Seadrill Limited — Annual Report 2017

Apr 12, 2018

Annual Report and Financial Statements For the Year Ended December 31, 2017

Table of Contents

Board of Directors Report	3
Corporate Governance	13
Corporate Social Responsibility	17
Responsibility Statement	19
Consolidated Financial Statements	21
Notes to Consolidated Financial Statements	25
Parent Company Financial Statements	54
Notes to Parent Company Financial Statements	58
Auditor's Report	65

BOARD OF DIRECTORS' REPORT

Sevan Drilling Limited (the "Company" and, together with its subsidiaries, the "Group" or "Sevan") is an international offshore drilling contractor specializing 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 generated operating revenues of USD 144.9 million and a net loss for the period of USD 500.1 million. Excluding non-cash asset impairments, the result for the year was a net loss of USD 103.8 million.

STRUCTURE

Sevan Drilling Limited, an exempted company incorporated in Bermuda, is the parent company of the Sevan Drilling Group. Management services are provided to the Company by a wholly-owned subsidiary Sevan Drilling Management AS a Norwegian registered company located at Drammensveien 288, Oslo, Norway. The Company is approximately 50.11% owned by Seadrill Limited; accordingly, the Company's is a controlled subsidiary of Seadrill Limited and the Company, as described in greater detail in the Overview, has substantial intercompany activity.

The Company's shares are listed on the Oslo Stock Exchange and traded under the Group's symbol "SEVDR". On September 12, 2017, the "Petition date", Sevan, Seadrill Limited and certain other of Seadrill's consolidated subsidiaries commenced prearranged reorganization proceedings under Chapter 11 of title XI of the United States Code in the Southern District of Texas. On September 29, 2017 the Oslo Børs suspended the Sevan Drilling's shares from trading under The Stock Exchange Act section 25(1).

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, Singapore and Dubai. The Company has operating subsidiaries in these countries, except Dubai, and subsidiaries in Bermuda, Hungary 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 ("Seadrill") in Brazil, the United States and Dubai. 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.

The Group currently has one drilling rig under contract, the Sevan Brasil, which operates in Brazil. The Sevan Louisiana completed its contract in June 2017 and is now being warm stacked in the U.S. Gulf of Mexico, USA.The third, the Sevan Driller, is currently idle in Malaysia and continues to be marketed.

A fourth rig, the Sevan Developer, is on order with Cosco (Qidong) Offshore Co. Limited ("Cosco"). The rig is ready for delivery and quayside at the Cosco shipyard in China under their management. In July 2017, the delivery deferral agreement for the Sevan Developer was extended to June 30, 2020 and a further repayment of yard installments of USD 25.3 million was paid. The amendment gave Cosco the option to terminate the deferral period agreement on July 1, 2018 and again on July 1, 2019, which would require Cosco to refund the remaining USD 1 million investment balance to Sevan. It was deemed that Sevan lost control of the newbuild asset at that date. We retain the right to market the rig on a worldwide basis and acquire the rig at the original contracted amount.

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 standard 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 fleet currently consists of three drilling rigs; Sevan Driller, Sevan Brasil and Sevan Louisiana.

The 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, when the Sevan Brasil contract dayrate was reduced to USD 250,000 per day effective 26 February 2016 through the remaining term of the contract ending July 2018. A portion of the dayrate continues to be denominated in Brazilian Reais. Technical utilization for the rig during the year was at 97.9%. Economical utilization was at 91.6%.

The Sevan Driller was in Singapore until July 2017, when it was moved to Malaysia. It has been cold stacked in Malaysia and continues to be marketed for acceptable employment.

Sevan Louisiana completed its three-year contract with LLOG Bluewater Holdings LLC ("LLOG") in June 2017 and remains in US Gulf of Mexico being marketed in the region. Technical utilization for the rig, during the period it was on contract, was at 97.7%. Economical utilization was at 99.0%.

The fleet's technical utilization of its rigs under contract decreased slightly in 2017 at 97.8% (2016: 98.2%).

At March 31, 2018, the fleet's contracted backlog revenue was USD 40.2 million.

The Group has an option to purchase the Sevan Developer which remains in the Cosco's shipyard in Qidong, China under their management. The rig is ready for delivery if an acceptable contract can be secured that supports financing for the contract price.

FINANCIAL REVIEW

Statement of Profit or Loss

The Group's operating revenue in 2017 was USD 144.9 million (2016: USD 237.3 million). The decrease in revenue is primarily due to the Sevan Louisiana completing its three-year contract with LLOG in June 2017 and the Sevan Driller remaining cold stacked throughout 2017.

Total operating expenses were USD 556.1 million (2016: USD 253.9 million). Vessel operating expenses decreasedby USD 40.2 million, primarily due to the reduced activity. General and administrative costs decreased by USD 5.1 million driven by lower management fees for the Sevan Brasil and Sevan Louisiana as well as lower Sevan corporate costs.

A non-cash asset impairment of USD 396.3 million was recognized in 2017 (2016: USD 37.5 million). The impairment was a result of lower value-in-use estimates for the Sevan Driller, Sevan Brasil and Sevan Louisiana compared to their carrying values due to the continued decline in demand in the ultra deep-water drilling market and the time line for a projected recovery.

Net financial items in 2017amounted to USD 97.4 million(2016: USD 69.0 million). Financial expenses increased in 2017 due to restructuring fees which were incurred during the year.

Tax benefit in 2017 was USD 3.0 million (2016: USD 7.4 million expense) relating to a non-cash benefit in the U.S driven by a transfer pricing adjustment.

The Group incurred a net loss of USD 500.1 million (2016: USD 93.0 million).

Balance sheet

As at December 31, 2017 total assets totaled USD 1,048.0 million (2016: USD 1,555.1 million).

Drilling rigs totaled USD 930.7 million (2016: USD 1,411.1 million). Additions in the period totaled USD 14.1 million and depreciation totaled USD 60.4 million.The further reduction in the drilling rigs value is primarily due to the impairment of USD 396.3 million recognized in the year in respect of Sevan Driller, Sevan Brasil and

Sevan Louisiana. The carrying amounts of the Sevan Driller, Sevan Brasil and Sevan Louisiana have been reduced to their estimated recoverable values. Accordingly, the Sevan Driller was impaired by USD 68.2 million, Sevan Brasil by USD 143.4 million and Sevan Louisiana USD 184.7 million.

Inventories totaled USD 49.8 million (2016: USD 51.4 million). The decrease of USD 1.6 million was due to reduced activity in 2017.

For a further description of significant accounting estimates and judgments see Note 2 "Accounting Estimates and Judgments" to the Consolidated Financial Statements.

Net interest bearing debt totaled USD 1,088.7 million (2016: USD 1,120.2 million). The decrease is primarily due to repayments of principal under the Group's senior secured credit facility, USD 70.0 million, and repayment of the revolving credit facility ("RCF"), USD 37.5 million. This decrease is offset by USD 70.0 million of drawdowns of the RCF and amortization of financing fees, USD 4.8 million. As at December 31, 2017, the total interest bearing debt was presented as current liabilities.

The Group's RCF was previously made available by our majority shareholder, Seadrill, in the amount of USD 300.0 million. The balance outstanding under the RCF with Seadrill as at December 31, 2017 was USD 217.5 million. Following the Chapter 11 filing the Company no longer has access to the RCF facility. Seadrill has agreed to fund our liquidity needs on an ordinary course basis. No interest will be charged on such balances after the Petition date.

Cash flows

Cash and cash equivalent balances totaled USD 42.8 million (2016: USD 26.0 million). The Group used cash generated from its operations and the drawings made under the RCF to fund investment and financing activities throughout 2017.

Cash flow generated from operating activities during 2017 USD 24.3 million (2016: USD 54.9 million) was negatively impacted by a decrease in operating income .

Cash flow generated by investing activities in 2017 was USD 29.6 million (2016: USD 56.5 million). This was primarily a result of USD 28.5 million (2016: USD 57.7 million) in proceeds from the exercising of the deferral options for the Sevan Developer, offset by capital expenditures of USD 0.1 million (2016: USD 1.2 million).

Net cash used in financing activities during 2017 was USD 37.5 million(2016: USD 128.3 million). The decrease is due to the cessation of debt repayments during our Chapter 11 filing.

RELATIONSHIP WITH SEADRILL

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, Director of Seadrill Limited. Financial reporting is fully coordinated with Seadrill and Seadrill consolidates the accounts of the Group with its own.

Sevan Drilling's common shares have historically traded on the OSE under the symbol "SEVDR." On September 12, 2017, Sevan, Seadrill Limited and certain other of Seadrill's consolidated subsidiaries commenced prearranged reorganization proceedings under Chapter 11 of title XI of the United States Code in the Southern District of Texas. On September 29, 2017 the Oslo Børs suspended the Sevan Drilling's shares from trading under The Stock Exchange Act section 25(1).

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 2017 was USD 1.8 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 been a stand-alone entity. 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.

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. As at December 31, 2017, the Company does not have access to the RCF facility and Seadrill is providing continuing support as required through the restructuring process.

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.

Restructuring Agreement and Bankruptcy Proceedings under Chapter 11

Over the past two years the Company, together with Seadrill, have been engaged in extensive discussions with our secured lenders and potential new money investors regarding the terms of a comprehensive restructuring. These discussions have also included an ad hoc committee of Seadrill bondholders. The objectives of the restructuring are to build a bridge to a recovery and achieve a sustainable capital structure. Seadrill have proposed to achieve this by extending bank maturities, reducing fixed amortization, amending financial covenants and raising new capital.

On April 4, 2017 Seadrill reached an agreement with its banking group, including our secured lenders, to extend the comprehensive restructuring plan negotiating period until July 2017, 31. Further the related covenant amendments and waivers expiring on June 2017, 30 were extended to September, 30 2017 and lender consent was received to extend the maturity dates of certain facilities falling due within that period. This provided Seadrill and the Company additional time to advance ongoing negotiations regarding the terms of the comprehensive restructuring plan.

In July 2017, Seadrill reached an agreement with the bank group, including our secured lenders, to further extend the date by which a comprehensive restructuring plan must be agreed until September 12, 2017 providing an additional period for negotiations to continue over a comprehensive restructuring plan. Seadrill also extended the maturities of our US\$400 million credit facility and the US\$450 million credit facility provided to Seadrill Eminence Ltd to September 14, 2017.

On September 12, 2017, the Company, together with Seadrill and certain of Seadrill's consolidated subsidiaries (collectively, the Company Parties) entered into the RSA with the Consenting Stakeholders. Ship Finance International Limited and three of its subsidiaries, which charter three drilling units to the Company Parties, also executed the RSA. In connection with the RSA, the Company Parties entered into the Investment Agreement under which Hemen and a consortium of investors, including the bondholder parties to the RSA, committed to provide \$1.06 billion in new cash commitments, subject to certain terms and conditions.

On September 12, 2017, to implement the transactions contemplated by the RSA and Investment Agreement, we, and the other Company Parties (collectively, the "Debtors") commenced prearranged Chapter 11 proceedings under the Bankruptcy Code in the Southern District of Texas [case number 17-60079]. During the course of the bankruptcy proceedings, the Debtors continue to operate their business as a debtor in possession.

On the Petition Date, the Bankruptcy Court issued certain additional customary interim and final orders with respect to the Debtors' first day motions and other operating motions that allow the Debtors to operate their businesses in the ordinary course. The first-day motions provided for, among other things, the payment of certain pre-petition employee and retiree expenses and benefits, the use of the Debtors' existing cash management system, the payment of certain pre-petition amounts to certain critical vendors, the ability to pay certain pre-petition taxes and regulatory fees, the payment of certain pre-petition claims owed on account of insurance policies and programs and authorizing the use of cash collateral.

On February 26, 2018, the Debtors announced a global settlement with various creditors, including an ad hoc group of holders of unsecured bonds, the official committee of unsecured creditors (the "Committee") and other major creditors in its Chapter 11 cases, including Samsung Heavy Industries Co., Ltd. and Daewoo Shipbuilding & Marine Engineering Co., Ltd., two of the Debtors'newbuild shipyards, and an affiliate of Barclays Bank PLC, another holder of unsecured bonds. In connection with the global settlement, the Debtors entered into an amendment to the RSA and an amendment to the Investment Agreement. The amendments to the RSA and Investment Agreement provided for the inclusion of the Ad Hoc Group and Barclays into the Capital Commitment as Commitment Parties, increased the Capital Commitment to \$1.08 billion, increased recoveries for general unsecured creditors of Seadrill, NADL, and Sevan under the plan of reorganization, an agreement regarding the allowed claim of the newbuild shipyards and an immediate cessation of all litigation and discovery efforts in relation to the plan of reorganization as well as the Debtors' rejection and recognized termination of the newbuild contracts.

The Investment Agreement, as amended, provides for certain milestones for the Debtors' restructuring: (1) the Bankruptcy Court must enter an order confirming the Plan by June 9, 2018 (the "Confirmation Date") and (2) the effective date of the Plan must occur within 90 days of the Confirmation Date and, in any event, no later than August 8, 2018.

In connection with the global settlement, on February 26, 2018, the Debtors filed a proposed Second Amended Joint Chapter 11 Plan of Reorganization with the Bankruptcy Court. On February 26, 2018, the Bankruptcy Court entered an order approving (i) the adequacy of the Disclosure Statement, (ii) the solicitation and notice procedures with respect to confirmation of the Debtors' proposed Plan, (iii) the rights offering procedures for the rights offerings contemplated by the Plan and (iv) other related matters. By the voting deadline of April 5, 2018, the Plan received approval from every single class of creditors and holders of interests entitled to vote, exceeding the required thresholds for acceptance of the Plan. The confirmation hearing for the Plan is currently scheduled for April 17, 2018.

Assuming that the Plan is confirmed and becomes effective, we expect our existing common stock will be cancelled on the effective date of the Plan, with no recoveries to holders of our ordinary shares, and we will become a wholly owned subsidiary of Seadrill.

Concurrent with the commencement of the prearranged reorganization proceedings in the Bankruptcy Court, Seadrill, NADLand Sevan (collectively, the "Bermuda Debtors") commenced provisional liquidation proceedings pursuant to section 161 and 170 of the Bermuda Companies Act 1981 by presenting "winding up" petitions to the Bermuda Court. Upon the application of the Bermuda Debtors, the Bermuda Court appointed three joint provisional liquidators for each of the Bermuda Debtors. Under the Order to appoint the joint provisional liquidators, the joint provisional liquidators' powers are limited such that the Bermuda Debtors' management team and boards of directors remain in control of the Bermuda Debtors' day-to-day operations. Upon the appointment of the joint provisional liquidators in respect to each of the Bermuda Debtors, a statutory stay of proceedings in Bermuda against those three entities or their assets automatically arose. The next hearing in the Bermuda Court with respect to the "winding up" petitions was set for April 27, 2018. In addition to the statutory stay, as soon as practicable following the effective date (in accordance with the Plan of Reorganization), the provisional liquidators' Bermuda law counsel, with the support of the Debtors, will apply for winding up orders in respect of each of the Bermuda Debtors. The join provisional liquidators will also seek formal recognition of the Confirmation Order from the United States Bankruptcy Court in Bermuda.There is inherent uncertainty in the completion of the comprehensive restructuring plan and therefore the Company is also actively preparing various contingency plans. The Group's going concern assumption is based on management's expectation that a comprehensive restructuring plan will be completed successfully. However the timing and outcome of this process is inherently uncertain. These conditions indicate the existence of material uncertainty that may cast significant doubt on the Company's ability to continues as a going concern.

Management services

The Group is party to several management agreements with subsidiaries of Seadrill. These make Seadrill's organization fully responsible for the day-to-day operation of the Group (through its subsidiaries in Brazil, United States and Dubai) and the marketing of the fleet (through an agreement with Seadrill Management). Further, Seadrill Management supports the general administrative management of the Group.

The terms of these management agreements are market based. Total payments to Seadrill Management under these agreements in 2017 were USD 22.1 million.

Operationally, the Group benefits from Seadrill's management systems driving safety and operational performance. The Group has access to a larger labor 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 reduced 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 organization actively markets the Group's fleet in all geographical regions, highlighting the advantages of the Group's unique cylindrical design and improved operational performance since Seadrill has managed the fleet.

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 Board is monitoring the quality and costs of all services provided by the Seadrill organization 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 organization treats the Group's rigs on par with other rigs in the overall Seadrill fleet.

OUTLOOK

Expectations about future oil and gas prices have historically been a key driver of demand for our services. Additionally, as the time to plan and drill ultra deep-water wells is generally longer and more expensive than other oil and gas wells, exploration and production companies may defer ultra deep-water development projects in favor of other projects when they anticipate volatility in oil and gas prices. While oil prices modestly improved during 2017 and the first quarter of 2018, we are not currently experiencing a recovery in ultra deep-water utilization.

It is important to recognize that the reduction in drilling dayrates, the costs of equipment and other oilfield services have reduced the costs of drilling and producing oil and gas wells which may facilitate increased activity with only a marginal increase in oil prices.

Based on the level of current activity and the aging floater fleet, we expect scrapping activity to continue. A total of 101 floaters have been scrapped or retired since the beginning of 2014, equivalent to 28% of the total fleet, and currently there are 31 cold or warm stacked units with no follow-on work identified that are 30 years old or older, which are prime scrapping candidates. In the next 18 months, a further 18 units that are 30 years old or older will be coming off contract with no follow-on work identified which represents additional scrapping candidates. A key rational for scrapping is the 35-year classing expenditures that can cost upwards of USD 100 million. Many rig owners will choose to retire the unit rather than incur this cost without a visible recovery in demand on the horizon.

Larger drilling companies with diversified fleets will find it easier to make economic decisions and cold stack idle rigs as each individual unit represents a smaller percentage of the overall fleet. Cold stacked units will generally require an improvement in dayrates sufficient to overcome reactivation costs before they are reintroduced into marketed supply. Significant cold stacking activity would represent a positive development in the market, effectively reducing marketed supply and helping to stabilize utilization and pricing until a more fundamental recovery is in place.

Currently 125 floaters out of 259 floaters are under contract, representing 48% marketed utilization. It is estimated that 180-200 rigs are needed in the floater fleet to maintain long-term average decline curves.

Currently the global floater order book stands at approximately 42 units, comprised of 28 drillships and 14 semisubmersible rigs. 21 are scheduled for delivery in 2018, 15 in 2019 and 6 in 2020 and beyond. Due to the subdued level of contracting activity, it is likely that a significant number of newbuild orders will be delayed or canceled until an improved market justifies taking delivery.

Sevan Drilling continues to market our fleet globally and leveraging the relationship with Seadrill and their global footprint. We continue to see improvements in our operational performance and look to conclude the restructuring in 2018.

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 minimize overall exposure to risk and the impact of external factors on performance.

This report includes and is based on, among other things, forward-looking information and statements. Forwardlooking statements are often, but not always, identified by words such as: "anticipate," "intend," "plan," "goal," "seek," "believe," "project," "estimate," "expect," "outlook," "strategy," "future," "likely," "may," "should," "could," "will" and similar references to future periods.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Our business faces numerous risks, many of which are beyond our control. The impact of these risks, as well as other unforeseen risks, could have a material negative impact on our business, financial condition or results of operations. You should consider the risks set out below, including the risks associated with comprehensive restructuring efforts, before deciding to invest in, or maintaining your investment in, our securities. There may be other factors that may cause our actual results to differ materially from the forward-looking statements.

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, 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. 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 but less than previously expected. 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. 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.

Because of the Company's international operations, the Company may be exposed to political and other uncertainties. It is difficult to predict what governmental regulations may be enacted in the future that could adversely affect the international drilling industry. The actions of foreign governments, including initiatives by OPEC, may adversely affect the Company's ability to compete. Failure to comply with applicable laws and regulations, including those relating to sanctions and export restrictions, may subject the Company to criminal sanctions or civil remedies, including fines, denial of export privileges, injunctions or seizures of assets.

Relationship with Seadrill

The Company's ability to enter into new drilling contracts and expand its customer and supplier relationships will depend largely on its ability to leverage its relationship with Seadrill and its reputation and relationships in the offshore drilling industry. If Seadrill suffers material damage to its reputation or relationships, it may harm the Company's ability to:

• renew existing drilling contracts upon their expiration;
• obtain new drilling contracts;
• efficiently and productively carry out the Company's drilling activities;
• successfully interact with shipyards;
• obtain financing and maintain insurance on commercially acceptable terms;
• maintain access to capital; or
• maintain satisfactory relationships with suppliers and other third parties.

In addition, pursuant to the management and administrative services agreement, Seadrill Management provides the Company with significant management, administrative, financial and other support services and/or personnel. Subsidiaries of Seadrill also provide advisory, technical and administrative services to the Company's fleet pursuant to advisory, technical and administrative services agreements. The Company's operational success and ability to execute the Company's growth strategy depends significantly upon the satisfactory performance of these services. The Company's business will be harmed if Seadrill and its subsidiaries fail to perform these services satisfactorily, if they cancel their agreements with the Company or if they stop providing these services to the Company.

Small fleet size

Since the Group's fleet consists of only three units, of which one is operational, 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 mobilizations 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. One of the Group's fleet is currently operational, the Sevan Brasil. The Sevan Louisiana completed its threeyear contract with LLOG Bluewater Holdings LLC ("LLOG") in June 2017 and is being warm stacked in the Gulf of Mexico.

Price risk

Changes to the price level of goods and services acquired may affect the Group, where after price developments are carefully monitored. The Group seeks to handle the risk through contract clauses, such as dayrate adjustments, with its customers.

Financial risk

The Group is exposed to liquidity risk, foreign currency risk, interest rate risk and credit risk. The Group's overall risk management program seeks to minimize 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 organization. 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 liquidity risk, currency risk, interest rate risk and credit 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 21 "Financial Assets and Financial Liabilities" for a maturity analysis of the Group's financial liabilities.

Seadrill previously provided the Group with a USD 300.0 million RCF in order to meet the Group's short term liquidity needs beyond what is covered by the Group's senior secured credit facility. On April 28, 2016 the RCF was extended to December 31, 2017. There were no other changes to the terms of the RCF facility under the extension. On September 12, 2017, the Company filed for Chapter 11. Following the filing, interest on the RCF facility ceased and no principal repayments were made. As at December 31, 2017, the Company does not have access to the RCF facility and Seadrill is continuing to provide support as required through the restructuring process.

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. Defaults under Seadrill's credit facilities could result in defaults under our credit facility.

On September 12, 2017, Seadrill entered into the RSAwith the Consenting Stakeholders. Seadrill's consolidated subsidiaries North Atlantic Drilling Ltd. and Sevan Drilling Limited, together with certain other of its consolidated subsidiaries also entered into the RSA together with Seadrill. Ship Finance International Limited and three of its subsidiaries, which charter three drilling units to the Company Parties, also executed the RSA. In connection with the RSA, the Company Parties entered into the Investment Agreement under which Hemen and a consortium of investors, including the bondholder parties to the RSA, committed to provide USD 1.06 billion in new cash commitments, subject to certain terms and conditions. The Investment Agreement, as amended, provides for certain milestones for the Debtors' restructuring: (1) the Bankruptcy Court must enter an order confirming the Plan by June 9, 2018 (the "Confirmation Date") and (2) the effective date of the Plan must occur within 90 days of the Confirmation Date and, in any event, no later than August 8, 2018.

As part of the RSA entered into on September 12, 2017, the lenders have agreed to waive any breach of, or default under, our debt agreements after this date, which arise as a result of or is, directly or indirectly, related to the commencement of Chapter 11 proceedings or any of the steps contemplated in, or to be undertaken pursuant to, the RSA including any failure to comply with any of the financial covenants in the debt agreement.

The Group's going concern assumption is based on management's expectation that a comprehensive restructuring plan will be completed successfully, however the timing and outcome of this process is inherently uncertain.

Foreign currency risk

The Group's foreign currency risk primarily arises due to operations conducted in Brazil. Operating revenue and expenses are principally denominated in USD however, a portion of revenues and expenses are denominated in Brazilian reais. The revenues denominated in Brazilian reais are more or less equal to operating costs in Brazilian reais and therefore constitutes a natural hedge.

As the net income is primarily in USD this is also the primary financing currency.

The Group may use forward contracts to manage the foreign exchange risk arising from future commercial transactions and recognized assets and liabilities. As of December 31, 2017, no forward contracts have been entered into.

A +/-5% change in the USD exchange rate against Brazilian reais, which the Group has significant assets and liabilities at the end of each respective period in, is estimated to have an impact on the Group's profit before tax of USD 0.4 million (2016: USD 1.0 million).

Interest rate risk

The Group's exposure to interest rate risk primarily relates to its floating interest rate debt. The Group continuously considers whether part of the interest rate exposure should be hedged. As of December 31, 2017, no interest rate hedges have been entered into.

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 10.9 million (2016: USD 11.2 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. A 100 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.

Credit risk

The Group has financial assets which expose it to credit risk arising from possible default by a counterparty, primarily 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 consists 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 credit quality of a customer is assessed by reference to external credit ratings (where available) and by analysis of historical information about counterparty default rates.

The Company's current counterparty is Petrobras for the Sevan Brasil. The Group has not had a history of collection problems or significant disputes, and continues to closely monitor ongoing material matters with this customer. No provision for doubtful accounts has been recognized in the periods presented.

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 5 "Employee Benefit Expense" 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.

As of December 31, 2017 the Company had not set aside or accrued any amounts for pensions, retirement or similar benefits, except from what is specified in Note 5 "Employee Benefit Expense" 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 specializing in offshore drilling in ultra-deep water. The Company will pursue the following main strategies to reach its overall objective (1) monetize 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 authorized to repurchase treasury shares and to issue any unissued shares within the limits of the authorized 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 minimizes 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 adviser 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 characterized by mutual respect and cooperation.

The Group had 5 accidents and no fatalities in 2017 (2016: 10 accidents and no fatalities).

The Group's drilling units have an environmentally friendly profile. The Group works continuously to minimize 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 labor 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 victimization 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 Board and Management continuously consider the need for specific measures in this respect.

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 recognized human rights standards. The Group supports the UN's Universal Declaration of Human Rights and its work to end forced labor, discrimination and child labor.

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 2017, 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 December 31, 2017.

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 December 31, 2017.

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 December 31, 2017. 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 December 31, 2017.

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 December 31, 2017 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 December 31, 2017 and results of operations for the year ending December 31, 2017; and
• our report for the year ending December 31, 2017 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, April 12, 2018

The Board of Directors

Consolidated Financial Statements For the Year Ended December 31, 2017

Consolidated Financial Statements

Consolidated Statement of Profit or Loss

for the year ended December 31, 2017

USD millions	Note	2017	2016
Operating revenue	3	144.9	237.3
Gain/(loss) on sale of assets		5.5	—
Operating expense	4,5	(85.2)	(125.4)
General and administrative expense	4,5	(14.1)	(19.2)
Depreciation and amortization	10	(60.4)	(70.4)
Impairment	10	(396.3)	(37.5)
Foreign exchange loss, net		(0.1)	(1.4)
Total operating expense		(556.1)	(253.9)
Operating loss		(405.7)	(16.6)
Financial expense	6	(97.4)	(69.0)
Net financial items		(97.4)	(69.0)
Loss before tax		(503.1)	(85.6)
Tax benefit/(expense)	7	3.0	(7.4)
Net loss		(500.1)	(93.0)
Attributable to:
Equity holders of the Company		(500.1)	(93.0)
Earnings per share for loss attributable to the ordinary equity holders of the Company
Basic loss per share	9	(16.82)	(3.13)
Diluted loss per share	9	(16.82)	(3.13)
Consolidated Statement of Comprehensive Income
		2017	2016
Net Loss and Total Comprehensive Loss		(500.1)	(93.0)
Attributable to:
Equity holders of the Company		(500.1)	(93.0)

The notes on pages 25 to 52 are an integral part of these Consolidated Financial Statements.

Consolidated Balance Sheet

as at December 31, 2017

USD millions	Note	2017	2016
ASSETS
Drilling rigs	10	930.7	1,411.1
Deferred tax asset	7	4.6	0.5
Other non-current assets	11	0.1	0.9
Total non-current assets		935.4	1,412.5
Inventories	13	49.8	51.4
Trade and other receivables	14	20.0	65.2
Cash and cash equivalents	21	42.8	26.0
Total current assets		112.6	142.6
Total assets		1,048.0	1,555.1
EQUITY
Share capital	17	3.0	3.0
Share premium	17	713.5	713.5
Other equity		(903.7)	(403.6)
Total equity		(187.2)	312.9
LIABILITIES
Interest bearing debt	15	—	801.2
Total non-current liabilities		—	801.2
Trade and other payables	16	6.8	25.0
Interest bearing debt	15	1,088.7	319.0
Other current liabilities	16	139.7	97.0
Total current liabilities		1,235.2	441.0
Total liabilities		1,235.2	1,242.2
Total equity and liabilities		1,048.0	1,555.1

The notes on pages 25 to 52 are an integral part of these Consolidated Financial Statements.

Oslo, April 12, 2018 The Board of Directors

Consolidated Statement of Changes in Equity

for the year ended December 31, 2017

USD millions	Other equity
	Share capital (Note 17)	Share premium (Note 17)	Equity settled employee benefits reserve	Retained earnings	Total equity
Equity as at January 1, 2017	3.0	713.5	—	(403.6)	312.9
Net loss	—	—	—	(500.1)	(500.1)
Equity as at December 31, 2017	3.0	713.5	—	(903.7)	(187.2)
Equity as at January 1, 2016	3.0	713.5	2.4	(313.0)	405.9
Net loss	—	—	—	(93.0)	(93.0)
Expiration of share options	—	—	(2.4)	2.4	—
Equity as at December 31, 2016	3.0	713.5	—	(403.6)	312.9

The notes on pages 25 to 52 are an integral part of these Consolidated Financial Statements.

Consolidated Cash Flow Statement

for the year ended December 31, 2017

USD millions	Note	2017	2016
Operating activities
Loss before tax		(503.1)	(85.6)
Adjustment to reconcile profit before tax to net cash flows provided by operating activities:
Depreciation, amortization and impairment	10	458.3	115.8
Net financial items	6	97.4	69.0
Payment for long-term maintenance		(14.0)	(9.4)
Other non-cash items	6	(32.9)	(6.1)
Changes in operating assets and liabilities:
Inventory	13	1.6	(0.1)
Trade and Other receivables	14	41.4	12.7
Other non-current assets	11	0.5	12.6
Related party balances		46.9	23.8
Trade and Other payables	16	(6.1)	(13.0)
Other current liabilities	16	—	1.8
Other non-current liabilities		—	(1.7)
		90.0	119.8
Tax paid		(4.3)	(1.5)
Interest, commitment and guarantee fees paid		(61.4)	(63.4)
Net cash flows generated from operating activities		24.3	54.9
Investing activities
Purchases of property, plant and equipment and other non-current assets	10	(0.1)	(1.2)
Refund of yard installment	10	28.5	57.7
Insurance refund		1.2	—
Net cash flows generated from investing activities		29.6	56.5
Financing activities
Proceeds from interest-bearing debt	15	70.0	85.0
Repayment of interest-bearing debt	15	(107.5)	(210.0)
Debt fees paid		—	(3.3)
Net cash flow used in financing activities		(37.5)	(128.3)
Net increase / (decrease) in cash and cash equivalents		16.4	(16.9)
Foreign Exchange differences		0.4	0.5
Cash balance at 1 January		26.0	42.4
Cash and cash equivalents at December 31,		42.8	26.0

The notes on pages 25 to 52 are an integral part of these Consolidated Financial Statements.

Notes to the Consolidated Financial Statements

General information

The Consolidated Financial Statements comprise the parent company, Sevan Drilling Limited, and its subsidiaries for the year ended December 31, 2017. Sevan Drilling Limited is a company incorporated in Bermuda whose common shares have traded on the Oslo Børs. The address of the registered office is Par-la-Ville Place, 14 Parla-Ville Road, Hamilton HM 08, Bermuda.

Sevan Drilling Limited (the "Company" and, together with its subsidiaries, the "Group" or "Sevan") is an international offshore drilling contractor specializing in operations in the ultra deep-water segment. The Group owns three ultra deep-water cylindrical drilling units the Sevan Driller, Sevan Brasil, and Sevan Louisiana.

Note 1 – Summary of Significant Accounting Policies

1.1 Basis of Preparation

The 2017 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 December 31, 2017.

The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. The accounting policies applied are consistent with those applied in the Consolidated Financial Statements for 2016.

The amounts presented in the Consolidated Financial Statements are stated in U.S. Dollars (USD) and values are rounded to the nearest million, except when otherwise indicated.

In 2016 management reclassified certain categories within the Consolidated Statement of Profit or Loss and Consolidated Cash Flow Statement to align with the presentation in the Quarterly Reports. Management consider this to be a more useful presentation.

Going Concern

Our consolidated financial statements have been prepared on a going concern basis and contemplate the realization of assets and satisfaction of liabilities in the normal course of business. Our going concern assumption is based on management's expectation that the current restructuring program described in the Board of Directors Report alleviates the primary conditions that raise significant doubt about our ability to continue as a going concern. Furthermore, our business operations are unaffected by the Chapter 11 Proceedings and the restructuring efforts, and we expect to meet our ongoing customer and business counterparty obligations during the course of the proceedings.

We have been engaged in discussions with our banks, potential new investors, existing stakeholders and bondholders in order to restructure our secured credit facilities and unsecured liabilities and infuse our balance sheet with new capital. These collaborative efforts resulted in the signing of a Restructuring Support and Lock-Up Agreement ("RSA") on September 12, 2017, subsequently amended on February 26, 2018, which provides for several conditions to be met in order to fully effectuate the intended restructuring. Although we anticipate that our restructuring plan will address our liquidity concerns, uncertainty remains over the bankruptcy courts approval of our plan of reorganization, and therefore significant doubt exists over the ability to continue as a going concern for twelve months after the date the financial statements are approved.

The consolidated financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty. Upon emergence from Chapter 11 proceedings, adjustments to the carrying values and classifications of our assets and liabilities and the reported amounts of income and expenses could be required and could be material.

1.1.1 Changes in Accounting Policy and Disclosures

a) New and amended standards adopted by the Group

The Group applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after January 1, 2017. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The nature and the effect of these changes are disclosed below. Although these new standards and amendments were applied for the first time in 2017, they did not have a material impact on the annual consolidated financial statements of the Group. The nature and the impact of each new standard or amendment is described below:

IAS 7 Disclosure Initiative – Amendments to IAS 7

The amendments to IAS 7 Statement of Cash Flows are part of the IASB's Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after January 1, 2017, with early application permitted. Application of amendments has resulted in additional disclosures provided by the Group.

IAS 12 Recognition of Deferred Tax Assets for Unrealized Losses – Amendments to IAS 12

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognized in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.

These amendments are effective for annual periods beginning on or after January 1, 2017 with early application permitted. If an entity applies the amendments for an earlier period, it must disclose that fact. Early application has not been undertaken.

These amendments do not have any significant impact on the Consolidated Financial Statements of the Group.

b) Standards issued but not yet effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

IFRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory.

The Group plans to adopt the new standard on the required effective date. The Group has performed a highlevel impact assessment of the relevant aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analysis or additional reasonable and supportable information being made available to the Group in the future. Overall, the Group expects no significant impact on its Consolidated Balance Sheet and its equity.

(a) Classification and measurement

The Group does not expect a significant impact on its Consolidated Balance Sheet and its equity on applying the classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value all financial assets currently held at fair value.

Loans as well as trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. Thus, the Group expects that these will continue to be measured at amortized cost under IFRS 9. However, the Group will analyze the contractual cash flow characteristics of those instruments in more detail before concluding whether all those instruments meet the criteria for amortized cost measurement under IFRS 9.

(b) Impairment

IFRS 9 requires the Group to record expected credit losses on all of its loans and trade receivables, either on a 12-month or lifetime basis. The Group expects to apply the simplified approach and record lifetime expected losses on all trade receivables. The Group does not expect a significant impact on its equity due to historical experience and credit worthiness of its customers and financial institutions, but it will need to perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements to determine the extent of the impact.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted. The Group has performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Furthermore, the Group is considering the clarifications issued by the IASB in April 2016 and will monitor any further developments.

Based on the analysis to date, the Company has assessed that there is significant interaction between IFRS 15 and IFRS 16 relating to Leases; therefore, the Company expects to adopt the updates concurrently, effective January 1, 2018. The Company continues to make significant progress on its review of the standard to determine the effect the requirements may have on its consolidated financial statements, according to its contract-specific facts and circumstances.

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

IFRS 16 Leases

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less).

At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-ofuse asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under IFRS 16 is substantially unchanged from today's accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Early application is permitted, but not before an entity applies IFRS 15. Alessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transition provisions permit certain reliefs.

The Company has started assessing the impact of this standard update on its consolidated financial statements and related disclosures and has determined that its drilling contracts contain a lease component. The adoption of this standard will result in increased disclosure of the Company's leasing arrangements and may affect the way the Company recognizes revenues associated with the lease and revenue components, according to its contract-specific facts and circumstances. The standard update could also introduce variability to the timing of the Company's revenue recognition compared to current accounting standards. Based on the analysis to date, the Company has assessed there is significant interaction between IFRS 15 relating to revenue recognition from contracts with customers and IFRS 16; therefore, the Company expects to adopt the updates concurrently, effective January 1, 2018, using the modified retrospective approach.

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

1.2 Basis of consolidation

The Consolidated Financial Statements comprise the financial statements of the Company and its subsidiaries as at December 31, 2017. Subsidiaries comprise all entities over which the Company has control. Control is achieved 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.

The Group re-assesses whether or not it controls an entity if facts and circumstances indicate that there are changes to the elements of control. 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 recognized in the Consolidated Statement of Profit or Loss immediately.

Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized 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 2017. The Group continues to aggregate its rigs into a single reporting unit representing the fleet as a whole, based on an 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

The Group's Consolidated Financial Statements are presented in USD, which is also the parent company's functional currency.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognized in the Consolidated Statement of Profit or Loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

1.5 Property, Plant and Equipment

All property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the relevant asset.

Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over the estimated useful lives. The estimated useful life of our Drilling rigs, 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.

Costs related to periodic overhauls of drilling rigs are capitalized under capital assets and amortized 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. Amortization costs for periodic overhauls are included in depreciation, amortization and impairment expense. Costs for other repair and maintenance activities are expensed as incurred and are included in operating expenses.

General and specific debtcosts 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.

Assets are tested for impairment when 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 Consolidated Statement of Profit or Loss.

1.6 Construction in Progress

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

1.7 Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assets

Loans and receivables are measured at fair value at the transaction date and subsequently re-measured at amortized cost. Loans and receivables are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market. Financial assets 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 noncurrent. The losses arising from impairment are recognized in the Consolidated Statement of Profit or Loss in operating expenses for receivables.

This category generally applies to trade and other receivables. See Note 1.10 "Trade Receivables" for further disclosures relating to impairment of trade receivables.

Financial liabilities

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group's financial liabilities include trade and other payables, loans and borrowings.

After initial recognition, interest-bearing loans are subsequently measured at amortized cost. Gains and losses are recognized in the Consolidated Statement of Profit or Loss when the liabilities are derecognized.

This category generally applies to interest-bearing loans and trade and other payables.

1.8 Fair value measurement

The Group initially measures financial assets and liabilities at their fair value.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability; or
• In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
• Level 2 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
• Level 3 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

Fair-value related disclosures for financial assets and liabilities are disclosed in Note 21 "Financial Assets and Financial Liabilities".

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 realizable value. Net realizable 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.

As necessary, we record provisions and maintain reserves for excess, slow moving and obsolete inventory. To determine these amounts, we regularly review inventory quantities on hand and compare them to estimates of operational requirements and technological developments.

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.

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 reorganization, 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 recognized in the Consolidated Statement of Profit or Loss as an '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 Current and Deferred Income Tax

The tax expense for the period comprises current tax and the change in deferred tax. Tax is recognized in the Consolidated Statement of Profit or Loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized 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 realized or the deferred income tax liability is settled. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. 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.

1.14 Provisions

Provisions are recognized in the Consolidated 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 recognized 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 recognized 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 recognized as interest expense in the Consolidated Statement of Profit or Loss.

1.15 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 and after eliminated sales within the Group.

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is received. 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 recognized as follows:

• Charter revenues are recognized on a day rate 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 recognized 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 amortized over the fixed term of the charter contract as a reduction of income.

• Mobilization expenses are offset by mobilization revenues and recognized using the straight line method over the full fixed term of the underlying charter contract, these are classified as an operating expense.

1.16 Leases

Alease is classified at the inception date as a finance lease or an operating lease. Alease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Consolidated Statement of Profit or Loss on a straight-line basis over the period of the lease.

1.17 Employee benefits

Short term obligations

Any liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that are expected to be settled within 12 months and relate to employee's services up to the end of the reporting period are measured at the amounts expected to be paid when the liabilities are settled and presented as current employee benefit obligations in the balance sheet.

The cost of the wages and salaries are recognized as an employee benefit expense in the reporting period that the employee's services relate to.

Post-employment obligations

The Group makes contributions on behalf of its employees to Seadrill's defined contribution scheme. The Group pays contributions to Seadrill and has no other obligations once these payments have been made. The contributions are recognized as an employee benefit expense when they are due.

The Group does not operate a defined benefit scheme.

Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. Aliability for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer of the termination benefit and when the entity recognizes any related restructuring costs.

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. 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. These estimates and assumptions are based on historical experience and other factors that are believed to be reasonable when the consolidate financial statement were prepared. Actual results may differ from these estimates due to market changes or circumstances that are beyond the control of the Group.

Impairment of assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. Fair value less costs of disposal is based on available market data. The recoverable value of the rigs was calculated using an income method discounted cash flow. The recoverable amount is sensitive to the discount rate used in the model in addition to key assumptions including forecasted operational expense, operational taxes, utilization and day rates. The key assumptions used to determine the recoverable amount are further explained in Note 10 "Property, Plant and Equipment".

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 recognizes 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 recognized, 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.

Note 3 - Segment information

The rigs are aggregated for reporting purposes as they all provide the same service, have the same production process, are marketed to the same customer base, are based on the same design/use the same methods to provide their services and operate in the same regulatory environment. The rigs form a single global fleet and each rig can be re-deployed to other locations based on demand.

Therefore, for management purposes, the Group has one reportable segment, representing the fleet as a whole.

Geographic information

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

	2017	2016
US	59.0	133.6
Brazil	85.9	103.7
Total Revenue	144.9	237.3

Revenue was earned from two customers during 2017 (2016: three customers).

Non-current assets by country, based on the location of the asset*:

	2017	2016
US	293.2	498.6
Brazil	341.5	494.6
Singapore	—	381.3
China	—	37.5
Malaysia	296.0	—
Other	—	0.5
Total non-current assets	930.7	1,412.5

* Asset locations at the end of a period are not necessarily indicative of the geographic distribution of the revenues or operating profits generated by such assets during such period.

Note 4 – Operating expenses and General and administrative expenses

4.1 Operating expenses

	2017	2016
Vessel operating expenses	25.1	35.3
Operational support management fees	6.6	5.7
Total vessel and rig operating expense	31.7	41.0
Travel, training and office costs	2.3	3.8
Management fee charges	3.0	0.8
Consultancy	1.0	2.6
Amortization of mobilization costs	3.3	8.4
Catering	2.9	5.2
Insurance	3.0	5.2
Other	1.3	1.7
Total other operating expense	16.8	27.7
Employee benefit expense (Note 5)	36.7	56.7
Total operating expenses	85.2	125.4
4.2 General and administrative expenses
	2017	2016
Travel, training and office costs	—	0.6
Management fee charges	12.6	17.1
Consultancy	1.4	1.0
Total other general and administrative expense	14.0	18.7
Employee benefit expense (Note 5)	0.1	0.5
Total general and administrative expenses	14.1	19.2

Both operating expenses, general and administrative and employee benefit expenses include management charges from subsidiaries of the Group's immediate controlling party, Seadrill. Total operating and management fees charged in 2017 amounted to USD 22.1 million (2016: USD 30.9 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.

Specification of auditor's fee (excl. VAT)

	2017	2016
Statutory audit	0.3	0.5
Other assistance from auditor	—	—
Total audit fees	0.3	0.5

Note 5 – Employee Benefit Expense

	2017	2016
Wages and salaries	30.4	41.1
Management fee charges	0.2	7.3
Employer's contribution tax	5.1	7.2
Pension costs	1.0	1.6
Total employee expense	36.7	57.2

The Company had no employees during the period (2016: nil).

Remuneration of Senior Management and Board of Directors

				2017
USD Thousands		Salaries	Retirement benefits	Other benefits	Start date	End date
Scott McReaken	CEO / CFO/ Board member	43.3	3.2	22.9
Per Wullf	Chairman	45.4	—	—
Ragnhild M. Wiborg	Board member	37.5	—	—		July - 17
Elin Karfjell	Board member	78.7	—	—
Georgina Sousa	Board member	10.6	—	—
Douglas Smith	Board member	42.8	—	—	July - 17
Total remuneration paid		258.3	3.2	22.9

The table shows compensation paid during the year 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. No board member was entitled to severance pay during the year.

Ragnhild M. Wiborg resigned effective July 17, 2017. Douglas Smith was appointed to the Board on July 17.

USD Thousands				2016
		Salaries	Retirement benefits	Other benefits	Start date	End date
Scott McReaken	CEO / CFO/Board member	104.1	3.7	12.8
Per Wullf	Chairman	42.8	—	—
Birgitte R. Vartdal	Chairman	36.5	—	—		Aug-16
Kristian Johansen	Vice chairman	10.4	—	—		Mar-16
Svend Anton Maier	Board member	27.2	—	—		Aug-16
Ragnhild M. Wiborg	Board member	45.3	—	—
Elin Karfjell	Board member	—	—	—	Dec-16
Georgina Sousa	Board member	3.6	—	—	Aug-16
Total remuneration paid		269.9	3.7	12.8

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

Effective August 1, 2016, Scott McReaken's employment with Sevan Drilling was terminated and he was employed by Seadrill Management Ltd. From this date Mr. McReaken was seconded from Seadrill in the position of Chief Financial Officer. The total salary and benefits in the table reflects salary earned for services rendered to Sevan Drilling, including management charges from Seadrill for the provision of his services.

No loans were granted to the CEO, the Chairman of the Board, or to any other related party. No board member was entitled to severance pay during the year.

Note 6 – Financial Expense

	2017	2016
Interest expense	39.1	37.3
Amortization of finance fees	6.0	6.2
Interest on RCF, commitment and guarantee fees to Seadrill	18.9	25.5
Restructuring fees *	33.4	—
Total financial expense	97.4	69.0

* Restructuring fees comprise of legal and professional advisory fees incurred following the Petition date. These fees have been adjusted as 'Other non-cash items' on the Cash Flow Statement for the financial period ended December 31, 2017.

Note 7 – Income Tax Expense

	2017	2016
Current tax
Current tax on profits for the year	1.1	6.8
Adjustments for current tax of prior periods	—	(0.1)
Total current tax expense	1.1	6.7
Deferred income tax
Change deferred tax	(4.1)	0.7
Total deferred tax expense	(4.1)	0.7
Income tax (benefit)/expense	(3.0)	7.4
Loss before tax	(503.1)	(85.6)
Tax at domestic tax rates applicable to profits in holding company Bermuda 0% (2016: 0%)	—	—
Prior year adjustments	—	(0.1)
Effect of other tax jurisdictions	(3.0)	7.5
Tax (benefit)/expense	(3.0)	7.4

Tax losses

The Group has unused tax losses carried forward in respect of Norwegian and Brazilian tax jurisdictions of USD 115.1 million (2016: USD 488.6 million), with no expiration date.

Unrecognized temporary differences

Temporary differences for which no deferred tax asset has been recognized:

	2017	2016
Foreign currency	0.4	1.4
Tax losses	115.1	488.6
Interest deduction	6.9	18.2
Other	0.2	1.3
Unrecognized deferred tax assets relating to the above temporary differences	155.1	131.3

Temporary differences for which no deferred tax liability has been recognized:

	2017	2016
Accruals and provisions	—	—
Unrecognized deferred tax liabilities relating to the above temporary differences	—	—

Note 8 – Dividend per Share

No dividend was paid in 2017 (2016: nil). No dividend will be proposed at the 2018 AGM.

Note 9 – Earnings per Share

	2017	2016
Loss attributable to equity holders of the Company (USD millions)	(500.1)	(93.0)
Weighted average number of ordinary shares on issue (millions)	29.7	29.7
Basic and diluted earnings per share (USD per share)	(16.82)	(3.13)

Basic earnings per share were calculated by dividing the(loss)/profit attributable to equity holders in the Company by the weighted average number of ordinary shares in issue during the year. There are no instruments which dilute basic earnings per share or could potentially dilute basic earnings per share in the future. As such, the basic and diluted earnings per share figures are identical in 2017 and 2016.

Note 10 – Property, Plant and Equipment

	Construction in process (CIP)	Units in operation (UIO)	Drilling rigs	Other fixed assets	Total fixed assets
Book value as at January 1, 2017	37.5	1,373.4	1,410.9	0.2	1,411.1
Additions	—	14.0	14.0	0.1	14.1
Refund from yard	(28.5)	—	(28.5)	—	(28.5)
Disposals	(9.0)	(0.2)	(9.2)	(0.1)	(9.3)
Depreciation charge	—	(60.2)	(60.2)	(0.2)	(60.4)
Impairment	—	(396.3)	(396.3)	—	(396.3)
Book value as at December 31, 2017	—	930.7	930.7	—	930.7
Cost	—	2,061.5	2,061.5	9.7	2,071.2
Accumulated depreciation	—	(398.9)	(398.9)	(9.7)	(408.6)
Accumulated impairment	—	(731.9)	(731.9)	—	(731.9)
Net book value as at December 31, 2017	—	930.7	930.7	—	930.7

	Construction in process (CIP)*	Units in operation (UIO)	Drilling rigs	Other fixed assets	Total fixed assets
Book value as at January 1, 2016	95.2	1,470.3	1,565.5	0.6	1,566.1
Additions	—	10.6	10.6	—	10.6
Refund from yard	(57.7)	—	(57.7)	—	(57.7)
Depreciation charge	—	(70.0)	(70.0)	(0.4)	(70.4)
Impairment	—	(37.5)	(37.5)	—	(37.5)
Book value as at December 31, 2016	37.5	1,373.4	1,410.9	0.2	1,411.1
Cost	37.5	2,047.7	2,085.2	9.7	2,094.9
Accumulated depreciation	—	(338.7)	(338.7)	(9.5)	(348.2)
Accumulated impairment	—	(335.6)	(335.6)	—	(335.6)
Net book value as at December 31, 2016	37.5	1,373.4	1,410.9	0.2	1,411.1

* USD 26.3 million secured by guarantees from the shipyard.

Impairment testing of assets

The recoverable values of the rigs were calculated as the higher of fair value less costs to sell and the value in use. The recoverable value has been determined as the value in use, which was calculated using an income method, discounted cash flow and external valuations were used to estimate the fair value less costs to sell. The recoverable values for Sevan Driller was USD 296.0 million, Sevan Brasil was USD 341.5 million and for Sevan Louisiana was USD 293.2 million. The key assumptions applied for the purpose of estimating a value in use include discount rate and expected future cash flows. To discount the future cash flows, management used a pre-tax weighted average cost of capital (WACC) of 13.7%. Estimated future cash flows are based on the Group's five-year forecast and utilize several assumptions including forecasted operational expense, operational taxes, utilization (94%) and dayrates (low USD 224k's per day with recovery to mid USD 428k's per day by 2022).

Dayrates are based on current contract amounts for the remaining contract term. The underlying assumptions an assigned probabilities of occurrence for utilization and dayrate scenarios beyond contracted periods were developed using a methodology that examines historical data for each rig, which considers the rig's age, rated water depth and other attributes and then assesses its future marketability considering the current and projected market environment at the time of assessment. Other assumptions, such as operating, maintenance and inspection costs, are estimated using historical data adjusted for known developments and future events that are anticipated by management at the time of the assessment. Management's assumptions are necessarily subjective and are an inherent part of our asset impairment evaluation, and the use of different assumptions could produce results that differ from those reported. Management's assumptions involve uncertainties about future demand for our services, dayrates, expenses and other future events, and management's expectations may not be indicative of future outcomes. Significant unanticipated changes to these assumptions could materially alter our analysis in testing an asset for potential impairment.

Due to the continued decline in demand in the ultra deep-water drilling market, the time line for a projected recovery thereof, Management concluded that recoverable values of Sevan Driller, Sevan Brasil and Sevan Louisiana 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 has been impaired by USD 68.2 million, Sevan Brasil by USD 143.4 million and Sevan Louisiana USD 184.7 million.

Based on sensitivity analysis performed, the Company believes that reasonable movements in the key assumptions could result in a change in the impairment loss recognized. Thus there is a possibility the Group may recognize 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 14.7% would result in an impairment of USD 432.6 million and a reduction of expected market rates in the re-contract years of 10% would result in an impairment of approximately USD 426.9million.

Note 11 – Other Non-Current Assets

	2017	2016
Net late delivery penalties	0.1	0.6
Net mobilization expense	0	0.3
Total other non-current assets	0.1	0.9

Note 12 – Subsidiaries

Overview of the Group structure as of December 31, 2017:

Subsidiaries	Registered office	Interest held	Functional currency	Principal activities
Sevan Drilling Rig II AS	Norway	100%	USD	Rig operator
Sevan Drilling Rig V AS1	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 ASA	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 13 – Inventories

	2017	2016
Fuel	2.1	1.9
Spares and consumables	47.7	49.5
Inventories	49.8	51.4

Note 14 – Trade and Other Receivables

	2017	2016
Trade receivables	12.5	46.1
Prepayments	1.6	0.5
Other receivables	5.9	18.6
Trade and other receivables	20.0	65.2

The Group did not have any impairment losses on trade receivables during 2017 and 2016.

As at December 31, the aging analysis of trade receivables is, as follows:

	2017	2016
Before due date	12.5	46.1
Net trade receivables	12.5	46.1

See Note 21 "Financial Assets and Financial Liabilities" which explains how the Group manages and measures credit quality of trade receivables.

Note 15 – Interest Bearing Debt

	2017	2016
Bank credit facility	—	801.2
Non-current	—	801.2
Bank credit facility	871.2	134.0
Revolving credit facility with Seadrill	217.5	185.0
Current	1,088.7	319.0
Total	1,088.7	1,120.2

Total interest bearing debt include secured liabilities (bank and collateralized debt) of USD 1,088.7 million(2016: USD 1,120.2 million). See Note 21 "Financial Assets and Financial Liabilities" for additional discussion of collateral arrangement.

The bank credit facility is a USD 1,750 million secured bank loan facility was composed of a USD 350 million export credit facility and USD 1,400 million commercial facility. Tranche A, totaling 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. Basic term is divided between LIBOR +2.5% for GIEK tranche and LIBOR +2.85% for Commercial tranche.

The GIEK tranche is extended to September 2023 and the commercial tranche matures in September 2018. If the commercial tranche is not refinanced satisfactorily after 5 years, then the GIEK tranche also becomes due. The Company's bank credit facility is guaranteed by Seadrill, in exchange for the financial covenants being measured at the Seadrill consolidated level. Seadrill charged a guarantee fee of 1.0% per annum on amounts drawn. In 2017 USD 1.8 million was paid in guarantee fees (2016: USD 11.2 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. Following the amendment made to the facility in April 2017, this covenant has been suspended. As part of the RSA entered into on September 12, 2017, the lenders have agreed to waive any breach of, or default under, our debt agreements after this date, which arise as a result of or is, directly or indirectly, related to the commencement of Chapter 11 proceedings or any of the steps contemplated in, or to be undertaken pursuant to, the RSA including any failure to comply with any of the financial covenants in the debt agreement.

April 2016 Amendments, as amended in April 2017

On April 28, 2016, Seadrill and the Company executed amendment and waiver agreements in respect of all of its senior secured credit facilities. The maturity of our USD 1,750 million senior secured credit facility was extended to June 30, 2017. On April 4, 2017, we executed extensions to the covenant amendments and waivers expiring on June 30, 2017 to September 30, 2017.

The key terms and conditions of these agreements are as follows:

• Equity ratio: Seadrill is required to maintain a total equity to total assets ratio of at least 30.0%. Prior to the amendment, both total equity and total assets are adjusted for the difference between book and market values of drilling units, as determined by independent broker valuations. The amendment removes the need for the market value adjustment from the calculation of the equity ratio until June 30, 2017. On April 4, 2017, the amendment period was extended until September 30, 2017.
• Leverage ratio: Seadrill is required to maintain a ratio of net debt to EBITDA. Prior to the amendment the leverage ratio had to be no greater than 6.0:1, falling to 5.5:1 from October 1, 2016, and falling again to 4.5:1 from January 1, 2017. The amendment retains the ratio at 6.0:1 until December 31, 2016, and then increases to 6.5:1 between January 1, 2017 and June 30, 2017. On April 4, 2017, the amendment period was extended until September 30, 2017.
• Minimum-value-clauses: Seadrill's and the Company's secured bank credit facilities contain loan-tovalue clauses, or minimum-value-clauses ("MVC"), which could require the Seadrill and the Company to post additional collateral or prepay a portion of the outstanding borrowings should the value of the

drilling units securing borrowings under each of such agreements decrease below required levels. This covenant has been suspended until June 30, 2017. On April 4, 2017, the amendment period was extended until September 30, 2017.

• Minimum Liquidity: The aggregated minimum liquidity requirement for the group to maintain cash and cash equivalents of at least USD 150 million has been increased to USD 250 million until June 30, 2017. On April 4, 2017, the amendment period was extended until September 30, 2017.

Additional undertakings:

• Further process: Seadrill and the Company has agreed to consultation, information provision and certain processes in respect of further discussions with its lenders under its senior secured credit facilities.
• Restrictive undertakings: Seadrill and the Company has agreed to additional near-term restrictive undertakings applicable during this process, including (without limitation) limitations in respect of:
• dividends, share capital repurchases and total return swaps;
• investments in, extensions of credit to or the provision of financial support for non-wholly owned subsidiaries;
• investments in, extensions of credit to or the provision of financial support for joint ventures or associated entities;
• acquisitions;
• dispositions;
• prepayment, repayment or repurchase of any debt obligations;
• granting security; and
• payments in respect of newbuild drilling units,

in each case, subject to limited exceptions.

• Other changes and provisions:
• Undrawn availability: Seadrill and the Company has agreed to refrain from borrowing any undrawn commitments under its senior secured credit facilities.
• Fees: The Company has agreed to pay certain fees to its lenders in consideration of these extensions and amendments.

For the purposes of the above tests, EBITDA is defined as the earnings before interest, taxes, depreciation and amortization on a consolidated basis and (ii) the cash distributions from investments, each for the previous period of twelve months as such term is defined in accordance with accounting principles consistently applied. However, in the event that Seadrill or a member of the group acquires rigs or rig owning entities with historical EBITDA available for the rigs' previous ownership, such EBITDA shall be included for covenant purposes in the relevant loan agreement, and if necessary, be annualized to represent a twelve (12) month historical EBITDA. In the event that Seadrill or a member of the group acquires rigs or rig owning companies without historical EBITDA available, Seadrill is entitled to base a twelve month historical EBITDA calculation on future projected EBITDA only subject to any such new rig having (i) a firm charter contract in place at the time of delivery of the rig, with a minimum duration of twelve months, and (ii) a firm charter contract in place at the time of such EBITDA calculation, provided Seadrill provides the agent bank with a detailed calculation of future projected EBITDA. Further, EBITDA shall include any realized gains and/or losses in respect of the disposal of rigs or the disposal of shares in rig owning companies.

Cash distributions from investments are defined as cash received by Seadrill, by way of dividends, in respect of its ownership interests in companies which Seadrill does not control but over which it exerts significant influence.

Our credit facilities and bonds contain customary restrictive covenants which that limit, among other things, our ability to:

• incur additional indebtedness;
• sell the mortgaged drilling rig, if applicable;
• make additional investments or acquisitions;
• pay dividends; and
• effect a change of control in the Company.

A failure to comply with the covenants in our loan agreements could result in a default under those agreements and under other debt agreements containing cross-defaults provisions.

Effective December 29, 2014, the Revolving Credit Facility ("RCF") with Seadrill was increased to USD 300 million. On April 28, 2016, the RCF maturity was extended to December 31, 2017. On September 12, 2017, the Company filed for Chapter 11. Following the filing no principle repayments will be made on the senior secured debt and the Company will not have access to the RCF facility.

As a result, the RCF is classified as a current liability in the Consolidated Balance Sheet. The RCF 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. Acommitment fee of 2.4% per annum used to be charged on the undrawn balance on the RCF. After the Chapter 11 filing guarantee and commitment fees have ceased being charged on the RCF.

The Group had the following undrawn debt facilities:

	2017	2016
Expiring within one year	—	115.0
Expiring beyond one year	—	—
Total undrawn debt facilities	—	115.0

At December 31, 2016 the undrawn facility expiring within one year was the RCF. As at December 31, 2017, the Company does not have access to the RCF facility.

Security arrangements relating to drilling units are described in Note 19 "Securities for Debt" and liquidity risk is described in Note 21 "Financial Assets and Financial Liabilities".

Note 16 – Current Liabilities

	2017	2016
Trade payables	3.7	6.0
Accrued expenses relating to trade payables	3.1	19.0
Total trade and other payables	6.8	25.0
Income and gross revenue tax payable	1.9	5.4
Other taxes payable	5.4	7.4
Payable to related parties	114.2	67.7
Other payables	18.2	16.5
Total other current liabilities	139.7	97.0

Note 17 – Share Capital

	Number of shares	Share capital	Share premium	Total
Sevan Drilling Limited as at January 1, 2017	29,731,457	3.0	713.5	716.5
Sevan Drilling Limited as at December 31, 2017	29,731,457	3.0	713.5	716.5
Sevan Drilling Limited as at January 1, 2016	29,731,457	3.0	713.5	716.5
Sevan Drilling Limited as at December 31, 2016	29,731,457	3.0	713.5	716.5

The total authorized number of ordinary shares was 100.0 million with a par value of NOK 1 per share. All issued shares were fully paid at balance sheet date.

List of 20 major shareholders at December 31, 2017	Shares	Voting share
SEADRILL LTD	14,897,069	50.1%
NORDNET BANK AB	470,759	1.6%
PETTERSEN OLE JOHAN VIAN	350,000	1.2%
NORDNET LIVSFORSIKRI	331,592	1.1%
FORBREGD STIG	305,000	1.0%
HEDMANT INVEST AS	250,000	0.8%
DANSKE BANK A/S 3887 OPERATIONS SEC.	239,399	0.8%
SKJEGSTAD KNUT ARNE MELBY	210,000	0.7%
ASMYR JON MAGNE	200,000	0.7%
RAKA INVEST AS	200,000	0.7%
HELLESTØ FINANS AS	199,414	0.7%
AVANZA BANK AB	171,283	0.6%
SKJONG LEIF INGE	170,200	0.6%
CORNELIUSSEN ALF JOHAN	162,740	0.6%
HAAV HOLDING AS PLATÅVEIEN 10	150,000	0.5%
EIKEBØ STIG OTTO	150,000	0.5%
AROMA HOLDING AS	150,000	0.5%
SÆTHERBAKKEN PETTER	146,690	0.5%
LINDLAND SVEINUNG	141,500	0.5%
BERGER PER	128,915	0.4%
Total 20 largest shareholder accounts	19,024,561	64.1%
Total number of shares	29,731,457
Foreign ownership (Citizenship/Country of registration)	15,778,510	53.1%

Note 18 – Operating Leases

The Group leases offices under non-cancellable lease agreements.

Operating lease expense recognized for the year is USD 0.0 million (December 31, 2016: USD 0.2 million).

Note 19 – Securities for Debt

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

The bank credit facility is secured, on a cross-collateralized 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-collateralized basis, by a second priority mortgage over the Sevan Driller, the Sevan Brasil and the Sevan Louisiana. The closing net book values of the Company's drilling units were as follows:

	2017	2016
Sevan Driller	296.0	381.3
Sevan Brasil	341.5	494.0
Sevan Louisiana	293.2	498.1
Total	930.7	1,373.4

Note 20 - Commitments & Contingencies

The Sevan Developer

The Sevan Developer was on order from Cosco pursuant to an all in, turnkey construction contract at a price of USD 526 million with the initial contractual delivery date being April 30, 2014. On October 17, 2016, we agreed with Cosco to exercise our third six-month option to defer the delivery of the Sevan Developer until April 15, 2017. This was subsequently further deferred to June 30, 2017.

During July 2017 it was announced that the delivery deferral period was amended to further defer delivery to June 30, 2020 effective upon receipt of USD 25.3 million plus interest from Cosco, which was received in July 2017. The amendment gave Cosco the option to terminate the deferral period agreements on July 1, 2018 and again on July 1, 2019, which would require Cosco to refund the remaining USD 1 million investment balance. It was deemed that Sevan lost control of the asset and therefore the construction in process asset held of USD 9 million was derecognized at that date. Associated accrued interest of \$10.8 million was also derecognized at this date. This resulted in a net gain on disposal of USD 2.8 million.

The Sevan Developer remains in Qidong, China at the Cosco shipyard and Sevan can exercise an option to take delivery should it be successful in being awarded an acceptable drilling contract where financing can be obtained for the original contractual price of USD 526 million.

The construction contract terminates at the end of the deferral period should Sevan not take delivery and Cosco not exercise an earlier option to terminate the contract.

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 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 recognized in the Company's Consolidated Financial Statements.

Note 21 – Financial Assets and Financial Liabilities

The Group's financial instruments held as at December 31, 2017 consist of cash, trade receivables, trade payables and bank borrowings measured at amortized cost with variable interest rates.

The Group's financial instruments are classified as follows:

Financial assets

Financial assets at amortized cost	2017	2016
Trade and other receivables	20.0	65.2
Cash and cash equivalents	42.8	26.0
Total financial assets	62.8	91.2

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. The carrying value may be affected by changes in the credit risk of the counterparties.

Cash and cash equivalents consists of cash in the bank which is highly liquid.

Management assessed that the fair value of trade and other receivables and cash and cash equivalents approximate their carrying amounts largely due to the short-term maturities of these instruments.

Financial liabilities

Financial liabilities at amortized cost	2017	2016
Interest-bearing debt	1,088.7	1,120.2
Trade and other payables	6.8	25.0
Total financial liabilities	1,095.5	1,145.2

Note 15 "Interest Bearing Debt" contains further information on interest bearing debt including maturity and interest rates.

Management assessed that the fair value of trade and other payables approximate their carrying amounts largely due to the short-term maturities of these instruments.

As at December 31, 2016 the fair value of interest-bearing debt has been determined using the discounted cash flow method using a discount rate that reflects the non-performance risk. As at December 31, 2017, as a result of filing for Chapter 11 the fair value of the interest bearing debt cannot be reasonably determined.

		2017		2016
	Carrying amount	Fair value	Carrying amount	Fair value
Interest-bearing debt	1,088.7	—	1,120.2	1,039.7

Financial instruments risk management objectives and policies

The Group's principle financial liabilities comprise loans and debt and trade and other payables. The main purpose of these financial liabilities is to finance the Group's operations. The Group's principle financial assets are trade and other receivables and cash and cash equivalents.

The Group is exposed to liquidity risk, foreign currency risk, interest rate risk and credit risk. The Group's overall risk management program seeks to minimize 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 organization. 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.

The table below summarizes the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:

December 31, 2017	0 – 6 month	6 – 12 month	Year 2	Year 3	Year 4-5	Later
Debt (including interest)	357.5	735.0	—	—	—	—
Trade and other payables	6.8	—	—	—	—	—
Total	364.3	735.0	—	—	—	—

December 31, 2016	0 – 6 month	6 – 12 month	Year 2	Year 3	Year 4-5	Later
Debt (including interest)	92.3	276.1	739.8	24.1	23.4	44.6
Trade and other payables	25.0	—	—	—	—	—
Total	117.3	276.1	739.8	24.1	23.4	44.6

Foreign currency risk

The Group's foreign currency risk primarily arises due to operations conducted in Brazil. Operating revenue and expenses are principally denominated in USD however, a portion of revenue and expenses are denominated in Brazilian reais. The revenues denominated in Brazilian reais are more or less equal to operating costs in Brazilian reais and therefore constitutes a natural hedge.

As the net income is primarily in USD this is also the primary financing currency.

The Group may use forward contracts to manage the foreign exchange risk arising from future commercial transactions and recognized assets and liabilities. As of December 31, 2017, no forward contracts have been entered into.

The following table demonstrates the sensitivity to a reasonably possible change in Brazilian reais, with all other variables held constant. The impact on the Group's profit before tax is due to changes in the fair value of monetary assets and liabilities.

	Increase/decrease in Brazilian reais	Effect on profit before tax
2017	5%	0.4
2016	5%	1.0

The Group's exposure to foreign currency changes for all other currencies is not material.

Interest rate risk

The Group's exposure to interest rate risk primarily relates to its floating interest rate debt. The Group continuously considers whether part of the interest rate exposure should be hedged. As at December 31, 2017, no interest rate hedges have been entered into.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and debt affected. With all other variables held constant, the Group's profit before tax is affected through the impact on floating rate debt, as follows:

	Increase/decrease in basis points	Effect on profit before tax
2017	100	10.9
2016	100	11.2

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. A 100 basis points 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.

Credit risk

The Group has financial assets which expose it to credit risk arising from possible default by a counterparty, primarily 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.

Trade receivables

Historically the Company's customers have all been engaged in the offshore oil and gas industry and have consisted 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 credit quality of a customer is assessed by reference to external credit ratings (where available) and by analysis of historical information about counterparty default rates.

The Company's current counterparty is Petrobras for the Sevan Brasil. 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 recognized in the periods presented.

Cash deposits

Credit risk from balances with banks and financial institutions is managed by the Group's treasury department in accordance with the Group's policy. Cash deposits are made only with approved counterparties and within credit limits assigned to each counterparty.

Guarantees

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. However, as part of the RSAentered into on September 12, 2017, the lenders have agreed to waive any breach of, or default under, our debt agreements after this date, which arise as a result of or are, directly or indirectly, related to the commencement of Chapter 11 proceedings or any of the steps contemplated in, or to be undertaken pursuant to, the RSA including any failure to comply with any of the financial covenants in the debt agreement. This applies to all of our senior secured credit facilities

Note 22 – 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 15 "Interest Bearing Debt". Seadrill provided a RCF of which USD 217.5 million was outstanding as of December 31, 2017 (2016: USD 185.0 million). This facility expired on December 31, 2017. The Company filed for Chapter 11 protection on September 12, 2017 after which the Company no longer had access to the facility. Seadrill charged the Group interest on the RCF and guarantee and commitment fees in a total amount of USD 18.5 million(2016: USD 25.5 million). Seadrill ceased charging guarantee and commitment fees following the Chapter 11 filing.

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. Seadrill also provides executive services, management support and administrative services to the Group. The total fees charged for operating and management services were USD 22.1 million (2016: USD 30.9 million). The Group had a current liability (including the commitment, guarantee and management fees mentioned above) of USD 115.2 million to Seadrill as at December 31, 2017 (2016: USD 67.5 million). The Group also has a current asset from Seadrill of USD 1.2 million(2016: 0.2 million).

North Atlantic Drilling Ltd provides executive services to Sevan, the total fees charged were USD 0.4 million (2016: USD 0.4 million). The Group has a current asset with North Atlantic Drilling of USD 0.0 million (2016: USD 0.3 million). The Group also has a current liability to North Atlantic Drilling of USD 0.2 million (2016: 0.2 million).

Related party transactions are made on terms equivalent to those that prevail in arm's length transactions.

Note 23 – Cash flow information

Net debt reconciliation

This section sets out an analysis of net debt and the movements in net debt for the period ended December 31, 2017.

	Cash	Long term borrowings	Short term borrowings	Total
Net debt as at January 1, 2017	26.0	(801.2)	(319.0)	(1,094.2)
Cashflows	16.8	0	37.5	54.3
Non-cash movements:
Reclassification from non current to current debt	—	801.2	(801.2)	—
Amortization of debt fees	0	—	(6.0)	(6.0)
Net debt as at December 31, 2017	42.8	—	(1,088.7)	(1,045.9)

Note 24 – 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.

Sevan Drilling Limited Financial Statements For the Year Ended December 31, 2017

Sevan Drilling Limited Financial Statements

Statement of Profit or Loss

for the year ended December 31, 2017

USD thousand	Notes	2017	2016
Operating expenses		(1,446)	(756)
Impairment of investments	6	(291,403)	(138,372)
Provision for irrecoverable intercompany receivables		(392,751)	—
Total operating expenses		(685,600)	(139,128)
Operating Loss		(685,600)	(139,128)
Interest expense	7	(18,526)	(26,107)
Dividend income	6	—	8,474
Net financial items		(18,526)	(17,633)
Loss before tax		(704,126)	(156,761)
Net Loss		(704,126)	(156,761)
Statement of comprehensive loss
Net loss		(704,126)	(156,761)
Comprehensive loss		(704,126)	(156,761)
Attributable to:
Equity holders of the Company		(704,126)	(156,761)

The notes on pages 58 to 64 are an integral part of these financial statements.

Balance Sheet

as at December 31, 2017

USD thousands	Notes	2017	2016
Non-current assets
Investments in subsidiaries	6	3	291,406
Total non-current assets		3	291,406
Current assets
Accounts receivables from group companies	5	457,842	827,681
Other receivables		798	24
Cash and bank deposits		140	7,209
Total current assets		458,780	834,914
Total assets		458,783	1,126,320
Equity and liabilities
Equity
Share capital		2,973	2,973
Share premium		713,500	713,500
Retained earnings		(938,436)	(234,310)
Total equity		(221,963)	482,163
Current liabilities
Interest bearing debt	7	217,500	185,000
Accounts payable to group companies	5	462,780	458,550
Other current liabilities		466	607
Total current liabilities		680,746	644,157
Total liabilities		680,746	644,157
Total equity and liabilities		458,783	1,126,320

The notes on pages 58 to 64 are an integral part of these financial statements.

Oslo, April 12, 2018 The Board of Directors

Statement of Changes in Equity

for the year ended December 31, 2017

USD thousands	Share capital	Share premium	Other	Total equity
Equity January 1, 2017	2,973	713,500	(234,310)	482,163
Net result for the year	—	—	(704,126)	(704,126)
Equity December 31, 2017	2,973	713,500	(938,436)	(221,963)
Equity January 1, 2016	2,973	713,500	(77,549)	638,924
Net result for the year	—	—	(156,761)	(156,761)
Equity December 31, 2016	2,973	713,500	(234,310)	482,163

The notes on pages 58 to 64 are an integral part of these financial statements.

Statement of Cash Flow

for the year ended December 31, 2017

USD thousands	2017	2016
Operating activities
Loss before tax	(704,126)	(156,761)
Adjustment to reconcile profit before tax to net cash flows:
Net financial items	18,526	17,633
Impairment	291,403	138,372
Provision for irrecoverable intercompany receivables	392,751	—
Net foreign exchange differences	15	4
Working capital adjustments:
Trade and other payables	(157)	293
Other receivables	(773)	(25)
Net cash used in operating activities	(2,361)	(484)
Investing activities
Net movement on loans to intercompany	(22,912)	(94,549)
Dividend receivable	—	8,474
Net cash used in investing activities	(22,912)	(86,075)
Financing activities
Proceeds from loans from related parties	70,000	85,000
Repayment of loans from related parties	(56,026)	(96,107)
Change in intercompany balances	4,230	84,345
Net cash generated from financing activities	18,204	73,238
Net increase in cash and cash equivalents	(7,069)	(13,321)
Cash balance at January 1,	7,209	20,530
Cash and cash equivalents at December 31,	140	7,209

The notes on pages 58 to 64 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

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 year ended December 31, 2017.

The amounts presented in the financial statements are stated in U.S. dollars ("USD") and values are rounded to the nearest thousand, except when otherwise indicated.

The financial statements are prepared on a going concern basis and contemplate the realization of assets and satisfaction of liabilities in the normal course of business. The Company's going concern assumption is based on management's expectation that the current restructuring program described in the Board of Directors Report alleviates the primary conditions that raise significant doubt about our ability to continue as a going concern.

We have been engaged in discussions with our banks, potential new investors, existing stakeholders and bondholders in order to restructure our secured credit facilities and unsecured liabilities and infuse our balance sheet with new capital. These collaborative efforts resulted in the signing of a Restructuring Support and Lock-Up Agreement ("RSA") on September 12, 2017, subsequently amended on February 26, 2018, which provides for several conditions to be met in order to fully effectuate the intended restructuring. Although we anticipate that our restructuring plan will address our liquidity concerns, uncertainty remains over the bankruptcy courts approval of our plan of reorganization, and therefore significant doubt exists over the ability to continue as a going concern for twelve months after the date the financial statements are approved.

The Company financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty. Upon emergence from Chapter 11 proceedings, adjustments to the carrying values and classifications of our assets and liabilities and the reported amounts of income and expenses could be required and could be material.

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. The accounting policies applied are consistent with those applied in the consolidated financial statement for 2016.

1.1.1 Changes in Accounting Policy and Disclosures

a) New and amended standards adopted by the Company

The Company applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2017. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

The nature and the effect of these changes are disclosed below. Although these new standards and amendments applied for the first time in 2017, they did not have a material impact on the annual consolidated financial statements of the Company. The nature and the impact of each new standard or amendment is described below:

IAS 7 Disclosure Initiative – Amendments to IAS 7

The amendments to IAS 7 Statement of Cash Flows are part of the IASB's Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of amendments will result in additional disclosure provided by the Company.

These amendments do not have any significant impact on the Company.

b) Standards issued but not yet effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company's financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.

IFRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory.

The Company plans to adopt the new standard on the required effective date. During 2016, the Company has performed a high-level impact assessment of the two applicable aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analysis or additional reasonable and supportable information being made available to the Company in the future. Overall, the Company expects no significant impact on its balance sheet and equity.

(a) Classification and measurement

The Company does not expect a significant impact on its balance sheet or equity on applying the classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value all financial assets currently held at fair value.

Loans as well as trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. Thus, the Company expects that these will continue to be measured at amortized cost under IFRS 9. However, the Company will analyze the contractual cash flow characteristics of those instruments in more detail before concluding whether all those instruments meet the criteria for amortized cost measurement under IFRS 9.

(b) Impairment

IFRS 9 requires the Company to record expected credit losses on all of its loans and trade receivables, either on a 12-month or lifetime basis. The Company expects to apply the simplified approach and record lifetime expected losses on all trade receivables. The Company does not expect a significant impact on its equity due to historical experience and credit worthiness of its customers and financial institutions, but it will need to perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements to determine the extent of the impact.

1.2 Foreign Currency Translation

The Company's financial statements are presented in USD, which is also the company's functional currency.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognized in profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.

1.3 Financial Instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assets

Loans and receivables are measured at fair value at the transaction date and subsequently re-measured at amortized cost. Loans and receivables are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market. Financial assets 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 noncurrent. The losses arising from impairment are recognized in the statement of profit or loss in operating expenses for receivables.

This category generally applies to other receivables.

Financial liabilities

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Company's financial liabilities include other payables and loans and borrowings.

After initial recognition, interest-bearing loans are subsequently measured at amortized cost. Gains and losses are recognized in profit or loss when the liabilities are derecognized.

This category generally applies to interest-bearing loans and other payables.

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 Current and Deferred Income Tax

The tax expense for the period comprises current tax and the change in deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized 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 realized or the deferred income tax liability is settled. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. 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 Company 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 Company intends to settle its current tax assets and liabilities on a net basis.

1.7 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.

1.8 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 at December 31, 2017.

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 Company makes estimates and assumptions concerning the future. 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. These estimates and assumptions are based on historical experience and other factors that are believed to be reasonable when the consolidate financial statement were prepared. Actual results may differ from these estimates due to market changes or circumstances that are beyond the control of the Company.

Impairment of shares in subsidiaries and intercompany receivables

The parent company has used the same approach and assumptions when evaluating impairment of shares in subsidiaries and intercompany receivables as for the impairment tests for rigs in the consolidated financial statements. Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. Fair value less costs of disposal is based on available market data. The recoverable value of the investments was calculated using an income method discounted cash flow.

The estimated future free cash flows associated with the investment were primarily based on expectations around applicable day rates, rig utilization, operating costs and capital and long-term maintenance expenditures. To discount the future cash flows, management used a pre-tax weighted average cost of capital (WACC) of 13.7%. The model derived an enterprise value of the investments, after which associated debt was subtracted to provide equity values. The carrying value of the investment was found to exceed the fair value by USD 291,403,000. We have recognized this impairment of the investments within "Impairment of Investments" in the Statement of Profit or Loss.

The assumptions used in the model were derived from unobservable inputs and are based on management's judgments and assumptions available at the time of performing the impairment test. The significant assumptions include forecasted operational expense, operational taxes, utilization (94%) and dayrates (low USD 224k's per day with recovery to mid USD 428k's per day by 2022).

The underlying assumptions and assigned probabilities of occurrence for utilization and dayrate scenarios were developed using a methodology that examines historical data for each rig, which considers the rig's age, rated water depth and other attributes and then assesses its future marketability in light of the current and projected market environment at the time of assessment. Other assumptions, such as operating, maintenance and inspection costs, are estimated using historical data adjusted for known developments and future events that are anticipated by management at the time of the assessment. Management's assumptions are necessarily subjective and are an inherent part of our asset impairment evaluation, and the use of different assumptions could produce results that differ from those reported. Management's assumptions involve uncertainties about future demand for our services, dayrates, expenses and other future events, and management's expectations may not be indicative of future outcomes. Significant unanticipated changes to these assumptions could materially alter our analysis in testing an asset for potential impairment.

Note 3 - Share capital and shareholder information

	Number of shares	Share capital	Share premium	Total
Sevan Drilling Limited as at December 31, 2017	29,731,457	2,973	713,500	716,473

Each share has a nominal value of USD 0.10.

List of 20 major shareholders at December 31, 2017	Shares	Voting share
SEADRILL LTD	14,897,069	50.1%
NORDNET BANK AB	470,759	1.6%
PETTERSEN OLE JOHAN VIAN	350,000	1.2%
NORDNET LIVSFORSIKRI	331,592	1.1%
FORBREGD STIG	305,000	1.0%
HEDMANT INVEST AS	250,000	0.8%
DANSKE BANK A/S 3887 OPERATIONS SEC.	239,399	0.8%
SKJEGSTAD KNUT ARNE MELBY	210,000	0.7%
ASMYR JON MAGNE	200,000	0.7%
RAKA INVEST AS	200,000	0.7%
HELLESTØ FINANS AS	199,414	0.7%
AVANZA BANK AB	171,283	0.6%
SKJONG LEIF INGE	170,200	0.6%
CORNELIUSSEN ALF JOHAN	162,740	0.6%
HAAV HOLDING AS PLATÅVEIEN 10	150,000	0.5%
EIKEBØ STIG OTTO	150,000	0.5%
AROMA HOLDING AS	150,000	0.5%
SÆTHERBAKKEN PETTER	146,690	0.5%
LINDLAND SVEINUNG	141,500	0.5%
BERGER PER	128,915	0.4%
Total 20 largest shareholder accounts	19,024,561	64.1%
Total number of shares	29,731,457
Foreign ownership (Citizenship/Country of registration)	15,778,510	53.1%

Note 4 - Employee benefit expense

The Company had no employees during the period (2016: nil).

Note 5 - Intercompany Transactions

	2017	2016
Long-term receivables from Group companies	—	—
Accounts receivable from Group companies	457,842	827,681
Total receivables from Group companies	457,842	827,681
Long-term payables to Group companies	—	—
Accounts payable to Group companies	462,780	458,550
Total liabilities to Group companies	462,780	458,550

Note 6 - 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%	1
Sevan Drilling Pte Ltd	Singapore	100.0%	1
Sevan Drilling Rig IX Pte Ltd	Singapore	100.0%	1
Sevan Drilling Limited	UK	100.0%	1
Total			3,009

In 2017, an impairment charge of USD 110,749,857 was recognized on the investment held in Sevan Drilling Pte Ltd (2016: USD 138,372,000), and an impairment charge of USD 180,653,630 was recognized on the investment held in Sevan Louisiana Hungary KFT.

In 2017, dividend income of nil (2016: USD 8,474,186) was received from the investment held in Sevan Louisiana Hungary KFT.

	2017	2016
Current liabilities
Debt from related parties	217,500	185,000
Total current liabilities	217,500	185,000
	2017	2016
Undrawn debt facilities
Expiring within one year	—	115,000
Total undrawn debt facilities	—	115,000

Seadrill previously provided the Group with a USD 300.0 million RCF in order to meet the Group's short term liquidity needs beyond what is covered by the Group's senior secured credit facility. On April 28, 2016 the RCF was extended to December 31, 2017. There were no changes to the terms of the RCF facility under the extension. Interest was accrued on drawn amounts at a rate of LIBOR +6%, payable quarterly in arrears.

On September 12, 2017, the Company filed for Chapter 11. Following the filing the accrual of interest on the RCF facility ceased and no principal repayments were made. The facility was suspended at December 31, 2017.

Note 8 - Related Party Transactions

Seadrill is providing the RCF of which USD 217,500,000 was outstanding as at December 31, 2017 (2016: USD 185,000,000). Seadrill charged the Company interest on the RCF, guarantee and commitment fees in total amount of USD 18,500,000 (2016: USD 25,500,000). This facility expired on December 31, 2017. The Company filed for Chapter 11 protection on September 12, 2017 after which the Company no longer had access to the facility. Seadrill ceased charging guarantee and commitment fees following the Chapter 11 filing.

Sevan Drilling has a total liability with Seadrill of USD 7,408,688 (2016: USD 7,678,036).

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.