Seadrill Limited (SDRL) - Third quarter 2018 results

November 27, 2018- Seadrill Limited ("Seadrill" or "the Company"), a world leader in offshore drilling, announces its third quarter results for the period ended September 30, 2018.

Highlights

Revenue of \$249 million
Operating loss of \$106 million
Adjusted EBITDA¹ of \$46 million
98% economic utilization²
Reported net loss of \$245 million and diluted net loss per share of \$2.40
Total cash of \$2.1 billion
Seadrill Limited order backlog of approximately \$2.1 billion
Added \$296 million in backlog since the end of the second quarter

	Seadrill Limited
Figures in USD million, unless otherwise indicated	Q3 2018 As Reported
Total Operating Revenue	249
Adjusted EBITDA1	46
Margin (%)	18%
Operating Loss	(106)

Anton Dibowitz, CEO, commented:

--------------------------------------

"Having restructured our business, we are now well positioned to capitalize on the recovery. The combination of a strong cash position, no near-term amortization payments or debt maturities and light financial covenants alongside a large modern fleet and continued focus on cost reduction will ensure we remain competitive.

The fundamentals for our industry remain strong and there are improving signs through increased contracting activity, additional supply leaving the market and industry consolidation which should lead to better pricing in the future. We are already starting to see rate improvements for contracts starting in 2019/20.

We remain disciplined in our approach to contracting and will not be drawn into long term contracts at low day-rates given our financial flexibility."

¹ Adjusted EBITDA is defined as 'Earnings Before Interest, Tax, Depreciation and Amortization' and has been calculated by taking operating income plus depreciation and amortization but excluding gains or losses on disposals and impairment charges against long-lived assets. Additionally, in any given period the Company may have significant, unusual or non-recurring gains or losses which it may exclude from its non-GAAP earnings for that period. When applicable, these items would be fully disclosed and incorporated into the required reconciliations from US GAAP to non-GAAPmeasures. Refer to the Appendix for the reconciliation of operating income to Adjusted EBITDA, as operating income is the most directly comparable US GAAP measure.

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

Emergence from Chapter 11

We emerged from Chapter 11 on July 2, 2018 after successfully completing our restructuring. The revised capital structure includes:

\$1.08 billion of new capital;
the extending and reprofiling of \$5.7 billion of secured bank debt; and,
the conversion of \$2.6 billion of unsecured liabilities to equity.

The restructuring has strengthened our balance sheet and significantly improved our liquidity as we prepare for the recovery in the industry. A key part of our restructuring was to ensure that the Company has sufficient resources to fund an extended industry downturn. With total cash of \$2.1 billion (of which \$1.6 billion is unrestricted), no amortization payments until 2020, no debt maturities until 2022 and only a minimum liquidity covenant until 2021, we believe we are well positioned to do so. Additionally, there is a \$500 million amortization deferral facility which can be used to defer all amortization payments until 2021.

The Company maintained its NYSE listing throughout the restructuring process and relisted on the Oslo Bors stock exchange on 26 July, 2018.

Reorganization and Fresh Start Adjustments

At the point of emergence, we were required to:

Account for the effects of the reorganization transactions, including recognizing the new capital received and effects of the plan of reorganization; and,
Apply Fresh Start Accounting as we met the criteria.

The Company's assets and liabilities have been fair valued in line with distributable value approved by the US Bankruptcy Court. The main impacts of the reorganization and fresh start accounting are:

\$5.7 billion reduction in the carrying value of our rig assets
\$690 million reduction in the carrying values of the investments in associated companies
\$250 million reduction of the carrying value of our newbuild assets to nil value
The creation of a net \$190 million intangible asset representing current contracts at above market rates.
The reduction of group liabilities due to the equitization of the bonds liabilities (\$2.3 billion) and settlement of the DSME and Samsung newbuild claims (\$1.1 billion) through the Chapter 11 process.
The reset of group retained earnings to zero as Seadrill is considered a new reporting entity on emergence.

A number of these impacts affect future periods, most notably:

The amortization of the fair value discount on our debt which increases interest expense.
The reduced depreciation charges due to the asset value reductions.
The amortization of the intangible favourable contract assets which will reduce operating income for the next 18 months.
The unwinding of basis differences in respect of the investment in associated company valuations which will reduce the share of net income from associated companies in the near term.

The impact on future reporting periods are described in Appendix II and additional details about the Reorganization and Fresh Start Adjustments can be found in note 4 to the financial statements included in this report.

Third Quarter Financial Results

With this being our first quarter following emergence from Chapter 11 and having applied Fresh Start Accounting there are no directly comparable periods for our third quarter results.

Income Statement

Figures in USD million, unless otherwise indicated	Q3 2018
Total operating revenues	249
Total operating expenses	(355)
Operating loss	(106)
Total financial items and other expense, net	(137)
Income tax expense	(2)
Net loss	(245)

During the third quarter we had seven floaters working for the full quarter at an average dayrate of \$241k per day and two floaters completing contracts during the quarter. Seven jackups were working for the full quarter at an average dayrate of \$99k per day and two jackups commenced contracts during the quarter. We had an operationally strong quarter with economic utilization of 98% for floaters and 97% for jackups.

Total operating expenses for the third quarter were made up of operating costs for rigs in operation and stacking costs for idle rigs, depreciation on our drilling units based on the new carrying values, amortization of intangible assets related to favourable drilling contracts, general and administrative expenses and reimbursable expenses.

Net financial items were mainly comprised of interest expense reflecting new funding and amendments to existing credit facilities, share of results in associated companies, movements related to our interest rate cap arrangements, marketable securities, foreign exchange and interest income.

Income taxes for the third quarter were \$2 million reflecting an estimate of the annual effective tax rate for the full year being applied to the result for this reporting period.

Net loss was \$245 million resulting in basic and diluted loss per share of \$2.40.

Balance sheet

Figures in USD million, unless otherwise indicated	Q3 2018
Current assets	3,036
Non-current assets	8,282
Total assets	11,318

Current liabilities	597
Non-current liabilities	7,282
Equity and redeemable non-controlling interest	3,439
Total liabilities, redeemable non-controlling interest and equity	11,318

Current assets were mainly comprised of cash and cash equivalents, marketable securities, receivables, the current portion of intangible favourable contract assets, the fair value of our interest rate cap arrangements and prepaid expenses. Non-current assets were mainly comprised of drilling unit assets, shares in associated companies that are equity accounted for, the long term portion of related party receivables and the long term portion of intangible favourable contract assets.

Current liabilities were mainly comprised of the fair value of the current portion of long term debt, accounts payable, unfavorable contract intangible liabilities and accrued interest. Non-current liabilities were mainly comprised of the fair value of long term debt, related party and deferred tax liabilities.

Equity reflects the Reorganization and Fresh Start Adjustments mentioned above and the net loss for the quarter.

Cash flow & Liquidity

As at September 30, 2018, total cash was \$2.1 billion, which includes \$560 million in restricted cash. The restricted cash is mainly comprised of an escrow account pledged as collateral for new debt funding, West Rigel sales proceeds and a cash collateralized performance guarantee facility.

Net cash used by operating activities for the three month period ended September 30, 2018 was \$59 million. Net cash provided by investing activities was \$48 million reflecting the portion of the West Vela dayrate received from Seadrill Partners and deferred consideration received relating to the sale of our tender rig business in 2013, partially offset by capex. Net cash used by financing activities was \$29 million reflecting Ship Finance debt repayments.

Costs

In addition to our own fleet of 35 rigs, we manage 11 rigs for Seadrill Partners, 5 rigs for Seamex limited and two rigs for Northern Drilling. Reported G&A for the quarter of \$31 million includes \$14 million related to rigs we manage for our partners, which is charged out on a cost plus basis to these parties and recognised in Other Revenues. Excluding G&A costs charged out to our partners, G&A for Seadrill Limited's 35 owned rigs was \$17 million. G&Afor the quarter is a little lower than the expected quarterly run rate reflecting changes of certain accruals following the completion of the restructuring. Going forward, we expect reported G&A to be around \$150 million per year of which approximately 30-35% will be recovered from our partners.

Similarly, reported rig operating cost for the quarter of \$162 million includes approximately \$7.5 million related to rigs we manage for our partners, which is charged out on a cost plus basis to these parties and also recognised in Other Revenues. Excluding rig operating costs charged out to our partners, rig operating costs for Seadrill Limited's 35 owned rigs was approximately \$154.5 million.

Through the downturn and as part of our restructuring we have made significant progress in reducing operating expenses and overhead costs. Our average daily running cost is approximately \$120k per day for benign floaters and \$40k per day for benign jack-ups. For our cold stacked units the average daily cost in steady state is approximately \$10k per day for floaters and \$4k per day for jack-ups.

Fleet Status & Utilization

Seadrill owns and operates 19 floaters and 16 jackups and manages Seadrill Partners, SeaMex and Northern Drilling¹ units. The third quarter status and performance of the group's delivered rig fleet is as follows:

As at September 30, 2018	SDRL	SDLP	Seamex	Seadrill Group
Operating floaters	7	5	n/a	12
Operating floaters economic utilization	98%	98%	n/a	98%
Idle floaters	12	3	n/a	15
Operating jack-ups	9	n/a	5	14
Operating jack-up economic utilization	97%	n/a	99%	98%
Idle jack-ups	7	n/a	—	7
Operating tender rigs	n/a	2	n/a	2
Operating tender rigs economic utilization	n/a	98%	n/a	98%
Idle tender rigs	n/a	1	n/a	1

Total operating rigs	16	7	5	28
Total operating rigs economic utilization	98%	98%	99%	98%
Total idle rigs	19	4	—	23
Total rigs	35	11	5	51

¹ Northern Drilling units are not yet delivered and therefore excluded from the table

New Contracts & Backlog

Our contract backlog, as of November 27, 2018, totalled approximately \$2.1 billion and since the end of the second quarter, we added \$296 million in backlog as described below:

The following backlog was added in the quarter:

Equinor exercised the first two of seven options for the West Saturn in Brazil, employing the unit until Q3 2019 and adding approximately \$85 million to backlog.
The West Hercules was awarded a contract with Equinor in Norway commencing in Q3 2019 for two firm wells plus nine options, three of which have been exercised. Total backlog, including exercised options, is approximately \$53 million.
Ophir exercised the two remaining options of their 2018 campaign on the West Cressida keeping the unit employed until October 2018. For the 2019 campaign, Ophir exercised the first option for 10 wells which is expected to commence in July 2019. Total backlog for the options exercised is approximately \$12 million.
The West Tucana was awarded a contract with GDI in Qatar which commenced in Q3 2018 for two firm wells plus three options, adding backlog of approximately \$24 million for the firm term.
The West Neptune was awarded a 12-month extension with LLOG in the GOM adding approximately \$57 million in backlog. The unit is expected to be employed until December 2019.
ENI exercised options for three-wells for the West Gemini in Angola adding approximately \$29 million in backlog. The unit expected to be employed until Q2 2019.

During the fourth quarter, we have had the following additions to backlog:

The West Carina was awarded a contract with Petronas in Malaysia commencing in December 2018 for two wells, adding approximately \$29 million in backlog.
The Sevan Louisiana was awarded an extension with Walter Oil & Gas in the US Gulf of Mexico for two wells, adding approximately \$7 million in backlog.

Newbuild Purchase Commitments

Our newbuild purchase commitments have reduced significantly as part of the restructuring. We have eight newbuild jack-up commitments remaining with the Dalian shipyard. The newbuild commitments are non-recourse to Seadrill Limited. We continue discussions with Dalian regarding the delivery or cancellation of these units.

Non-Consolidated Entities:

In addition to owning and operating our offshore drilling units, we have four other material investments that are not consolidated and which are recognized as either Marketable Securities or Investments in Associated Companies:

Seadrill Partners

We own 35% of Seadrill Partners common units, 16 million of the subordinated units and have direct ownership stakes in two operating companies that are Seadrill Partners subsidiaries: a 49% stake in Seadrill Capricorn Holdings and a 42% stake in Seadrill Operating LP. The combined effect of this is that we have an economic interest in Seadrill Partners of around 65%.

Seadrill Partners owns and operates 8 ultra deepwater drilling units and 3 tender rigs. As at Q3 2018 it had backlog of \$1.1 billion, revenues of \$206 million, Adjusted EBITDA of \$130 million, cash and cash equivalents of \$882 million and total debt of \$3.1 billion. The remaining contract terms vary from 2018 to 2020. Further details about our Seadrill Partners investment can be found in Note 15 of the financial statements included in this report.

SeaMex Limited

We own 50% of Seamex Limited, a joint venture with FinTech. It owns and operates five jack-up drilling units located in Mexico which are all on contract with Pemex and conclude between 2021 and 2023. As at Q3 2018 it had backlog of \$1.2 billion, revenues of \$60 million, EBITDA of \$38 million, total cash of \$109 million, bank debt of of \$318 million and two loans from Seadrill totaling approximately \$390 million. Further details about our Seamex limited investment can be found in Note 15 of the financial statements included in this report.

Seabras Sapura

We own 50% of Seabras Sapura, a joint venture with Sapura Energy, that owns and operates 6 pipe-laying service vessels in Brazil that are all on contract with Petrobras and conclude between 2019 to 2024. As at Q3 2018 and adjusted for the recently closed amendments to its credit facilities it had backlog of \$1.7 billion, revenues of \$113 million, EBITDA of \$79 million, total cash of \$166 million and total debt of \$835 million. Further details about our Seabras Sapura investment can be found in Note 15 of the financial statements included in this report.

Archer Limited

We own a 15.7% stake in Archer, a global oilfield service company that specializes in drilling and well services. As at Q3 2018 it had revenues of \$214 million, EBITDAof \$22 million, total cash of \$27 million and total debt of \$564 million. In addition, we have a subordinated convertible loan which matures in December 2021 and have a conversion right into equity of Archer Limited in 2021 based on a strike price of US\$2.083 per share. Further details about our Archer limited investment can be found in Note 12 of the financial statements included in this report.

Subsequent Events

Since the end of the third quarter:

We completed a mandatory par redemption of approximately \$126 million principal amount and accrued interest of our 12.0% Senior Secured Notes due 2025 related to the West Rigel sales proceeds.
We launched a \$56 million asset sale offer at 103 related to the proceeds received from a maturing loan to Sapura Energy. On expiry of the offer, \$148,243 in aggregate principal amount of the Notes were validly tendered.
We completed an agreement that extinguished \$486 million of guarantees provided to certain credit facilities related to our joint venture, Seabras Sapura. In return for extinguishing the guarantees, the lenders under the debt facilities received, amongst other things, a prepayment from the joint venture, cross collateralization of the relevant facilities, an increase in margin and a consent fee.
We received a \$35 million partial repayment of a shareholder loan provided to Seabras Sapura.

Fourth Quarter Guidance

Adjusted EBITDA for the fourth quarter is expected to be lower than the third quarter Adjusted EBITDA at around \$35 million.

Forward-Looking Statements

This news release includes forward looking statements. Such statements are generally not historical in nature, and specifically include statements about the Company's plans, strategies, business prospects, changes and trends in its business and the markets in which it operates. These statements are made based upon management's current plans, expectations, assumptions and beliefs concerning future events impacting the Company and therefore involve a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, which speak only as of the date of this news release. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to offshore drilling market conditions including supply and demand, day rates, customer drilling programs and effects of new rigs on the market, contract awards and rig mobilizations, contract backlog, dry-docking and other costs of maintenance of the drilling rigs in the Company's fleet, the cost and timing of shipyard and other capital projects, the performance of the drilling rigs in the Company's fleet, delay in payment or disputes with customers, our ability to successfully employ our drilling units, procure or have access to financing, ability to comply with loan covenants, liquidity and adequacy of cash flow from operations, fluctuations in the international price of oil, international financial market conditions changes in governmental regulations that affect the Company or the operations of the Company's fleet, increased competition in the offshore drilling industry, and general economic, political and business conditions globally and any impacts to our business from our recent restructuring. Consequently, no forward-looking statement can be guaranteed. When considering these forward-looking statements, you should keep in mind the risks described from time to time in the Company's filings with the SEC, including its 2017 Annual Report on Form 20-F (File No. 001-34667) and its Registration Statement on Form F-1 (Registration No. 333-224459).

The Company undertakes no obligation to update any forward looking statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, the Company cannot assess the impact of each such factors on its business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward looking statement."

November 27, 2018 The Board of Directors Seadrill Limited Hamilton, Bermuda

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

Anton Dibowitz: Chief Executive Officer and President Mark Morris: Chief Financial Officer John Roche: Vice President Investor Relations

Media contacts: Iain Cracknell Director of Communications Seadrill Management Ltd. +44 (0)208 8114702

Appendix I - Reconciliation of Operating Income to Adjusted EBITDA

Adjusted EBITDA represents operating income before depreciation, amortization and similar non-cash charges. Additionally, in any given period we may have significant, unusual or non-recurring items which we may exclude from Adjusted EBITDA for that period. When applicable, these items are fully disclosed and incorporated into the reconciliation provided below.

Adjusted EBITDA is a non-GAAP financial measure used by investors to measure our ongoing financial and operating strength. We believe that Adjusted EBITDAassists investors by excluding the potentially disparate effects between periods of interest, other financial items, taxes and depreciation and amortization, which are affected by various and possibly changing financing methods, capital structure and historical cost basis and which may significantly affect operating income between periods.

Adjusted EBITDA should not be considered as an alternative to operating income or any other indicator of Seadrill Partners' performance calculated in accordance with the US GAAP.

The table below reconciles operating income to Adjusted EBITDA.

(In \$ million)	Q4 2018 Guidance	Q3 2018
Operating loss	(123)	(106)
Depreciation	126	125
Amortization of favorable and unfavorable contracts	32	27
Adjusted EBITDA	35	46

Appendix II - Amortization forecast as at Q3 2018

(In \$ million)	3Q18	4Q18	1Q19	2Q19	3Q19	4Q19
Amortization of intangible contracts	(27)	(32)	(35)	(39)	(38)	(23)
Unwinding of basis differences	(30)	(28)	(28)	(28)	(18)	(13)
Amortization of debt fair value discount	(12)	(12)	(12)	(12)	(12)	(12)

(In \$ million)	2018	2019	2020	2021	2022	Thereafter	Total
Amortization of intangible contracts	(59)	(135)	(1)	(1)	(1)	(23)	(219)
Unwinding of basis differences	(58)	(87)	(38)	(1)	12	1,282	1,111
Amortization of debt fair value discount	(24)	(47)	(47)	(47)	(47)	(71)	(283)

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Consolidated Statements of Operations for the period from July 2, 2018 through September 30, 2018 (Successor), period from January 1, 2018 through July 1, 2018 (Predecessor) and nine months ended September 30, 2017 (Predecessor)	F-2
Unaudited Consolidated Statements of Comprehensive Income for the period from July 2, 2018 through September 30, 2018 (Successor), period from January 1, 2018 through July 1, 2018 (Predecessor) and nine months ended September 30, 2017 (Predecessor)	F-3
Unaudited Consolidated Balance Sheets as of September 30, 2018 (Successor) and December 31, 2017 (Predecessor)	F-4
Unaudited Consolidated Statements of Cash Flows for the period from July 2, 2018 through September 30, 2018 (Successor), period from January 1, 2018 through July 1, 2018 (Predecessor) and nine months ended September 30, 2017 (Predecessor)	F-5
Unaudited Consolidated Statements of Changes in Shareholders' Equity for the period from July 2, 2018 through September 30, 2018 (Successor), period from January 1, 2018 through July 1, 2018 (Predecessor) and nine months ended September 30, 2017 (Predecessor)	F-7
Notes to Unaudited Consolidated Financial Statements	F-8

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

for the period from July 2, 2018 through September 30, 2018 (Successor), period from January 1, 2018 through July 1, 2018 (Predecessor) and nine months ended September 30, 2017 (Predecessor)

	Successor	Predecessor	Predecessor
(In \$ millions)	Period from July 2, 2018 through September 30, 2018	Period from January 1, 2018 through July 1, 2018	Nine Months Ended September 30, 2017
	2018	2018	2017

Operating revenues
Contract revenues	217	619	1,508
Reimbursable revenues	11	21	27
* Other revenues	21	72	122
Total operating revenues	249	712	1,657
Loss on disposals	—	—	(241)
* Contingent consideration realized	—	7	18
Operating expenses
* Vessel and rig operating expenses	162	407	637
Amortization of favorable and unfavorable contracts	27	—	—
Reimbursable expenses	10	20	25
Depreciation	125	391	601
Loss on impairment of long-lived assets	—	414	—
* General and administrative expenses	31	100	218
Total operating expenses	355	1,332	1,481
Operating loss	(106)	(613)	(47)
Financial items and other income and expense
* Interest income	22	19	50
Interest expense	(131)	(38)	(265)
* Share in results from associated companies (net of tax)	(16)	149	152
* Gain/(Loss) on derivative financial instruments	3	(4)	13
Gain on debt extinguishment	—	—	19
Foreign exchange loss	(3)	—	(54)
Unrealized loss on marketable securities	(3)	(3)	—
* Other financial items	(4)	—	(42)
Reorganization items	(5)	(3,365)	(230)
Total financial items and other expense, net	(137)	(3,242)	(357)
Loss before income taxes	(243)	(3,855)	(404)
Income tax expense	(2)	(30)	(9)
Net loss	(245)	(3,885)	(413)
Net loss attributable to the parent	(240)	(3,881)	(307)
Net loss attributable to the non-controlling interest	(3)	(6)	(106)
Net (loss)/gain attributable to the redeemable non-controlling interest	(2)	2	—
Basic loss per share (US dollar)	(2.40)	(7.71)	(0.61)
Diluted loss per share (US dollar)	(2.40)	(7.71)	(0.61)

* Includes transactions with related parties. Refer to Note 26 "Related party transactions".

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

for the period from July 2, 2018 through September 30, 2018 (Successor), period from January 1, 2018 through July 1, 2018 (Predecessor) and nine months ended September 30, 2017 (Predecessor)

	Successor	Predecessor	Predecessor
(In \$ millions)	Period from July 2, 2018 through September 30, 2018	Period from January 1, 2018 through July 1, 2018	Nine months ended September 30, 2017
Net loss	(245)	(3,885)	(413)
Other comprehensive income/(loss), net of tax:
Unrealized gain on marketable securities	—	—	22
Actuarial gain relating to pension	—	—	1
Unrealized gain on interest rate swaps in VIEs and subsidiaries	—	—	1
Share of other comprehensive loss from associated companies	(1)	—	(12)
Other comprehensive income:	(1)	—	12
Total comprehensive loss for the period	(246)	(3,885)	(401)

Comprehensive loss attributable to the parent	(241)	(3,881)	(295)
Comprehensive loss attributable to the non-controlling interest	(3)	(6)	(106)
Comprehensive (loss)/gain attributable to the redeemable non controlling interest	(2)	2	—

See accompanying notes that are an integral part of these consolidated financial statements.

UNAUDITED CONSOLIDATED BALANCE SHEETS

as at September 30, 2018 and December 31, 2017

	Successor	Predecessor
(In \$ millions)	September 30, 2018	December 31, 2017
ASSETS
Current assets
Cash and cash equivalents	1,576	1,255
Restricted cash	560	104
Marketable securities	118	124
Accounts receivable, net	204	295
Amounts due from related parties - current	185	217
Other current assets	393	257
Total current assets	3,036	2,252
Non-current assets
Investment in associated companies	901	1,473
Newbuildings	—	248
Drilling units	6,716	13,216
Deferred tax assets	7	10
Equipment	30	29
Amounts due from related parties - non-current	571	547
Assets held for sale	—	126
Other non-current assets	57	81
Total non-current assets	8,282	15,730
Total assets	11,318	17,982
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY
Current liabilities
Debt due within one year	165	509
Trade accounts payable	108	72
Amounts due to related parties - current	10	10
Other current liabilities	314	268
Total current liabilities	597	859
Liabilities subject to compromise	—	9,191
Non-current liabilities
Long-term debt	6,919	485
Long-term debt due to related parties	208	314
Deferred tax liabilities	93	107
Other non-current liabilities	62	67

Total non-current liabilities	7,282	973
Commitments and contingencies (see Note 27)
Redeemable non-controlling interest	28	—
Equity
Common shares of par value US\$0.10 per share: 111,000,000 shares authorized and 100,000,000 issued at September 30, 2018 (Common shares of par value US\$2.00 per share: 800,000,000 shares authorized 504,518,940 issued at December 31, 2017)	10	1,008
Additional paid in capital	3,491	3,313
Contributed surplus	—	1,956
Accumulated other comprehensive (loss)/income	(1)	58
Retained (loss) / earnings	(240)	225
Total shareholders' equity	3,260	6,560
Non-controlling interest	151	399
Total equity	3,411	6,959
Total liabilities, redeemable non-controlling interest and equity	11,318	17,982

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the period from July 2, 2018 through September 30, 2018 (Successor), period from January 1, 2018 through July 1, 2018 (Predecessor) and nine months ended September 30, 2017 (Predecessor)

	Successor	Predecessor	Predecessor
(In \$ millions)	Period from July 2, 2018 through September 30, 2018	Period from January 1, 2018 through July 1, 2018	Nine months ended September 30, 2017

Cash Flows from Operating Activities
Net loss	(245)	(3,885)	(413)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	125	391	601
Amortization of deferred loan charges	—	—	26
Amortization of favorable and unfavorable contracts	27	(21)	(33)
Share of results from associated companies	16	(149)	(152)
Share-based compensation expense	—	3	5
Loss on disposals	—	—	241
Contingent consideration realized	—	(7)	(18)
Unrealized (gain)/loss on derivative financial instruments	(3)	4	(76)
Loss on impairment of long lived assets	—	414	—
Loss on impairment of investments	—	—	—
Dividends received from associated companies	7	17	34
Net movements in tax	(5)	(15)	—
Unrealized foreign exchange gain on debt	—	—	59
Payments for long-term maintenance	(36)	(78)	(41)
Gain on derecognition of investment in associated company	—	—	(10)
Gain on debt extinguishment	—	—	(19)
Amortization of mobilization receivables due from related parties	—	—	—
Amortization of discount on debt	11	—	—
Loss on unrealized marketable securities	3	3	—
Non- cash gain on liabilities subject to compromise	—	(2,977)	—
Fresh start valuation adjustments	—	6,142	—
Other re-organization items	—	6	210
Other, net	1	(1)	(1)
Changes in operating assets and liabilities, net of effect of acquisitions and disposals
Trade accounts receivable	68	29	35
Trade accounts payable	(5)	4	(3)
Prepaid expenses/accrued revenue	(18)	42	(77)
Deferred revenue	5	(23)	(90)
Related party receivables	1	(13)	(29)
Related party payables	10	(42)	(52)
Other assets	1	(62)	60
Other liabilities	(22)	5	(122)
Net cash (used in)/provided by operating activities	(59)	(213)	135

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

for the period from July 2, 2018 through September 30, 2018 (Successor), period from January 1, 2018 through July 1, 2018 (Predecessor) and nine months ended September 30, 2017 (Predecessor)

	Successor	Predecessor	Predecessor
(In \$ millions)	Period from July 2, 2018 through September 30, 2018	Period from January 1, 2018 through July 1, 2018	Nine Months Ended September 30, 2017
Cash Flows from Investing Activities
Additions to newbuildings	—	(1)	(32)
Additions to drilling units and equipment	(10)	(48)	(40)
Proceeds from contingent consideration	58	48	69
Settlement of the West Mira	—	—	170
Refund of yard installments	—	—	25
Sale of rigs and equipment	—	126	122
Payments received from loans granted to related parties	—	24	62
Buyout of guarantees	—	—	(28)
Net cash provided by investing activities	48	149	348

Cash Flows from Financing Activities
Proceeds from debt and revolving lines of credit	—	875	—
Repayments of debt	(25)	(153)	(684)
Debt fees paid	(4)	(35)	(53)
Repayments of debt to related party	—	—	(39)
Proceeds from issuance of shares	—	200	—
Net cash (used in)/provided by financing activities	(29)	887	(776)

Effect of exchange rate changes on cash	(1)	(5)	6

Net (decrease)/increase in cash and cash equivalents, including restricted cash	(41)	818	(287)
Cash and cash equivalents, including restricted cash, at beginning of the period	2,177	1,359	1,443
Cash and cash equivalents, including restricted cash, at the end of period	2,136	2,177	1,156

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

for the period from July 2, 2018 through September 30, 2018 (Successor) , period from January 1, 2018 through July 1, 2018 (Predecessor) and nine months ended September 30, 2017 (Predecessor)

(In \$ millions)	Common shares	Additional paid-in capital	Contributed surplus	Accumulated other comprehensive loss	Retained earnings	Total equity before NCI	NCI	Total equity
Balance at December 31, 2016 (Predecessor)	1,008	3,306	1,956	53	3,198	9,521	542	10,063
Share based compensation charge	—	5	—	—	—	5	—	5
Other comprehensive income	—	—	—	12	—	12	—	12
Dividend to non controlling interests in VIEs	—	—	—	—	—	—	(14)	(14)
Net loss	—	—	—	—	(307)	(307)	(106)	(413)
Balance at September 30, 2017 (Predecessor)	1,008	3,311	1,956	65	2,891	9,231	422	9,653
Balance at December 31, 2017 (Predecessor)	1,008	3,313	1,956	58	225	6,560	399	6,959
Adoption of new accounting standards:
ASU 2016-01 - Financial Instruments		—		(31)	31	—		—
ASU 2016-16 - Income Taxes	—	—	—	—	(59)	(59)	(25)	(84)
ASU 2014-09 - Revenue from contracts	—	—	—	—	7	7	—	7
Other comprehensive income	—	—	—	—	—	—	—	—
Share based compensation charge	—	9	—	—	—	9	—	9
Redeemable non controlling interest	—	—	—	—	127	127	(150)	(23)
Reclassification of non-controlling interest	—	—	—	—	(43)	(43)	43	—
Net loss	—	—	—	—	(3,881)	(3,881)	(6)	(3,887)
Balance at July 1, 2018 (Predecessor)	1,008	3,322	1,956	27	(3,593)	2,720	261	2,981
Cancellation of Predecessor equity	(1,008)	(3,322)	(1,956)	(27)	3,593	(2,720)	(107)	(2,827)
Balance at July 1, 2018 (Predecessor)	—	—	—	—	—	—	154	154
Issuance of Successor common stock	10	3,491	—	—	—	3,501	—	3,501
Balance as at July 2, 2018 (Successor)	10	3,491	—	—	—	3,501	154	3,655
Balance as at July 2, 2018 (Successor)	10	3,491	—	—	—	3,501	154	3,655
Other comprehensive income	—	—	—	(1)	—	(1)	—	(1)
Net loss	—	—	—	—	(240)	(240)	(3)	(243)
Balance as at September 30, 2018 (Successor)	10	3,491	—	(1)	(240)	3,260	151	3,411

See accompanying notes that are an integral part of these consolidated financial statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – General information

Seadrill Limited is incorporated in Bermuda and is a publicly listed company on the New York Stock Exchange and the Oslo Stock Exchange. We provide offshore drilling services to the oil and gas industry. As at September 30, 2018 we owned and operated 35 offshore drilling units, had 8 units under construction and an option to acquire one semi-submersible rig. Our fleet consists of drillships, jack-up rigs and semisubmersible rigs for operations in shallow and deepwater areas, as well as benign and harsh environments. We also provide management services to our related parties Seadrill Partners and SeaMex.

As used herein, the term "Predecessor" refers to the financial position and results of operations of Seadrill Limited prior to, and including, July 1, 2018. This is also applicable to terms "we", "our", or "Company" in context of events prior to, and including, July 1, 2018.

As used herein, the term "Successor" refers to the financial position and results of operations of Seadrill Limited (previously "New Seadrill") after July 1, 2018. This is also applicable to terms "Seadrill Limited", "we", "our" or "Company" in context of events after July 1, 2018.

The use herein of such terms as group, organization, we, us, our and its, or references to specific entities, is not intended to be a precise description of corporate relationships.

Basis of presentation

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

The accompanying unaudited interim financial statements, in the opinion of management, include all material adjustments that are considered necessary for a fair statement of the Company's financial statements in accordance with generally accepted accounting principles in the United States of America. The accompanying unaudited interim financial statements do not include all of the disclosures required in complete annual financial statements. These financial statements should be read in conjunction with our annual financial statements filed with the SEC on Form 20-F for the year ended December 31, 2017 (SEC File No. 001-34667). However, as described below, such prior financial statements may not be comparable to these interim financial statements due to the adoption of fresh start accounting on July 2, 2018.

Significant accounting policies

The accounting policies adopted in the preparation of the unaudited interim financial statements are consistent with those followed in the preparation of our annual audited consolidated financial statements for the year ended December 31, 2017 except as discussed below or unless otherwise included in these unaudited interim financial statements as separate disclosures.

Bankruptcy accounting

The Predecessor and certain of its direct and indirect consolidated subsidiaries (the "Debtors") filed voluntary petitions on September 12, 2017 (the "Petition Date") to commence prearranged reorganization proceedings under Chapter 11 of Title 11 of the United States Bankruptcy Code ("Bankruptcy Code") in the Southern District of Texas (the "Bankruptcy Court") [case number 17-60079]. The Debtors also commenced a provisional liquidation proceeding in Bermuda on behalf of the Bermudian entities.

For periods subsequent to the Petition Date but prior to emergence on July 2, 2018, the consolidated financial statements were prepared under Accounting Standards Codification 852, Reorganizations ("ASC 852"). ASC 852 required that the financial statements distinguished transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that were realized or incurred in the bankruptcy proceedings were recorded in "Reorganization items" on our Consolidated Statements of Operations. In addition, ASC 852 required changes in the accounting and presentation of significant items on the Consolidated Balance Sheets, particularly liabilities. Pre-petition obligations that may have been impacted by the Chapter 11 reorganization process were classified on the Consolidated Balance Sheets within "Liabilities subject to compromise".

Fresh Start Reporting

Upon emergence from bankruptcy on July 2, 2018 (the "Effective Date"), in accordance with ASC 852 related to fresh start reporting, Seadrill Limited became a new entity for financial reporting purposes. Upon adoption of fresh start reporting, our assets and liabilities were recorded at their fair values. We elected to apply fresh start reporting effective July 1, 2018 (the "Convenience Date") to coincide with the timing of our normal third quarter reporting period. We evaluated and concluded that events between July 1, 2018 and July 2, 2018 were immaterial and use of an accounting convenience date was appropriate. The fair values of our assets and liabilities differed materially from the recorded values of our assets and liabilities as reflected in the Predecessor historical consolidated balance sheets. The effects of the Plan and the application of fresh start accounting were applied as of July 2, 2018 and the new basis of our assets and liabilities are reflected in our Consolidated Balance Sheet as of September 30, 2018 and the related adjustments thereto were recorded in the Consolidated Statement of Operations of the Predecessor as "Reorganization items", with the related predominantly deferred tax effects through "Income tax expense", during the period from January 1, 2018 through July 1, 2018.

Accordingly, our Consolidated Financial Statements subsequent to July 1, 2018 are not and will not be comparable to the Predecessor Consolidated Financial Statements prior to the Convenience Date. Our Consolidated Financial Statements and related footnotes are presented with a black line division which delineates the lack of comparability between amounts presented on July 1, 2018 and dates prior. Our financial results for future periods following the application of fresh start accounting will be different from historical trends and the differences may be material.

Liquidity and ability to continue as a going concern

The Consolidated 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. We have historically relied on our cash generated from operations to meet our short-term liquidity needs. However, as a result of the downturn in the offshore industry, we required additional liquidity to fully meet our short-term liquidity requirements. To obtain this additional liquidity and to implement the transactions contemplated as part of the RSAand Investment Agreement, we commenced Chapter 11 proceedings under the Bankruptcy Code on September 12, 2017. In our form 20-F covering our annual report for the fiscal year ended December 31, 2017, issued on April 12, 2018, we reported that these conditions gave rise to a substantial doubt over our ability to continue as a going concern for a period of at least twelve months after the date the financial statements were issued.

On July 2, 2018, we emerged from the Chapter 11 proceedings. The emergence from the Chapter 11 proceedings and consummation of the Plan addressed our liquidity concerns as it provided for \$1.08 billion of new capital, equitized approximately \$2.4 billion in unsecured bond obligations and approximately \$250 million in unsecured interest rate and currency swaps, eliminated near-term amortization obligations and extended maturities on debt. We emerged from Chapter 11 with \$2.2 billion of post emergence cash and \$7.6 billion of outstanding debt principal. We believe that cash on hand, liquid investments, contract and other revenues will generate sufficient cash flow to fund our anticipated debt service and working capital requirements for the next twelve months. Therefore, there is no longer a substantial doubt over our ability to continue as a going concern for at least the twelve months after the date the financial statements are issued.

Note 2 – Recent accounting pronouncements

Recently adopted accounting standards

We adopted the following accounting standard updates ("ASUs") since the reporting date of our Form 20-F report covering the period to December 31, 2017.

ASU 2014-09 Revenue from contracts with customers

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, which supersedes the revenue recognition requirements in ASU Topic 605, Revenue Recognition. Under the new guidance, revenue is recognized when a customer obtains control of promised goods or services and in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.

We adopted ASU 2014-09 and its related amendments, or collectively Topic 606, effective January 1, 2018 using the modified retrospective method. Accordingly, we have applied the five-step method outlined in Topic 606 for determining when and how revenue is recognized to all contracts that were not completed as of the date of adoption. Revenues for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported under the previous revenue recognition guidance. For contracts that were modified before the effective date, we have considered the modification guidance within the new standard and determined that the revenue recognized and contract balances recorded prior to adoption for such contracts were not impacted. While Topic 606 requires additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, its adoption has not had a material impact on the measurement or recognition of our revenues.

As we have transitioned to the new standard under the modified retrospective method, we have recorded the cumulative impact of applying the new guidance as an adjustment to opening retained earnings on January 1, 2018. The total adjustment was \$7 million which represented the earned portion of demobilization revenue expected to be received for contracts not completed as of December 31, 2017, which was not previously recognized until demobilization occurred.

See Note 6 "Revenue from contracts" for further information.

ASU 2016-01 Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which made targeted improvements to the recognition and measurement of financial assets and financial liabilities.

The update changes how entities measure equity investments that do not result in consolidation and are not accounted for under the equity method and how they present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. The new guidance also changes certain disclosure requirements and other aspects of current U.S. GAAP. The standard does not change the guidance for classifying and measuring investments in debt securities.

After adopting ASU 2016-01 we will continue to record equity investments that do not result in consolidation and are not accounted for under the equity method at fair value (unless the fair value is not readily ascertainable). However, we will record changes in fair value directly to net income whereas previously we recorded such changes to other comprehensive income until realized. We have made the election available under ASC 321-10-35-2 to record equity investments with no readily ascertainable fair value at cost less impairment.

We transitioned to the new standard using the modified retrospective approach. Accordingly, we have recorded the cumulative effect of adopting the update at the date of adoption. We reclassified \$31 million of previously recognized fair value gains from accumulated other comprehensive income to retained earnings on January 1, 2018.

ASU 2016-16 Income Taxes - Income taxes intra-entity transfers of assets other than inventory

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Income taxes Intra-Entity Transfers of Assets other than Inventory, which requires companies to recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the Consolidated Statement of Operations as income tax expense (or benefit) in the period of sale or transfer occurs. The exception to recognizing the income tax effects of intercompany sales or transfers of assets remains in place for intercompany inventory sales and transfers, i.e. companies will still be required to defer the income tax effects of intercompany inventory transactions.

We have adopted the new standard effective January 1, 2018 under the modified retrospective approach. As a result of the modified retrospective application, "Other Assets" is reduced in our Condensed Consolidated Balance Sheet with a cumulative adjustment to retained earnings of \$59 million and non-controlling interests of \$25 million.

ASU 2016-18 Statement of Cash Flows - Restricted Cash

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

The standard is effective for fiscal years beginning after 15 December 2017. We have adopted the new standard effective January 1, 2018 under the retrospective approach. The result of this adoption was a classification adjustment on our Consolidated Statement of Cash Flows for each of the years presented.

Other ASUs

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

ASU 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
ASU 2017-01 Business Combination (Topic 805): Clarifying the definition of a business
ASU 2017-03 Accounting Changes and Error Corrections (Topic 250) and Investments Equity Method and Joint Ventures (Topic 323)
ASU 2017-04 Intangibles Simplifying the Test for Goodwill Impairment
ASU 2017-05 Other Income Gain and Losses from the Derecognition of Non-Financial Assets (Subtopic 610-20)
ASU 2017-07 Compensation Retirement Benefits (Topic 715)
ASU 2017-09 Compensation Stock Compensation (Topic 718)
ASU 2017-10 Service Concession Arrangements (Topic 853)

Recently issued accounting standards

The FASB have issued the following ASUs that we have not yet adopted but which could affect our consolidated financial statements and related disclosures in future periods

ASU 2016-02 Leases (also 2018-10 and 2018-11)

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The update requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. It also offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted, using a modified retrospective application.

We have started to assess the impact of this standard update on our Consolidated Financial Statements and related disclosures. We have determined that our drilling contracts contain a lease component as well as a revenue component. Based on our work to date, we don't expect our pattern of revenue recognition to change significantly compared to current accounting standards.

Additionally, we will recognize lease liabilities and corresponding right-of-use assets for leasing arrangements where we are a lessee. Unless there is a significant change in these arrangements between the date of this report and the date we adopt the standard, we expect to recognize an aggregate lease liability and right-of-use asset of between \$30 million and \$50 million on adoption.

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

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted only from January 1, 2019. Entities are required to apply the standard's provisions as a cumulative-effect adjustment to retained earnings as at the beginning of the first reporting period in which the guidance is adopted.

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

ASU 2018-07 Compensation - Stock Compensation

In June 2018, the FASB issued ASU 2018-07, Stock Compensation (Topic 718): Improvements to non-employee share-based payment accounting, which intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.