or question the auditors' independence and objectiveness as auditor for the Company. Only the Company's CEO and/or CFO shall have the authority to enter into agreements in respect of such counseling assignments.

At the Annual General Meeting, the Board shall present a review of the auditor's compensation as paid for auditory work as far as required by law and remuneration associated with other assignments.

In connection with the auditor's presentation to the Board of the annual work plan, the Board should specifically consider if the auditor to a satisfactory degree also carries out a control function.

The Board shall arrange for the auditor to attend General Meetings as and where appropriate.

CORPORATE SOCIAL RESPONSIBILITY

Being socially responsible is integrated throughout the Group's business. The Board has defined the Group's values and adopted ethical guidelines applicable to all employees and contractors.

Health, safety and environment

The Group's core business principles involve ensuring the health and safety of employees and taking care of the environment. The Group strives for a working environment which provides job satisfaction and good health conditions. The aim is to provide a safe and inspiring working environment characterised by mutual respect and cooperation.

The Group had 12 accidents and no fatalities in 2015 (2014: 28 of which 1 was a fatality).

The Group's drilling units have an environmentally friendly profile. The Group works continuously to minimise and reduce the environmental impacts of their operations. However, their operations involve activities that entail potential risks to the external environment. Emergency response plans have been established to limit harm to the environment in the case of accidental emissions.

Employment and labour practices

The Group makes efforts to ensure all employees are given equal opportunities for personal and professional development. Every employee is treated equally regardless of gender, age, ethnic origin and functional ability. The Group does not tolerate harassment or victimisation of another employee or colleague, whether sexual, racial or otherwise.

The Group has not implemented any specific measures in order to meet the objectives of the Norwegian Discrimination Act and of the Anti-discrimination and Accessibility Act. The need for specific measures in this respect is continuously considered by the Board and Management.

Human rights

The Group's aim is to carry out its business without any violation of basic human rights. Operations are carried out in accordance with internationally recognised human rights standards. The Group supports the UN's Universal Declaration of Human Rights and its work to end forced labour, discrimination and child labour.

Anti-corruption

The Group rejects all forms of corruption, and seeks to identify and eliminate all facilitation payments and enhance transparency in all business transactions. If any employee is in doubt, it is an obligation to elevate the ethical dilemma to their supervisor or manager.

In November 2013, the Board aligned its anti-bribery and corruption compliance manual with Seadrill.

At least once a year a risk assessment is conducted and the results communicated to the Board. In 2015, no additional risks were identified that were not documented in the manual.

RESPONSIBILITY STATEMENT

The Board and the CEO have today considered and approved the report and the financial statements for the Sevan Drilling Group and the parent company Sevan Drilling Limited for the year ending 31 December 2015.

The consolidated financial statements of Sevan Drilling Limited have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and such additional disclosure requirements as stated in the Norwegian Accounting Act that are applicable per 31 December 2015.

The financial statements for Sevan Drilling Limited have been prepared in accordance with the Norwegian Accounting Act and International Financial Reporting Standards (IFRS) that are applicable per 31 December 2015. The Director's report for the Sevan Drilling Group and Sevan Drilling Limited has been prepared in accordance with the Norwegian Accounting Act and the Norwegian Accounting Standard no. 16 applicable per 31 December 2015.

We confirm that, to the best of our knowledge:

• the financial statements for the Sevan Drilling Group and Sevan Drilling Limited for the year ending 31 December 2015 have been prepared in accordance with applicable accounting standards;
• the information in the financial statements gives a true and fair view of the Sevan Drilling Group's and Sevan Drilling Limited's assets, liabilities, financial position as of 31 December 2015 and results of operations for the year ending 31 December 2015; and
• our report for the year ending 31 December 2015 includes a true and fair view of:
• the development, results of operations and position for the Sevan Drilling Group and Sevan Drilling Limited; and
• the principal risks and uncertainties relevant to the operation of the Sevan Drilling Group and Sevan Drilling Limited.

Oslo, 28 April 2016

The Board of Directors

Consolidated Financial Statements For the Year Ended 31 December 2015

Consolidated Financial Statements

Consolidated Statement of profit or loss

USD millions	Note	2015	2014
Operating revenue	4	366.8	321.0
Operating expense	5	(42.9)	(43.6)
Depreciation, amortisation and impairment	11	(270.4)	(173.2)
Employee benefit expense	6	(70.6)	(86.9)
Other operating expenses	5	(65.9)	(66.6)
Foreign exchange (loss)/gain related to operations		(0.6)	1.0
Total operating expense		(450.4)	(369.3)
Operating loss		(83.6)	(48.3)
Financial expense	7	(67.3)	(70.2)
Net financial items		(67.3)	(70.2)
Loss before tax		(150.9)	(118.5)
Tax expense	8	(0.9)	(6.5)
Net Loss		(151.8)	(125.0)
Attributable to:
Equity holders of the Company		(151.8)	(125.0)
Loss per share for loss attributable to the equity holders of the Company during the year (USD per share)
Basic loss per share	10	(5.11)	(4.20)
Diluted loss per share	10	(5.11)	(4.20)
The 2014 earnings per share has been restated as a result of the company migration which occurred in the year. See Note 10 for further information.

Consolidated Statement of Comprehensive Income

	2015	2014
Net Loss	(151.8)	(125.0)
Items that may be reclassified to profit or loss
Foreign currency translation	—	(1.0)
Income tax relating to these items	—	—
Total Comprehensive Loss	(151.8)	(126.0)
Attributable to:
Equity holders of the Company	(151.8)	(126.0)

Consolidated Balance Sheet

USD millions	Note	2015	2014
ASSETS
Drilling rigs	11	1,565.5	1,833.8
Other fixed assets	11	0.6	1.1
Deferred tax asset	8	1.2	—
Other non-current assets	12	13.5	24.9
Total non-current assets		1,580.8	1,859.8
Inventories	14	51.3	46.5
Trade and other receivables	15	79.2	55.1
Cash and cash equivalents		42.4	30.2
Total current assets		172.9	131.8
Total assets		1,753.7	1,991.6
EQUITY
Share capital	18	3.0	108.6
Share premium	18	713.5	666.0
Other equity		(310.6)	(216.9)
Total equity		405.9	557.7
LIABILITIES
Interest bearing debt	16	937.7	1,188.0
Other non-current liabilities		1.7	0.4
Total non-current liabilities		939.4	1,188.4
Trade and other payables	17	38.0	41.1
Interest bearing debt	16	304.6	133.0
Other current liabilities	17	65.8	71.4
Total current liabilities		408.4	245.5
Total liabilities		1,347.8	1,433.9
Total equity and liabilities		1,753.7	1,991.6

Consolidated Statement of Changes in Equity

USD millions	Other equity
				Equity Settled Employee
	Share Capital	Share Premium	General Reserve	Benefits Reserve	Retained Earnings	Total Equity
Equity as at 1 January 2015	108.6	666.0	280.0	2.4	(499.3)	557.7
Net loss	—	—	—	—	(151.8)	(151.8)
Capital decrease of Sevan Drilling ASA	(108.5)	—	—	—	108.5	—
Parent Migration	2.9	47.5	(280.0)	—	229.6	—
Equity as at 31 December 2015	3.0	713.5	—	2.4	(313.0)	405.9
Equity as at 1 January 2014	108.6	666.0	280.0	2.4	(373.3)	683.7
Net loss	—	—	—	—	(125.0)	(125.0)
Foreign currency translation	—	—	—	—	(1.0)	(1.0)
Equity as at 31 December 2014	108.6	666.0	280.0	2.4	(499.3)	557.7

Consolidated Cash Flow Statement

USD millions	Note	2015	2014
Cash flows from operating activities
Cash from operations	19	147.9	45.5
Tax paid		(4.8)	(1.8)
Interest paid		(45.7)	(53.2)
Net cash generated from/(used in) operating activities		97.4	(9.5)
Cash flows from investing activities
Purchases of property, plant and equipment and other non-current assets	11	(30.8)	(29.0)
Refund of yard instalment	11	29.0	—
Net cash flow used in investing activities		(1.8)	(29.0)
Cash flows from financing activities
Proceeds from interest-bearing debt	16	95.0	115.0
Repayment of interest-bearing debt	16	(180.0)	(175.0)
Net cash flow used in financing activities		(85.0)	(60.0)
Net cash flow for the year		10.6	(98.5)
Foreign Exchange on Cash and Cash Equivalents		1.6	—
Cash balance at beginning of period		30.2	128.7
Cash and cash equivalents at the end of the year		42.4	30.2

	2015	2014
Cash at bank and in hand	42.4	30.2
Total cash and cash equivalents	42.4	30.2

Notes to the Consolidated Financial Statements

Note 1 – Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all financial years presented, and are the same as previous periods. The amounts presented in the Consolidated Financial Statements are stated in USD, the primary currency of the economic environment in which the Group operates. All figures are in USD million unless otherwise stated.

1.1 Basis of Preparation

The Consolidated Financial Statements of the Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union (EU) that are effective for the year ended 31 December 2015.

The Consolidated Financial Statements have been prepared on a going concern basis under the historical cost convention.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Company's accounting policies.

1.1.1 Changes in Accounting Policy and Disclosures

a) New and amended standards adopted by the Group

Standards and amendments effective for the first time for their annual reporting period commencing 1 January 2015 are not material to the Group, these include:

• Annual Improvements to IFRS's - 2010 - 2012 Cycle and 2011 - 2013 Cycle.

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective, these include:

• Annual Improvements to IFRS's 2012 2014 Cycle; and
• Disclosure Initiative: Amendments to IAS 1.

As these amendments merely clarify the existing requirements, they do not affect the Group's accounting policies or any of the disclosures.

b) New standards and interpretations not yet adopted

The following new standards and interpretations have been published that are not mandatory for 31 December 2015 reporting periods and have not been early adopted by the Group.

• IFRS 15 Revenue from contracts with customers¹
• IFRS 9 Financial instruments²

¹Effective for annual periods beginning on or after 1 January 2017

²Effective for annual periods beginning on or after 1 January 2018

The Directors of the Company do not anticipate that the application of these standards and amendments will have a significant impact on the Group's Consolidated Financial Statements in the period of initial application.

1.2 Consolidation

Subsidiaries comprise all entities over which the Group has control. The Group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that ceases. The Group uses the acquisition method to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred assumed at the date of exchange. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of the acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the income statement immediately.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group.

1.3 Segment Reporting

The Board of the Company (which is identified as the chief operating decision maker in the Group ("CODM")), along with management has reassessed the operating segments in 2015. The Group continues to aggregate its rigs into a single reporting unit representing the fleet as a whole, based on evaluation of IFRS 8.12 as aggregating same core characteristics.

The CODM evaluates the operating performance of each rig but is focused on the overall results of the Group, based on several key metrics at the Group level, including revenue, operating profit, EBITDA and net cash.

1.4 Foreign Currency Translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in the profit or loss.

Foreign exchange gains and losses that relate to interest-bearing debt and cash and cash equivalents are presented (net) as a separate line item in the income statement within net financial items. Foreign exchange gains and losses that relate to operations are presented (net) as a separate line item in the income statement within operating expenses.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments are taken to other comprehensive income if relevant. When a foreign operation is sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

1.5 Property, Plant and Equipment

All property, plant and equipment are stated at historical cost less accumulated depreciation.

Historical cost includes expenditure that is directly attributable to the acquisition of the relevant asset. Costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably.

Costs related to periodic overhauls of drilling rigs are capitalised under capital assets and amortised over the anticipated period between overhauls. This is generally 5 years. Related costs are primarily yard costs and the cost of employees directly involved in the work. Amortisation costs for periodic overhauls are included in depreciation, amortisation and impairment expense. Costs for other repair and maintenance activities are expensed as incurred and are included in operating expenses.

General and specific borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (which are assets that necessarily take a substantial period of time to get ready for their intended use) are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.

Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over the estimated useful lives. The estimated useful life of our Drilling Units, when new, is 30 years.

Other fixed assets consist of furniture, fixtures and equipment that are depreciated using the straight-line method over their estimated useful lives ranging from 3-10 years.

Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount exceeds the recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets of groups of assets (cash-generating units).

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement.

1.6 Construction in Progress

Construction contracts are capitalised as construction in progress based on instalments payable to the yard and other suppliers. Received and approved invoices are the basis of capitalisation. Insurance and net financial expenses during the construction period are capitalised as construction in progress. Cost of labour directly attributable to the construction of the Group's rigs is also capitalised. Costs of training, manning and other preoperational activities are expensed as incurred.

1.7 Financial Instruments

Loans and receivables are measured at fair value at the transaction date and subsequently re-measured at amortised cost. Loans and receivables are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market. Financial instruments are classified as current, except for those with maturities greater than 12 months after the balance sheet date, in which case they are classified as non-current.

1.8 Share-based Payments

The Group has an equity-settled, share-based compensation plan, under which employees can be awarded equity instruments (options) to subscribe for shares in the Company as a long term incentive. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount expensed has been determined by reference to the fair value of the options granted:

• including any market performance conditions (for example, an entity's share price);
• excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and
• including the impact of any non-vesting conditions (for example, the requirement for employees to save).

Non-market performance and service conditions were included in assumptions about the number of options that were expected to vest. The total expense was recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. 90 days after Seadrill's acquisition of a controlling interest in the Company, all outstanding options became vested. No new options have been granted.

At the end of each reporting period, the Group revised its estimates of the number of options that were expected to vest based on the non-market vesting conditions. It recognised the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

The grant by the Company of options over its shares to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts.

The social security contributions payable in connection with the grant of the options is considered an integral part of the grant itself, and the charge will be treated as a cash-settled transaction.

1.9 Inventories

Inventories consist of diesel and spare parts on the rigs which do not meet the definition of property, plant and equipment. Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Cost is determined using the average cost method.

1.10 Trade Receivables

Trade receivables are amounts due from customers for services performed in the ordinary course of business and are classified as current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The impairment charge is recognised in the income statement as 'other operating expense'.

1.11 Cash and Cash Equivalents

In the consolidated statement of cash flow, cash and cash equivalents include cash in hand, bank deposits, and other short-term highly liquid investments with a maturity of less than three months.

1.12 Share Capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company acquires the Company's equity share capital (treasury shares), the consideration paid, including any directly attributable costs (net of income taxes) is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable transaction cost and income tax, is included in equity attributable to the Company's equity holders.

1.13 Interest-Bearing Debt

Interest-bearing debt is initially recognised at fair value, net of transaction cost incurred. Interest-bearing debt is subsequently stated at amortised cost; any difference between the proceeds (net of transaction cost) and the redemption value is recognised in the income statement over the period of the interest-bearing debt using the effective interest method. Interest-bearing debt is classified as a current liability unless the Group has an unconditional right to defer settlement for more than 12 months after the balance sheet date.

1.14 Current and Deferred Income Tax

The tax expense for the period comprises current tax and the change in deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit and loss. Deferred income tax is determined using tax rates (and legislation) that have been enacted or substantially enacted by balance sheet date and are expected to apply when the deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. The tax base included in the calculation of deferred income tax is calculated in local currency and translated into USD at foreign exchange rates prevailing at the balance sheet date. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

1.15 Provisions

A provision is recognised in the balance sheet when the Group has a 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 the amount has been reliably estimated.

Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured as the present value of the expected expenditures required to settle the obligation using a pre-tax discount rate that accounts for time value of money and risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

1.16 Trade Payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method and are classified as current liabilities.

1.17 Revenue Recognition

Revenue comprises the fair value of the consideration receivable for the sale of services and charter in the ordinary course of the Group's activities. Revenue is shown, net of value-added tax, estimated returns, rebates and discounts and after eliminated sales within the Group.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group's activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue is recognised as follows:

Charter revenues are recognised on a straight-line basis over the contract period during which the services are rendered, and at the rates established in the underlying contracts. Under some contracts, the Company is entitled to additional payments for meeting or exceeding certain performance targets. Such additional payments are recognised when any uncertainties are resolved or upon completion of the drilling program.

Penalties imposed as compensation to the customer for delivery of a rig later than contractually agreed shall be accrued for on a separate account in the balance sheet at the date the charter contract commences. If any part of the penalty is recoverable from vendors due to directly correlated delays caused by them, the penalty recoverable from the vendor shall offset the accrual of penalties payable to the customer. The net accrued amount is amortised over the fixed term of the charter contract as a reduction of income.

Mobilisation expenses are offset by mobilisation revenues and recognised using the straight line method over the full fixed term of the underlying charter contract, and classified as operating expense.

Interest income is recognised on a time-proportion basis using the effective interest method.

1.18 Operating Expenses

Rig operating expenses are costs associated with operating a rig that is either in operation or stacked, and include the remuneration of offshore crews and related costs, rig supplies, insurance costs, expenses for repairs and maintenance as well as costs related to onshore personnel in various locations where we operate the rigs and are expensed as incurred.

1.19 Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

1.20 Impairment of Non-Financial Assets

Assets that have an indefinite useful life are not subject to amortisation but are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less cost to sell and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels at which separate cash flows are identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Note 2 – Accounting Estimates and Judgments

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are assumed to be reasonable under current circumstances.

2.1 Critical Accounting Estimates and Assumptions

The Group makes estimates and assumptions concerning the future. These estimates and assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed below.

Impairment of assets

The Group has tested whether its rigs have suffered any impairment, in accordance with the accounting policy stated in Note 1.5. The recoverable amounts of the assets have been determined based on value-in-use calculations. These calculations require the use of estimates.

Income taxes

The Group is subject to income taxes in various jurisdictions. Judgment is required in determining the provision for income taxes. During the ordinary course of business, transactions and calculations occur for which the ultimate tax effect is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

The accounting for deferred income tax assets relies upon management's judgment of the Group's ability to generate future positive taxable income in each respective jurisdiction.

Residual value and useful life

The Group uses estimates when assessing a capital asset's useful life and residual value to determine the depreciation plan for each unit in operation. The actual lives and residual values of these assets can vary depending on 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 certain events occur which directly impact our assessment of their remaining useful lives and include changes in operating condition, functional capability and market and economic factors.

2.2 Impairment testing

In line with IAS 36, the Group reviews the carrying amounts of tangible assets at the end of each reporting period to determine whether there is any indication that those assets may be impaired. An impairment is recognised to the extent that the recoverable is less than the carrying amount. The recoverable amount is the higher of the value in use and fair value less costs of disposal.

In general, impairment analyses are based on expected costs, utilisation and dayrates for the estimated remaining useful lives of the asset or group of assets being assessed. They involve expectations about future cash flows generated by our assets, and reflect management's assumptions and judgments regarding future industry conditions and their effect on future utilisation levels, dayrates and costs. The use of different estimates and assumptions could result in significantly different carrying values of our assets and could materially affect our results of operations.

See Note 11 for details of impairment review performed including key judgements.

Note 3 – Financial risk management

Financial risk

The Group's activities expose us to a variety of financial risks including liquidity and foreign exchange risk. The Group's overall risk management program seeks to minimise potential adverse effects on the Group's financial performance.

Risk management for the Group is carried out by the treasury function that is integrated in Seadrill's management organisation. Final authority is, however, retained within the Company. Treasury identifies, evaluates and hedges financial risks in close co-operation with the operating units within the Group. The Board approves the principles for overall risk management, as well as policies covering specific areas, such as foreign currency risk, price risk, interest rate risk, credit risk and liquidity risk.

Liquidity risk

The Group's objective is to maintain flexibility of financing by providing sufficient credit lines when managing liquidity. This may include maintaining sufficient cash and marketable securities, the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions. Liquidity is sensitive to operational uptime on the units performing contracts. Reference is made to Note 23 for a maturity analysis of the Group's financial liabilities.

After the Sevan Developer delivery deferral agreement was extended on 14 April 2016, the Group will have to finance the USD 473.4 million (31 December 2015: USD 447.1 million) of the final instalment of the Sevan Developer and any mobilisation costs and customer required variations, if and when delivery of the rig occurs. This, however, will only be done if a satisfactory employment contract has been secured upon which external financing can be raised. If the contract is terminated, the paid instalments of USD 52.6 million will be refunded. Under the April 2016 extension, the shipyard has to refund USD 26.3 million of the instalments by 25 May 2016.

Seadrill has provided the Group with the RCF in order to meet the Group's short term liquidity needs beyond what is covered by the Group's senior secured credit facility. Effective 29 December 2014, the RCF with Seadrill was increased to USD 300 million and on 28 April 2016 the RCF was extended to 31 December 2017. There are no changes to the terms of the RCF facility under the extension. At year-end, USD 170.0 million was drawn thereunder. With the amended RCF terms, cash flow from operations and the shipyard deferral agreement, the Company is forecasting adequate liquidity for the next 12 to 18 months. If the RCF cannot be renewed at expiry or replaced with another facility on similar or better terms or additional contracts cannot be secured for rigs there is a risk that the Company does not have adequate liquidity beyond the end of 2017.

Seadrill has guaranteed the Group's senior secured credit facility. Under the terms of the agreement, Seadrill guarantees the bank credit facility in exchange for the financial covenants being measured at the Seadrill consolidated level. The Group is exposed to the risk of Seadrill not meeting its financial covenants and other terms in the guarantee and its own loan agreements due to the cross-default provision in the Group's loan agreement.

In April 2016 Seadrill amended its secured credit facilities, which provides relief to certain Seadrill consolidated financial covenants. Seadrill and the Board plans to announce the refinancing plan of the bank facility later in the year, which is expected to provide additional financial strength.

Foreign Currency risk

The Group's assets are denominated in U.S. dollar and most of the Group's revenues are also denominated in U.S. dollar. The daily contract operating rates under the Group's contract with LLOG is in U.S. dollar, and the day rates under its contracts with Petrobras are payable in a combination of U.S. dollar and Brazilian reais. The Group incurs operating costs mainly in U.S. dollar and Brazilian reais. The revenues nominated in Brazilian reais are more or less equal to operating costs in Brazilian reais and therefore constitutes a natural hedge. All interest bearing debt is denominated in U.S. dollar.

The Group may use forward contracts to manage the foreign exchange risk arising from future commercial transactions and recognised assets and liabilities. As of 31 December 2015, no forward contracts have been entered into.

The consequence of a +/- 5% change in exchange rates on profit or loss and equity for the U.S. dollar to Brazilian Real exchange rate is USD 1.9 million (2014: USD 0.3 million).

Price risk

Changes to the price level of goods and services acquired may affect the Group, whereafter price developments are carefully monitored. The Group seeks to handle the risk through contract clauses with its customers. Furthermore, operating cost inflation is mitigated through annual dayrate adjustments for the Sevan Driller and the Sevan Brasil.

Interest rate risk

All of the Group's debt is subject to interest rates, which fluctuate with the market. A change in interest rate of +/- 100 basis points ("bps") would affect the Group's interest cost with +/- USD 12.4 million (2014: USD 15.2 million). This sensitivity analysis has been determined based on an assumption that the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A100 bps increase or decrease is used when reporting interest rate risk internally to the Board and represents management's assessment of a reasonably expected change in interest rates.

The Group continuously considers whether part of the interest rate exposure should be hedged. As of 31 December 2015, no interest rate hedges have been entered into.

Credit risk

Credit risk arises from deposits with banks and financial institutions, as well as exposures to customers. The Group has no significant concentration of credit risk towards any single financial institution and has policies that limit the amount of credit exposure to individual institutions.

The Company's customers are all engaged in the offshore oil and gas industry and consist primarily of major integrated oil companies, independent oil and gas producers and government-owned oil companies. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for amounts outstanding. The Company's current counterparties are Shell for the Sevan Driller, Petrobras for the Sevan Brasil, and LLOG for the Sevan Louisiana. The Group has not had a history of collection problems or significant disputes, and continues to closely monitor ongoing material matters with these customers. No provision for doubtful accounts has been recognised in the periods presented.

The Group is also exposed to the risk of Seadrill not meeting its financial covenants and other terms in the guarantee and its own loan agreements due to the cross-default provision in the Group's loan agreement.

Note 4 – Operating Revenue

Revenue is based on three contracts with two customers. There is no inter-segment revenue. All revenue is from continuing operations.

Revenues from external customers by country, based on the destination of the customer:

	2015	2014
Brazil	246.1	255.4
US	120.7	64.0
Other countries	—	1.6
Total	366.8	321.0

Revenue applicable to Brazil and US are both derived from a single external customer in each country during 2015 and 2014.

Note 5 – Operating expense

	2015	2014
Expenses incurred during day to day operations	42.9	43.6
Total operating expense	42.9	43.6
Travel, training and office costs	9.9	10.1
Management fee charges	15.2	11.5
Consultancy	6.0	10.1
Marketing	0.1	0.1
Other	34.7	34.8
Total other operating expense	65.9	66.6

Operating expenses and other operating expenses includes management charges from subsidiaries of the Group's immediate controlling party, Seadrill. Management fees charged in 2015 amounted to USD 25.0 million (2014: USD 24.5 million). Management charges included pre-commencement rig services, rig crew and staff management services, technical and commercial management services, insurance arrangements, accounting services, fuel procurement as well as other additional services.

In 2015 management re-mapped the other operating expenses to more clearly define these costs.

Specification of auditor's fee (excl. VAT)

	2015	2014
Statutory audit	0.7	0.3
Other assurance services	—	0.1
Tax consulting	—	0.1
Other assistance from auditor	0.2	—
Total audit fees	0.9	0.5

Note 6 – Employee Benefit Expense

	2015	2014
Wages and salaries	58.2	68.3
Bonuses	1.6	3.5
Employer's contribution tax	9.0	13.0
Pension costs	1.8	2.1
Total employee expense	70.6	86.9

Other benefits include severance paid as a result of the restructuring activities. In 2015 the Group paid USD 0.1 million in severance costs (2014: USD 2.3 million).

Remuneration of Senior Management and Board of Directors

USD thousands		2015
		Salaries	Retirement benefits	Other benefits	Share Options	Start date	End date
Scott McReaken	CEO	492.3	—	18.2	—
Birgitte R. Vartdal	Chairman	49.8	—	—	—
Kristian Johansen	Vice chairman	44.5	—	—	—		Mar-16
Svend Anton Maier	Board member	20.5	—	—	—	Aug-15
Erling Lind *	Board member	29.0	—	—	—		Aug-15
Per Wullf	Board member	41.0	—	—	—
Ragnhild M. Wiborg	Board member	42.8	—	—	—
Total remuneration paid		719.9	—	18.2	—

* Invoiced from Advokatfirmaet Wiersholm AS

The table shows compensation paid during the year calculated using average exchange rates for the year.

Effective 17 August 2015, Sevan Drilling Management AS seconded Scott McReaken to North Atlantic Management AS on a part time basis assigned to the position of Chief Financial Officer which includes the provision of such services to North Atlantic Drilling Ltd. The total salary and benefits in the table reflects salary earned for services rendered to Sevan Drilling, net of management services provided to North Atlantic Management AS.

No loans were granted to the CEO, the Chairman of the Board, or to any other related party.

On completion of the migration, on 29 June 2015, the Board of the Company was identical to that of Sevan Drilling ASA. On 26 August 2015 Mr Erling Lind resigned as Chairman and Director of the Board. Ms Birgitte R. Vartdal was appointed Chairman of the Board. On 14 March 2016 Kristian Johansen resigned as Vice Chairman and Director of the Board.

In 2015 Kristian Johansen has been the leader of the audit committee and in August 2015, Ragnhild M. Wiborg replaced Birgitte R. Vartdal as a member of the audit committee.

USD thousands		2014
		Salaries	Retirement benefits	Other benefits	Share Options	Start date	End date
Scott McReaken	CEO	710.1	13.8	31.8	—
Pascal Busch	VP QHSE	114.9	—	861.8	—		Mar-14
Eileen Aspehaug	VP HR	189.7	16.3	418.7	—
Erling Lind *	Chairman	79.7	—	—	—
Kristian Johansen	Vice chairman	60.5	—	—	—
Benedicte S. Fasmer	Board member	30.3	—	—	—		Jun-14
Birgitte R. Vartdal	Board member	60.5	—	—	—
Per Wullf	Board member	55.8	—	—	—
Ragnhild M. Wiborg	Board member	27.9	—	—	—	Jun-14
Total remuneration paid		1,329.4	30.1	1,312.3	—

* Invoiced from Advokatfirmaet Wiersholm AS

The table shows compensation paid during the year and calculated using average exchange rates for the year.

No loans were granted to the CEO, the Chairman of the Board, or to any other related party. Other benefits include severance paid as a result of the restructuring activities. For the Group in total USD 2.3 million was paid in 2014 for severance (2013: USD 6.9 million).

In 2014 Kristian Johansen has been the leader of the audit committee and in June 2014, Birgitte R. Vartdal replaced Benedicte Schilbred Fasmer as a member of the audit committee.

Movements in number of share options outstanding and related weighted average exercise prices are as follows:

	2015		2014
	Average exercise price per share option	Options (thousands)	Average exercise price per share option	Options (thousands)
At 1 January	NOK 5.75	9,783.3	NOK 5.75	9,783.3
Granted	—	—	—	—
Forfeited	—	—	—	—
Exercised	—	—	—	—
Expired	—	—	—	—
Sevan Drilling ASA migration and restructure	NOK 5.75	(9,783.3)	0	—
At 31 December	NOK -	—	NOK 5.75	9,783.3

The share based payment options which existed in 2014 remained in Sevan Drilling ASA on the restructuring undertaken in 2015.

In 2014 out of the 9,738,326 options 9,738,326 were exercisable. No options were exercised in 2014, and the options were excluded from the earnings per share calculation as they are antidilutive.

Note 7 – Financial Expense

	2015	2014
Interest expense	37.2	41.2
Amortisation of finance fees	6.5	13.1
Commitment and guarantee fees to Seadrill	23.6	15.9
Total financial expense	67.3	70.2

Note 8 – Income Tax Expense

	2015	2014
Current tax	2.1	6.5
Change deferred tax	(1.2)	—
Net tax expense	0.9	6.5
Loss before tax	(150.9)	(118.5)
Tax at domestic tax rates applicable to profits in holding company Bermuda 0% (2014: Norway 27%)	—	(32.0)
Additional unrecognised deferred tax asset	—	33.2
Prior year adjustments	2.7	—
Effect of other tax jurisdictions	(1.8)	5.3
Tax expense	0.9	6.5
Temporary differences	2015	2014
Foreign currency	16.6	(8.2)
Other	(5.4)	0.7
Total temporary differences	11.2	(7.5)
Losses carried forward	307.2	197.8
Basis for deferred tax	318.4	190.2
Deferred tax asset @ 25% (2014: 27%)	79.6	51.4
Deferred tax asset in balance sheet	1.2	—

Total tax expense in 2015 was USD 0.9 million (2014: USD 6.5 million) represented by USD 1.8 million tax credit as a consequence of the Sevan Louisiana operating in the U.S. Gulf of Mexico and the Sevan Brasil and the Sevan Driller operating offshore in Brazil offset by prior year adjustments USD 2.7 million.

At the reporting date, the Group has tax losses carried forward in respect of Norwegian and Brazilian tax jurisdictions of USD 307.2 million (2014: USD 197.8 million), with no expiration date, and a USD 16.6 million asset (2014: liability USD 8.2 million) relating to foreign currency, for which no deferred tax asset is recognised in the balance sheet. Temporary differences of USD 5.4 million (2014: asset USD 0.7 million) primarily relating to accruals and provisions, for which no deferred tax liability is recognised in the balance sheet.

Note 9 – Dividend per Share

No dividend was paid in 2015. No dividend will be proposed at the 2016 AGM.

Note 10 – Earnings per Share

	2015	2014
Loss attributable to equity holders of the Company (USD million)	(151.8)	(125.0)
Weighted average number of ordinary shares on issue (millions)	29.7	29.7
Basic and diluted earnings per share (USD per share)	(5.11)	(4.20)

The 2014 comparative has been adjusted to reflect the capital decrease which occurred as part of the migration and restructuring during 2015. As per IAS 33, earnings per share, basic and diluted EPS are adjusted retrospectively to reflect the change in number of ordinary or potential ordinary shares outstanding.

Basic earnings per share were calculated by dividing the profit/(loss) attributable to equity holders in the Company by the weighted average number of ordinary shares in issue during the year. Options are anti-dilutive at 31 December 2014, and not included in calculating diluted earnings per share. The basic and diluted earnings per share figures are identical in 2015 and 2014.

Note 11 – Property, Plant and Equipment

	Construction in Progress (CIP)*	Unit in Operation (UIO)	Total Drilling Units	Other assets	Total
Book value 1 January 2015	124.4	1,709.4	1,833.8	1.1	1,834.9
Additions	—	30.8	30.8	—	30.8
Refund from yard	(29.0)	—	(29.0)	—	(29.0)
Disposals	(0.2)	—	(0.2)	—	(0.2)
Impairment	—	(196.5)	(196.5)	—	(196.5)
Depreciation	—	(73.4)	(73.4)	(0.5)	(73.9)
Book value 31 December 2015	95.2	1,470.3	1,565.5	0.6	1,566.1
Cost	95.2	2,037.1	2,132.3	9.7	2,142.0
Accumulated impairment	—	(298.1)	(298.1)	—	(298.1)
Accumulated depreciation	—	(268.7)	(268.7)	(9.1)	(277.8)
Book value 31 December 2015	95.2	1,470.3	1,565.5	0.6	1,566.1

* USD 78.9 million secured by guarantees from the shipyard.

	Construction in Progress (CIP)*	Unit in Operation (UIO)	Total Drilling Units	Other assets	Total
Book value 1 January 2014	639.3	1,277.3	1,916.6	19.2	1,935.8
Additions	60.3	21.6	81.9	0.3	82.2
Disposals	(6.8)	-	(6.8)	(3.1)	(9.9)
Transfer to UIO	(568.4)	583.3	14.9	(14.9)	-
Impairment	-	(101.6)	(101.6)	-	(101.6)
Depreciation	-	(71.2)	(71.2)	(0.4)	(71.6)
Book value 31 December 2014	124.4	1,709.4	1,833.8	1.1	1,834.9
Cost	692.8	1,423.0	2,115.8	24.6	2,140.4
Transfer to UIO	(568.4)	583.3	14.9	(14.9)	-
Accumulated impairment	-	(101.6)	(101.6)	-	(101.6)
Accumulated depreciation	-	(195.3)	(195.3)	(8.6)	(203.9)
Book value 31 December 2014	124.4	1,709.4	1,833.8	1.1	1,834.9

* USD 105.2 million secured by guarantees from the shipyard.

No borrowing costs were capitalised in 2015 due to the completion of the construction of the Sevan Developer in the period. In 2014 capitalised borrowing costs were USD 5.5 million, an interest rate of 5% was used for capitalisation. Security arrangements relating to drilling units are described in Note 21and commitments relating to capital expenditure are described in Note 22.

Impairment testing of assets

The recoverable values of the rigs were calculated using an income method discounted cash flow. The key assumptions applied for the purpose of impairment testing of rigs in operation include a discount rate and expected future cash flows. To discount the future cash flows, management used a post-tax weighted average cost of capital (WACC) of 10%. Estimated future cash flows are based on the Group's five-year forecast and utilise several assumptions including forecasted operational expense, operational taxes, utilisation (94%) and dayrates (USD 175,000 per day with recovery to mid USD 400,000 per day by 2020). Dayrates are based on current contract amounts for the remaining contract term and expected market rates in the rigs'recontract years for forecasts beyond the contracted periods. The Company has assumed long-term day rates based on cyclical averages, but no growth above these expected market rates has been assumed for the remainder of the rig lives beyond the forecast period.

Due to the significant decline in demand in the ultra deep-water drilling market, the timeline for a projected recovery thereof, and ongoing negotiations with Petrobras, management concluded that recoverable values of the Sevan Driller and the Sevan Brasil are less than their carrying amounts. Therefore, the carrying amounts of these rigs have been reduced to their estimated recoverable values through a non-cash impairment charge. Accordingly, the Sevan Driller was impaired by USD 149.6 million and the Sevan Brasil was impaired by USD 46.9 million.

Based on sensitivity analyses performed, the Company believes that reasonable movements in the key assumptions could result in a further impairment loss to be recognised. Thus there is a possibility the Group may recognise impairment in the following year if the facts underlying the key assumptions change over the coming year. An increase in the WACC of 100 basis points to 11% would increase the impairment by approximately USD 76.6 million, and a reduction of expected market rates in the re-contract years of 5% would increase the impairment by approximately USD 63.3 million over the whole fleet.

Note 12 – Other Non-Current Assets

	2015	2014
Net late delivery penalties	1.3	2.7
Net mobilisation expense	12.2	21.7
Other	—	0.5
Total other non-current assets	13.5	24.9

Net late delivery penalties include penalties incurred for the late delivery of the service element of the charter contract for the Sevan Driller and the Sevan Brasil. Net late delivery penalties will amortise over the fixed contract period as a reduction in operating revenue. Net mobilisation will amortise over the fixed contract period as an operating expense.

Note 13 – Subsidiaries

Overview of the Group structure as of 31 December 2015:

Subsidiaries	Registered office	Interest held	Functional currency	Principal activities
Sevan Drilling Rig II AS	Norway	100%	USD	Rig operator
Sevan Drilling AS	Norway	100%	USD	Holding company
Sevan Drilling Rig V AS	Norway	100%	USD	Holding company
Sevan Drilling Rig VI AS	Norway	100%	USD	Holding company
Sevan Drilling Management AS	Norway	100%	USD	Rig management
Sevan Drilling Rig VIII AS	Norway	100%	USD	Holding company
Sevan Drilling Pte Ltd	Singapore	100%	USD	Holding company
Sevan Drilling Rig II Pte Ltd	Singapore	100%	USD	Holding company
Sevan Drilling Rig V Pte Ltd	Singapore	100%	USD	Holding company
Sevan Drilling Rig VI Pte Ltd	Singapore	100%	USD	Rig owner
Sevan Drilling Rig IX Pte Ltd	Singapore	100%	USD	Rig management
Sevan Drilling Limited	UK	100%	USD	Holding company
Sevan Drilling North America LLC	USA	100%	USD	Rig operator
Sevan Driller Ltd	Bermuda	100%	USD	Rig owner
Sevan Brasil Ltd	Bermuda	100%	USD	Rig owner
Sevan Developer Ltd	Bermuda	100%	USD	Holding company
Sevan Louisiana Hungary KFT	Hungary	100%	USD	Rig owner
Sevan Marine Servicos de Perfuracao Ltda	Brazil	100%	USD	Holding company
Sevan Investimentos do Brasil Ltda	Brazil	100%	USD	Service company

Note 14 – Inventories

	2015	2014
Diesel stock on-board	2.0	2.7
Spares on-board Sevan Driller	15.4	14.1
Spares on-board Sevan Brasil	14.9	13.4
Spares on-board Sevan Louisiana	19.0	16.3
Inventories – net	51.3	46.5

Note 15 – Trade and Other Receivables

	2015	2014
Trade receivables	67.3	47.8
Allowance for doubtful debts	—	—
Trade receivables - net	67.3	47.8
Prepayments	1.6	—
Other receivables	10.3	7.3
Trade and other receivables	79.2	55.1

The Group did not make any losses on receivables during 2015 and 2014. The Group did not make any provisions relating to receivables during 2015 and 2014.

Fair value of trade and other receivables were as follows:

	2015	2014
Trade receivables	67.3	47.8
Prepayments	1.6	—
Other receivables	10.3	7.3
Total trade and other receivables	79.2	55.1

Trade receivables that are less than three months past due are generally not considered for impairment. Ageing of trade receivables was as follows:

	2015	2014
Before due date	67.3	47.8
90 + days post due date	—	—
Total trade receivables – net	67.3	47.8

Carrying amounts of trade receivables were denominated in the following currencies:

	2015	2014
USD	62.4	42.2
BRL	4.9	5.6
Total trade receivables – net	67.3	47.8

Note 16 – Interest Bearing Debt

	2015	2014
Total borrowings
Bank credit facility	937.7	1,073.0
Revolving credit facility with Seadrill	—	115.0
Non-current	937.7	1,188.0
Bank credit facility	134.6	133.0
Revolving credit facility with Seadrill	170.0	—
Current	304.6	133.0
Total	1,242.3	1,321.0

Total borrowings include secured liabilities (bank and collateralised borrowings) of USD 1,242.3 million (2014: USD 1,321.0 million). See Note 21 for additional discussion of collateral arrangement.

The bank credit facility is a USD 1,750 million secured bank loan facility composed of a USD 350 million export credit facility and USD 1,400 million commercial facility. Tranche A, in the amount of USD 1,400 million, was drawn down in October 2013. The undrawn Tranche B, USD 350 million, was cancelled in December 2014 as a consequence of the arrangement made with Cosco to defer the delivery date of the Sevan Developer. Upon delivery, new financing will have to be secured to cover the final instalment. The availability of such financing is expected to depend on a satisfactory drilling contract having been secured for the Sevan Developer. Basic term is divided between LIBOR +2.50% for GIEK tranche and LIBOR +2.90% for Commercial tranche.

The Company's bank credit facility is guaranteed by Seadrill, in exchange for the financial covenants being measured at the Seadrill consolidated level. Seadrill charges a guarantee fee of 1.0% per annum on amounts drawn. In 2015 USD 11.3 million was paid in guarantee fees (2014: USD 13.3 million).

The main financial covenants measured at the Seadrill consolidated level contained in the bank credit facility include an aggregated minimum liquidity requirement for the Seadrill group, interest coverage ratio, current ratio, equity ratio, leverage ratio. In addition to financial covenants, the credit facility agreements generally contain covenants which are customary in secured financing in this industry, including operational covenants in relation to the relevant rigs, information undertakings and covenants in relation to corporate existence and conduct of our business. The facility agreement also identified various events which would trigger mandatory reduction, prepayment, and cancellation of the facility. Seadrill is in compliance with the related covenants as of 31 December 2015.

Effective 29 December 2014, the RCF with Seadrill was increased to USD 300 million. On 28 April 2016, the RCF maturity was extended to 31 December 2017 and is secured with second priority in the Group's assets. There are no changes to the terms of the RCF under the extension.

The carrying amounts and fair value of the non-current borrowings are as follows:

	Carrying Amount		Fair Value
	2015	2014	2015	2014
Bank borrowings	937.7	1,073.0	937.7	1,073.0
Borrowings from related parties	—	115.0	—	115.0
Total	937.7	1,188.0	937.7	1,188.0

The Group has the following undrawn borrowing facilities:

	2015	2014
Floating rate
Expiring within one Year	130.0	—
Expiring beyond one Year	—	185.0
Total undrawn debt facilities	130.0	185.0

The USD 130.0 million undrawn facility expiring within one year is the RCF.

Security arrangements relating to drilling units are described in Note 21 and liquidity risk is described in Note 23.

Note 17 – Current Liabilities

	2015	2014
Trade payables	12.1	6.1
Accrued expenses relating to trade payables	25.9	35.0
Total trade and other payables	38.0	41.1
Income and gross revenue tax payable	0.2	6.1
Other taxes payable (advance tax, employer contribution, VAT, etc.)	6.0	6.3
Payable to related parties	45.3	47.8
Other payables	14.3	11.2
Total other current liabilities	65.8	71.4

Note 18 – Share Capital

On 26 May 2015 the Board of Directors of Oslo Børs resolved to admit the shares of the new parent Sevan Drilling Limited to listing on Oslo Børs.

Sevan Drilling ASA's share capital consisted of 594,623,436 shares authorized and issued, of NOK 1.00 per share. As part of the migration, Sevan Drilling ASA's share capital was reduced from NOK 594,623,436 by NOK 593,623,436 to a share capital of NOK 1,000,000 through a reduction of the nominal value of the Company's shares from NOK 1 to NOK 0.001681737.

Sevan Drilling Limited's authorized share capital at this date consisted of 10,000,000,000 common Shares of USD 0.10 each, of which 31,000,000 common shares were issued prior to the migration.

Effective on the market closing 29 June 2015, shareholders of Sevan Drilling ASAreceived 1 share in the Sevan Drilling Limited for every 20 shares each shareholder held in Sevan Drilling ASA (rounded up to the nearest whole share). As a result of the repayment of paid in capital, Sevan Drilling ASA owned 1,268,543 shares in the Company.

On 2 July 2015 Sevan Drilling Limited completed a buyback acquiring 1,268,543 of its shares from Sevan Drilling ASA at a price of NOK 10.20 per share, and the shares were subsequently cancelled. After completion of these transactions the share capital of the Company consists of 29,731,457 shares each having a nominal value of USD 0,10. Sevan Drilling ASA no longer holds any shares in the Company.

After the Migration steps above, the shareholders in Sevan Drilling ASA will still remain as shareholders in the Company, with the same ownership percentages prior to the migration.

The total authorised number of ordinary shares was 100.0 million with a par value of NOK 1 per share (2014 Sevan Drilling ASA: 594.623 million with a par value of NOK 1 per share). All issued shares were fully paid at balance sheet date.

	Number of shares	Share capital	Share premium	Total
Sevan Drilling ASA as at 1 January 2015	594,623,436	108.6	666.0	774.6
Capital decrease of Sevan Drilling ASA	—	(108.5)	—	(108.5)
Sevan Drilling ASA as at 29 June 2015 (migration date)	594,623,436	0.1	666.0	666.1
Sevan Drilling Limited as at 30 June 2015	29,731,457	3.0	713.5	716.5
Proceeds of shares issued	—	—	—	—
Sevan Drilling Limited as at 31 December 2015	29,731,457	3.0	713.5	716.5
	Number of shares	Share capital	Share premium	Total
1 January 2014	594,623,436	108.6	666.0	774.6
Proceeds from shares issued	—	—	—	—
31 December 2014	594,623,436	108.6	666.0	774.6

List of 20 major shareholders at January 2, 2016

	Shares	Voting share
SEADRILL LIMITED	14,897,069	50.1%
PERESTROIKA AS	837,257	2.8%
J.P. Morgan Chase Bank	827,442	2.8%
WENAASGRUPPEN AS	658,324	2.2%
SKAGEN VEKST	580,000	2.0%
BNP PARIBAS SECS	400,001	1.4%
VERDIPAPIRFONDET DNB	388,060	1.3%
NORDNET BANK AB	206,951	0.7%
ERDOGAN HALIL IBRAHIM	185,000	0.6%
SIVILØKONOM OLE KRIS	172,292	0.6%
The Bank of New York	168,326	0.6%
NORDNET LIVSFORSIKRING	164,605	0.6%
CORNELIUSSEN ALF JOHAN	162,740	0.6%
HAAV HOLDING AS	150,000	0.5%
ASMYR JON MAGNE	150,000	0.5%
ENGELSTAD SIMEN FALCK	131,909	0.4%
JENSEN ASBJØRN	130,000	0.4%
DNB LIVSFORSIKRING A	123,978	0.4%
Zhang Rong Yue	120,260	0.4%
SKJONG LEIF INGE	115,500	0.4%
Total, 20 largest shareholder accounts	20,569,714	69.3%
Total no. of shares	29,731,457
Foreign ownership (Citizenship/Country of registration)	17,467,759	58.8%

Note 19 – Cash Generated from Operations

	2015	2014
Loss before tax	(150.9)	(118.5)
Adjustments for:
Depreciation, amortisation and impairment	270.4	173.2
Net financial items	67.3	70.2
Other non-cash items	(7.1)	(30.1)
Changes in working capital:
Inventory	(4.8)	(19.6)
Trade and Other receivables	(24.1)	(22.7)
Trade and Other payables	(2.6)	(33.5)
Other current liabilities	(0.3)	26.5
Cash generated from operations	147.9	45.5

Note 20 – Operating Leases

The Group leases offices under non-cancellable lease agreements.

The future aggregate minimum lease payments under operating leases are as follows:

Lease and rental obligations	2015	2014
No later than 1 year	0.2	0.6
Between 1-5 years	—	0.3
Total lease and rental obligations	0.2	0.9

Note 21 – Securities for Debt

At balance sheet date, the Group is party to the following security arrangements:

The bank credit facility is secured, on a cross-collateralised basis, by a first priority mortgage over the Sevan Driller, the Sevan Brasil, the Sevan Louisiana; a guarantee from Seadrill and each of the subsidiaries of the Company, Sevan Drilling Rig II Pte Ltd, Sevan Drilling Rig V Pte Ltd, Sevan Drilling Rig VI Pte Ltd, Sevan Driller Ltd, Sevan Brasil Ltd, Sevan Louisiana Hungary Kft, Sevan Drilling Rig II AS and Sevan Drilling North America LLC; a pledge over the shares issued by these subsidiaries; first priority security interest over each of these subsidiaries' rights with respect to all earnings and proceeds of insurance; and a first priority security interests in the bank accounts opened and maintained in the name of each of these subsidiaries in which all hires, freights, income, insurance proceeds and other sums payable in respect of the rigs are credited.

The RCF is secured, on a cross-collateralised basis, by a second priority mortgage over the Sevan Driller, the Sevan Brasil and the Sevan Louisiana.

Note 22 - Commitments & Contingencies

The Sevan Developer

At 31 December 2015, the Group has a capital commitment for USD 447.1 million (2014: USD 425.0 million) for the delivery instalment when the Sevan Developer is delivered. In October 2014, the Group entered an agreement with Cosco to defer the delivery date for 12 months with options to extend the date for subsequent periods of 6 months until October 2017. At the end of the deferral period and if options to extend are not exercised, the construction contract will terminate and the USD 78.9 million initial investment will be refunded and the investment impaired. Refund guarantees have been provided for the full deferral period. Delivery will occur if and when a contract that can support financing of the final delivery instalment is secured.

In April 2016, the Sevan Developer deferral agreement was extended to 15 October 2016, and as part of the extension the delivery instalment was amended to USD 473.4 million.

Legal matters

In 2011, the Company was separated out from the 100% ownership of Sevan Marine ASAand listed separately on the Oslo Stock Exchange. On October 16, 2015, Sevan Marine ASA issued an Oslo Stock Exchange notice advising that its Board had received a report from external counsel it had engaged to investigate allegations of improper conduct related to historical contracts with Petrobras. Sevan Marine handed over the report to the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime ("ØKOKRIM"). The report concluded that it was more likely than not that illegal conduct had occurred, in the form of improper payments to obtain business, when Petrobras awarded contracts to subsidiaries of Sevan Marine ASA between 2005-2008.

Against this background, the Company reports that Sevan Drilling ASA has been accused of breaches of Sections 276 a and 276 b of the Norwegian Criminal Code in respect of payments made in connection with the performance during 2012 to 2015 of drilling contracts originally awarded by Petrobras to Sevan Marine ASA in the period between 2005-2008. In connection with the accusation, ØKOKRIM has performed a search and seizure exercise in the Company's offices. The Company is co-operating with the authorities in identifying and making available all documents, which the authorities consider relevant.

The Company has also voluntarily approached the Brazilian authorities with regard to these matters. The Company's own investigation into these matters in ongoing but to date has uncovered no evidence of improper conduct by the Company.

We cannot predict the scope or ultimate outcome of the ØKOKRIM investigation. We also cannot predict whether any other governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. As a result no loss contingency has been recognised in the Company's consolidated financial statements.

Note 23 – Financial Instruments

The classification of financial instruments as loans and receivables or assets and liabilities at fair value through profit or loss is shown below. The Group's financial instruments held as at 31 December 2015 consist of cash, trade receivables, trade payables, and bank borrowings measured at amortised cost with variable interest rates. Management believes that carrying value approximates fair value for all the Group's financial instruments. Management believes all financial instruments held at 31 December 2015 are classified as Level 3 in the fair value hierarchy. The different levels are defined as:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)

Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)

The Group's financial instruments are classified as follows:

31 December 2015	Loans and receivables	Assets at fair through profit and loss	Total
Financial assets
Trade and other receivables	79.2	—	79.2
Cash and cash equivalents	42.4	—	42.4
Total financial assets	121.6	—	121.6

31 December 2014 Financial assets	Loans and receivables	Assets at fair through profit and loss	Total
Trade and other receivables	55.1	—	55.1
Cash and cash equivalents	30.2	—	30.2
Total financial assets	85.3	—	85.3

31 December 2015	Other financial liabilities	Liabilities at fair value through profit and loss	Total
Financial liabilities
Interest-bearing debt	1,242.3	—	1,242.3
Trade and other payables	38.0	—	38.0
Total financial liabilities	1,280.3	—	1,280.3

31 December 2014	Other financial liabilities	Liabilities at fair value through profit and loss	Total
Financial liabilities
Interest-bearing debt	1,321.0	—	1,321.0
Trade and other payables	41.1	—	41.1
Total financial liabilities	1,362.1	—	1,362.1

The carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Consolidated Financial statements approximate their fair values.

Credit Quality of Financial Assets

The credit quality of financial assets that were neither past due nor impaired was assessed by reference to external credit ratings (where available) and by analysis of historical information about counterparty default rates:

Cash at bank and short-term bank deposits

	2015	2014
A+	38.0	20.2
A	4.2	8.3
A-	—	1.6
BB	0.2	—
BBB-	—	0.1
Total cash and cash equivalents	42.4	30.2

Trade receivables - Counterparty with external credit rating

	2015	2014
BBB-	51.6	26.4
Total	51.6	26.4
Trade receivables - Counterparty without external credit rating
	2015	2014
Group 2	15.7	21.4
Total	15.7	21.4

Total trade receivables 67.3 47.8

Group I - New customers (less than 6 months)

Group 2 - Existing customers (more than 6 months) with no defaults in the past

Group 3 - Existing customers (more than 6 months) with some defaults in the past

Liquidity tables

The table below details the Group's remaining contractual maturity for non-derivative financial liabilities with agreed repayment periods. The table has been prepared on the undiscounted cash flows based on the earliest date on which payment can be required.

As at 31 December 2015

	0 – 6 month	6 – 12 month	Year 2	Year 3	Year 4-5	Later
Trade payable	12.1	—	—	—	—	—
Accrued expenses relating to trade payables	25.9	—	—	—	—	—
Borrowings (including interest)	93.9	262.7	169.6	738.5	47.2	44.5
Total	125.8	86.6	169.6	738.5	47.2	44.5

As at 31 December 2014

	0 – 6 month	6 – 12 month	Year 2	Year 3	Year 4-5	Later
Trade payable	6.1	—	—	—	—	—
Accrued expenses relating to trade payables	35.0	—	—	—	—	—
Borrowings (including interest)	88.8	87.7	172.3	168.0	766.3	73.3
Total	129.9	87.7	172.3	168.0	766.3	73.3

Note 24 – Related Party Transactions

Balances and transactions between the entities within the Group have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

Seadrill owns 50.11% of the Company's shares. The Group has been consolidated in Seadrill's accounts, which can be found at www.seadrill.com.

Seadrill has guaranteed the bank facility referred to in Note 16. Seadrill is providing the RCF of which USD 170 million was outstanding as of 31 December 2015 (2014: USD 115.0 million). Seadrill charged the Group interest on the RCF and guarantee and commitment fees in a total amount of USD 23.6 million (2014: USD 15.9 million).

Seadrill also provides management support and administrative services to the Group for which a fee of USD 25.0 million (2015: 24.5 million) was charged during the year.

As a consequence of being responsible for the day-to-day operation of the Group's rigs, Seadrill entities incur direct costs on behalf of the Group. The Group had a total current liability (including the commitment, guarantee and management fees mentioned above) of USD 45.3 million to Seadrill as at 31 December 2015 (2014: USD 47.8 million).

Effective 17 August 2015, Sevan Drilling Management AS seconded Scott McReaken to North Atlantic Management AS on a part time basis assigned to the position of Chief Financial Officer which includes the provision of such services to North Atlantic Drilling Ltd. The total salary and benefits in the table reflects salary earned for services rendered to Sevan Drilling, net of management services provided to North Atlantic Management AS. The Group has a total current liability with North Atlantic Drilling of USD 0.2 million.

Note 25 – Events After Balance Sheet Date

The Group has evaluated subsequent events after the balance sheet date through the date the accompanying Consolidated Financial Statements became available to be issued.

In December 2015, the Sevan Driller contract was suspended by Petrobras as part of the ongoing commercial negotiations for both of the Company's units employed with Petrobras. On 30 March 2016 Petrobras and the Company executed an early termination of the Sevan Driller contract and reduction of the contract dayrate on the Sevan Brasil.

Subsequent to the effective cancellation of the contract for the Sevan Driller, the unit has been awarded a well intervention contract by Shell in Brazil for 60 days with two 30 day options commencing in the second quarter of 2016, adding approximately USD 11 million in revenue backlog. Daily operating cost is expected to be significantly lower as the rig will perform non-drilling activities for Shell.

The Sevan Brasil contract dayrate has been reduced to USD 250,000 per day effective 26 February 2016 through the remaining term of the contract, ending July 2018 and a portion of the dayrate continues to be denominated in Brazilian reais. The Sevan Driller contract was mutually agreed to be cancelled effective from 1 December 2015.

On 14 April 2016 the deferral period was extended to 15 October 2016, and the final delivery instalment was amended to USD 473.4 million, representing 90% of the contract price. In Q2 2016 Cosco is refunding USD 26.3 million, representing 5% of the contract price, and other associated costs.

The Company received notification on XX April 2016 from LLOG to cancel the extension period on the Sevan Louisiana. At 28 April 2016, the fleet's contracted backlog revenue was USD 360.5 million, including recent changes in contracting status with Petrobras and LLOG.

On 28 April 2016, the USD 300.0 million RCF with Seadrill was extended to 31 December 2017. There are no changes to the terms of the RCF under the extension.

On 28 April 2016, as part of Seadrill's refinancing efforts, the Company executed an amendment to the covenants contained within its bank credit facility where Seadrill is the guarantor. The amendment, which among other things, amend the equity ratio, leverage ratio, minimum-value-clauses, and minimum liquidity requirements. The covenant amendments are in place until 30 June 2017.

Sevan Drilling Limited Financial Statements For the Year Ended 31 December 2015

Sevan Drilling Limited Financial Statements

Statement of profit or loss

USD thousands	Notes	2015	2014
Operating revenue		—	—
Operating expenses		(219)	(1,436)
Impairment	5	(69,940)	—
Total operating expenses		(70,159)	(1,436)
Operating Loss		(70,159)	(1,436)
Intercompany interest income	4	38,123	3,104
Intercompany interest expense	4	(18,719)	—
Interest expense		(23,975)	(4,487)
Net financial items		(4,571)	(1,383)
Loss before tax		(74,730)	(2,819)
Tax expense		—	—
Net Loss		(74,730)	(2,819)
Statement of Comprehensive Income
Net loss Other comprehensive income net of tax		(74,730) —	(2,819) —
Comprehensive loss		(74,730)	(2,819)
Attributable to:
Equity holders of the Company		(74,730)	(2,819)

The notes on pages 54 to 59 are an integral part of these financial statements.

Balance Sheet

USD thousands	Notes	2015	2014
Assets
Investments in subsidiaries	5	316,116	386,057
Other investments		—	2
Accounts receivables from group companies	4	723,334	325,242
Total non-current assets		1,039,450	711,301
Current assets
Accounts receivables from group companies	4	123,460	450,392
Cash and bank deposits		20,530	—
Total current assets		143,990	450,392
Total assets		1,183,440	1,161,693
Equity and liabilities
Restricted equity
Share capital	2	2,973	3,100
Share premium		713,500	705,449
Total restricted equity		716,473	708,549
Retained earnings
Other equity		(77,549)	(2,819)
Total retained earnings		(77,549)	(2,819)
Total equity		638,924	705,730
Liabilities
Interest bearing debt	6	—	115,000
Accounts payable to group companies	4	354,473	187,938
Total long term liabilities		354,473	302,938
Current liabilities
Trade payables		311	—
Interest bearing debt	6	170,000	—
Accounts payable to group companies	4	19,732	153,025
Total short term liabilities		190,043	153,025
Total liabilities		544,516	455,963
Total equity and liabilities		1,183,440	1,161,693

The notes on pages 54 to 59 are an integral part of these financial statements.

Oslo, 28 April 2016 The Board of Directors

Statement of Changes in Equity

USD thousands	Share capital	Share premium	Other	Total equity
Equity 1 January 2015	3,100	705,449	(2,819)	705,730
Contribution	—	8,051	—	8,051
Share buy back	(127)	—	—	(127)
Net result for the year	—	—	(74,730)	(74,730)
Equity 31 December 2015	2,973	713,500	(77,549)	638,924
Equity 1 January 2014	—	—	—	—
Share issue	3,100	705,449	—	708,549
Net result for the year	—	—	(2,819)	(2,819)
Equity 31 December 2014	3,100	705,449	(2,819)	705,730

The notes on pages 54 to 59 are an integral part of these financial statements.

Statement of Cash Flow

USD thousands	Note	2015
Cash flows from operating activities
Cash from operations	7	94
Net cash generated from operating activities		94
Cash flows from investing activities
Repayment of intercompany balances		(33,037)
Net cash used in investing activities		(33,037)
Cash flows from financing activities
Proceeds from loans from related parties		55,000
Repayment of intercompany balances		(9,451)
Share buy back		(127)
Contribution by Sevan Drilling ASA		8,051
Net cash generated from financing activities		53,473
Net cash flow for the period		20,530
Cash balance at beginning of period		—
Currency effect bank deposits		—
Cash and cash equivalents at end of the year		20,530
Total cash and cash equivalents		20,530

The notes on pages 54 to 59 are an integral part of these financial statements.

Notes to the Sevan Drilling Limited Financial Statements

General information

Sevan Drilling Limited (the "Company") is a company incorporated in Bermuda. The address of the registered office is Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda.

Note 1 – Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied across the financial period presented. The presentation currency of the Company is USD. All figures are in USD thousands unless otherwise stated.

1.1 Basis of Preparation

The financial statements of the Company have been prepared in accordance with the International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union (EU) that are effective for the period ended 31 December 2015.

The financial statements have been prepared on a going concern basis under the historical cost convention.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Company's accounting policies.

1.1.1 Changes in Accounting Policy and Disclosures

a) New and amended standards adopted by the Group

Standards and amendments effective for the first time for their annual reporting period commencing 1 January 2015 are not material to the Group, these include:

• Annual Improvements to IFRS's - 2010 - 2012 Cycle and 2011 - 2013 Cycle.

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective, these include:

• Annual Improvements to IFRS's 2012 2014 Cycle; and
• Disclosure Initiative: Amendments to IAS 1.

As these amendments merely clarify the existing requirements, they do not affect the Group's accounting policies or any of the disclosures.

b) New standards and interpretations not yet adopted

The following new standards and interpretations have been published that are not mandatory for 31 December 2015 reporting periods and have not been early adopted by the Group.

• IFRS 15 Revenue from contracts with customers¹
• IFRS 9 Financial instruments²

¹Effective for annual periods beginning on or after 1 January 2017

²Effective for annual periods beginning on or after 1 January 2018

The Directors of the Company do not anticipate that the application of these standards and amendments will have a significant impact on the Group's Consolidated Financial Statements in the period of initial application.

1.2 Foreign Currency Translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognised in the profit or loss.

1.3 Financial Instruments

Loans and receivables are measured at fair value at the transaction date and subsequently re-measured at amortised cost. Loans and receivables are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market. Financial instruments are classified as current, except for those with maturities greater than 12 months after the balance sheet date, in which case they are classified as non-current.

1.4 Cash and Cash Equivalents

In the consolidated statement of cash flow, cash and cash equivalents include cash in hand, bank deposits, and other short-term highly liquid investments with a maturity of less than three months.

1.5 Share Capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

1.6 Interest-Bearing Debt

Interest-bearing debt is initially recognised at fair value, net of transaction cost incurred. Interest-bearing debt is subsequently stated at amortised cost; any difference between the proceeds (net of transaction cost) and the redemption value is recognised in the income statement over the period of the interest-bearing debt using the effective interest method. Interest-bearing debt is classified as a current liability unless the Company has an unconditional right to defer settlement for more than 12 months after the balance sheet date.

1.7 Current and Deferred Income Tax

The tax expense for the period comprises current tax and the change in deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit and loss. Deferred income tax is determined using tax rates (and legislation) that have been enacted or substantially enacted by balance sheet date and are expected to apply when the deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. The tax base included in the calculation of deferred income tax is calculated in local currency and translated into USD at foreign exchange rates prevailing at the balance sheet date. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

1.8 Trade Payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method and are classified as current liabilities.

1.9 Investment in subsidiaries

Investments in subsidiaries are held at cost. Investmentsare tested for impairment whenever events or changes in circumstances indicate that the carrying amount exceeds the recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use.

1.10 Sevan Drilling Group

The Company will be consolidated into the "Sevan Drilling Group" (the parent company Sevan Drilling Limited and its subsidiaries) financial statements as of 31 December 2015.

Note 2 - Share capital and shareholder information

Share capital	Number	Nominal value (USD)	Registered USD
Ordinary shares	29,731,457	0.10	2,973,146
Total	29,731,457		2,973,146

On 29 June 2015 the Company's shares were listed on the Oslo Bors and effective from that date the Company became the Parent entity of the Sevan Group.

List of 20 major shareholders at January 2, 2016

	Shares	Voting share
SEADRILL LIMITED	14,897,069	50.1%
PERESTROIKA AS	837,257	2.8%
J.P. Morgan Chase Bank	827,442	2.8%
WENAASGRUPPEN AS	658,324	2.2%
SKAGEN VEKST	580,000	2.0%
BNP PARIBAS SECS	400,001	1.4%
VERDIPAPIRFONDET DNB	388,060	1.3%
NORDNET BANK AB	206,951	0.7%
ERDOGAN HALIL IBRAHIM	185,000	0.6%
SIVILØKONOM OLE KRIS	172,292	0.6%
The Bank of New York	168,326	0.6%
NORDNET LIVSFORSIKRING	164,605	0.6%
CORNELIUSSEN ALF JOHAN	162,740	0.6%
HAAV HOLDING AS	150,000	0.5%
ASMYR JON MAGNE	150,000	0.5%
ENGELSTAD SIMEN FALCK	131,909	0.4%
JENSEN ASBJØRN	130,000	0.4%
DNB LIVSFORSIKRING A	123,978	0.4%
Zhang Rong Yue	120,260	0.4%
SKJONG LEIF INGE	115,500	0.4%
Total, 20 largest shareholder accounts	20,569,714	69.3%
Total no. of shares	29,731,457
Foreign ownership (Citizenship/Country of registration)	17,467,759	58.8%

Shares and options owned or controlled by the Board of Directors:

		Shares	Options
Scott McReaken	CEO / CFO	—	—
Birgitte R. Vartdal	Chairman	—	—
Kristian Johansen	Vice chairman	17,000	—
Svend Anton Maier	Board member	—	—
Erling Lind	Board member	—	—
Per Wullf	Board member	—	—
Ragnhild M. Wiborg	Board member	—	—

On 14 March 2016 Kristian Johansen resigned as Vice Chairman and Director of the Board.

Note 3 - Employee benefit expense

The Company had no employees during the period.

Note 4 - Intercompany Transactions

	2015	2014
Long-term receivables from Group companies	723,334	325,242
Accounts receivables from Group companies	123,460	450,392
Total receivables from Group companies	846,794	775,634
Long-term payables to Group companies	354,473	187,938
Accounts payables to Group companies	19,732	153,025
Total liabilities to Group companies	374,205	340,963
	2015	2014
Interest income from Group Companies	38,123	3,104
Interest expense from Group Companies	(18,719)	—
Total income from Group companies	19,404	3,104

Note 5 - Investment in subsidiaries

Company	Address	Ownership	Book value USD
Sevan Drilling AS	Oslo	100.0%	1
Sevan Drilling Rig V AS	Oslo	100.0%	1
Sevan Drilling Rig VI AS	Oslo	100.0%	1
Sevan Drilling Management AS	Oslo	100.0%	1
Sevan Drilling Rig VIII AS	Oslo	100.0%	1
Sevan Driller Ltd	Bermuda	100.0%	1,000
Sevan Brasil Ltd	Bermuda	100.0%	1,000
Sevan Developer Ltd	Bermuda	100.0%	1,000
Sevan Louisiana Hungary KFT	Hungary	100.0%	180,653,631
Sevan Drilling Pte Ltd	Singapore	100.0%	135,459,858
Sevan Drilling Rig IX Pte Ltd	Singapore	100.0%	1
Sevan Drilling Limited	UK	100.0%	1
Total			316,116,496

An impairment of USD 69,940,143 was recognised on the investment held in Sevan Drilling Pte Ltd.

Note 6 - Interest Bearing Debt

	2015	2014
Current liabilities
Borrowings from related parties	170,000	—
Total current liabilities	170,000	—
Non-current liabilities
Borrowings from related parties	—	115,000
Total non-current liabilities	—	115,000
The Company has the following undrawn borrowing facilities:	2015	2014
Floating rate
Expiring within one year	130,000	—
Expiring beyond one year	—	185,000
Total undrawn debt facilities	130,000	185,000

Interest is charged on the principal amount outstanding at Libor + 6.00%. A commitment fee is calculated at 2.40% per annum on the unutilised commitment of the facility.

On 28 April 2016, the RCF maturity was extended to 31 December 2017, is secured with second priority in the Group's assets and incurs interest on drawn amounts at a rate of LIBOR + 6.0%, payable quarterly in arrears. There is a commitment fee of 2.4% per annum on the undrawn balance of the RCF.

Note 7 - Cash generated from Operating activities

	2015
Loss before tax	(74,730)
Adjustments for:
Impairment	69,940
Net financial items	4,571
Other non-cash	2
Currency effects	2
Changes in working capital:
Trade and Other payables	309
Cash generated from operations	94

The company had no bank balance in the prior year.

Note 8 - Related Party Transactions

Seadrill is providing the RCF of which USD 170,000,000 was outstanding as of 31 December 2015 (2014: USD 115,000,000). Seadrill charged the Company interest on the RCF and guarantee and commitment fees in a total amount of USD 23,531,122 (2014: USD 4,486,702).

Sevan Drilling has a total liability with Seadrill of USD 6,352,726 (2014: USD 9,608,641).

Note 9 - Events After Balance Sheet Date

The Group has evaluated subsequent events after the balance sheet date through the date the accompanying consolidated financial statements became available to be issued.

On 28 April 2016, the USD 300.0 million RCF with Seadrill was extended to 31 December 2017. There are no changes to the terms of the RCF under the extension.