Seadrill Press Release 2021 Q4 Seadrill Limited (SDRL) - Second Half 2021 Results

Hamilton, Bermuda, February 23, 2022 - Seadrill Limited (“Seadrill” or "the Company") (OSE:SDRL, OTCPK:SDRLF), a leader in offshore drilling, provides financial results for the six-month period ended December 31, 2021.

2H 2021 Highlights

Strong operational performance in H2, 2021, resulting in 95% technical utilization.
Leading safety performance with TRIR of 0.24 in H2 2021, better than the industry average of 0.30.
23% increase in Operating Revenues to $556m driven by a number of rigs commencing new contracts after a period of inactivity.
Adjusted EBITDA increased to $118m, representing 21.2% EBITDA margin.
Cash and cash equivalents as at December 31, 2021 of $535 million of which $312 million was unrestricted cash.
Backlog of $2.2bn, with over 8 years of term added in Brazil.

Financial Highlights

Figures in USD million, unless otherwise indicated

	2H21	1H21	% Change
Total Operating Revenue	556	452	23%
Adjusted EBITDA	118	20	490%
Adjusted EBITDA Margin (%)	21.2	4.4	382%
Operating Profit/(Loss)	95	(252)	138%
Net profit/(loss)	18	(605)	103%

Restructuring Update

Seadrill concluded its comprehensive restructuring process and emerged from Chapter 11 bankruptcy on February 22, 2022.
Seadrill New Finance Limited (renamed to Paratus Energy Services), emerged from Chapter 11 on January 20, 2022. Seadrill Limited retained a 35% interest as a result of the restructuring.
Going forward, financial information relevant to Paratus will be made available at www.paratus-energy.com

Stuart Jackson, CEO, commented: "Seadrill has finished 2021 strongly, evidenced by our top-line financial highlights underpinned by our operational excellence and continued commercial success. The formidable progress made over the course of 2021 is attributable to the tremendous effort our workforce made overcoming difficult economic and logistical challenges. I am proud of what they achieve on a daily basis. We have just emerged from a series of Chapter 11 processes across our complex organization involving not just the emergence of Seadrill Limited yesterday but also the restructurings that were completed in other parts of our business. Our emergence completes the second stage our industry’s rehabilitation. As a sector we have taken out nonperforming rigs, we have reduced our collective debt burdens and now we need to reshape an industry that warrants investment to sustain our contribution to the evolving global energy mix. The operational and safety track record of Seadrill, together with our strong customer partnerships, puts us in a leadership position as we complete this industry realignment."

1 The financial information presented excludes the impact for our discontinued operations held for sale, representing Seadrill New Finance Limited ("NSNCo") and its wholly owned subsidiaries.

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 on 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, Seadrill's ability to successfully employ its 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, the impact of global economic conditions and global health threats and the impact of future negotiations with its lenders to obtain amendments to credit facilities and any related contingency planning efforts, the impact of active negotiations, contingency planning efforts, rulings and outcomes with respect to a comprehensive restructuring of our debt under Chapter 11 Proceedings with the U.S. Bankruptcy Court for Southern District of Texas, the outcome of which is uncertain, our ability to maintain relationships with suppliers, customers, employees and other third parties as a result of our Chapter 11 filing and the related increased performance and credit risks associated with our constrained liquidity position and capital structure, our ability to maintain and obtain adequate financing to support our business plans post-emergence from Chapter 11, the length of time that we will operate under Chapter 11 protection, risks associated with third-party motions in the Chapter 11 Proceedings that may interfere with the solicitation and ability to confirm and consummate a plan of reorganization, the dispute over production levels among members of the Organization of Petroleum Exporting Countries and other oil and gas producing nations, downtime and other risks associated with offshore rig operations and ability to successfully employ our drilling units, our expected debt levels, the ability of our affiliated or related companies to service their debt requirements, credit risks of our key customers, the concentration of our revenues in certain geographical jurisdictions, limitations on insurance coverage, such as war risk coverage, in certain regions, any inability to repatriate income or capital, import-export quotas, wage and price controls and the imposition of trade barriers, our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization, or otherwise, or to retain employees, customers or suppliers as a result of our financial condition generally or as a result of the Chapter 11 Proceedings, internal control risk due to significant employee reductions, tax matters, changes in tax laws, treaties and regulations, tax assessments and liabilities for tax issues, including those associated with our activities in Bermuda, Brazil, Norway, the United Kingdom, Nigeria, Mexico and the United States, customs and environmental matters and potential impacts on our business resulting from climate-change or greenhouse gas legislation or regulations, and the impact on our business from climate-change related physical changes or changes in weather pattern, the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems, including our rig operating systems and other important factors described from time to time in the reports filed or furnished by us with the SEC. 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 2020 Annual Report on Form 20-F (File 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.

February 23, 2022

The Board of Directors
Seadrill Limited
Hamilton, Bermuda

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

Stuart Jackson
Chief Executive Officer

Media questions should be directed to:

Sara Dunne
Director of Communications
+1 (281) 630-7064

Analyst and investor questions should be directed to:

Hawthorn Advisors
[email protected]
+44 (0) 203 7454960

SECOND HALF 2021 OPERATING REVIEW

Rig Activity

The second half status and performance of Seadrill Limited's owned rig fleet was as follows:

As at December 31, 2021

	Harsh Environment	Floaters	Jack-ups	Total
Total Operating	2	5	7	14
Technical utilization (1)	92%	93%	100%	95%
Economic utilization (2)	93%	90%	99%	93%
Future contracted	—	2	—	2
Idle	—	1	4	5
Planned disposal/recycling	1	2	—	3
Total	3	10	11	24

Technical utilization is calculated as the total hours available for work, excluding planned maintenance, divided by the total number of hours in the period.
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.

In spite of the challenge to operations still presented by COVID, our campaign for reducing non-productive time is showing strong results, with technical utilization of 95% being achieved for the period. The jack-up segment performed excellently, achieving 100% technical utilization. Post period, Seadrill had two owned harsh environment rigs operating in Norway.# West Elara and West Phoenix Operations

The West Elara remained on contract with ConocoPhillips and the West Phoenix commenced operations during the period with VAR Energi. After the period, the harsh-environment semi-submersible West Venture, which had been cold stacked for several years, was sold to Rota Shipping and will be recycled. The Company had four drillships and one benign-environment semi-submersible rig operating at the end of the period. The West Neptune and Sevan Louisiana were under contract in the Gulf of Mexico with LLOG and Walter Oil & Gas, respectively. West Tellus was under contract with Shell and West Saturn was under contract with ExxonMobil, both in Brazil. West Gemini began work in Angola. The West Jupiter and West Carina are currently being reactivated following the signing of two long term contracts with Petrobras for work in the Búzios field offshore Brazil.

Across the jack-up fleet, the Company maintained high levels of utilization throughout the period, surpassing expectations for both technical and economic utilization. The AOD I, AOD II, AOD III, and West Callisto were working in the Middle East, continuing their contracts with Saudi Aramco. West Castor, West Telesto, and West Tucana continued on bareboat charter to the Company's Gulfdrill joint venture in Qatar.

During the period, we sold six long-term cold stacked units (West Freedom, West Pegasus, West Eminence, West Navigator, West Orion, West Alpha), and a further unit was sold after the end of the period (West Venture - refer above). This brings the total number of long-term cold stacked rigs sold through our rig disposal program to nine with the West Epsilon and West Vigilant being sold in earlier periods. Five of the units sold to date have been recycled with the remaining three being sold for non-drilling purposes. There are two further units that we have identified for disposal under the rig disposal program (Sevan Brasil and Sevan Driller). We plan to sell or recycle these units in 2022.

Excluding units that we plan to sell or recycle as part of our rig disposal program, Seadrill has one long-term cold stacked benign- environment semi-submersible (West Eclipse) and four cold stacked jack-ups (West Ariel, West Prospero, West Leda and West Cressida). We are continuing to actively market these rigs, taking a cautious view on the market and will remain disciplined, only reactivating cold stacked units where suitable work is secured and appropriate investment returns can be achieved.

Seadrill continues to improve HSE performance as a leader in the field, with a TRIR (Total Recordable Incident Rate) of 0.24 in H2 2021, better than the industry average of 0.30. We maintained our position as sector leader in Carbon Management in the offshore drilling contractor field with a “B” rating under the Carbon Disclosure Project, the highest rating in the sector.

The second half status and performance of Seadrill Limited's managed/leased rig fleet was as follows:

As at December 31, 2021	Harsh Environment	Floaters	Jack-ups	Total
Operating	3	3	5	11
Technical utilization	95%	98%	99%	97%
Future contracted	—	1	—	1
Total	3	4	5	12

Seadrill had three leased harsh environment units operating in the North Sea. These included West Linus and West Hercules, which are leased from SFL and under contract with ConocoPhillips and Equinor, and West Bollsta, leased from Northern Ocean, under contract with Lundin. The SFL leased rigs are expected to be handed back to SFL in 2022. The West Bollsta completed operations with Lundin in February 2022 and the rig will shortly be returned to Northern Ocean.

The Company manages four drillships, with two in Angola for the Sonadrill joint venture, one in the US Gulf of Mexico and one in Malaysia, both being owned by Aquadrill. The Libongos is currently operating in Angola, while the Quengela is contracted to start with TotalEnergies in Angola early 2022. The two rigs belonging to Aquadrill will be kept under our management until their current contracts come to an end. The West Capella and West Vela will be handed back to Aquadrill in Q2-22.

Across the managed jack-up fleet, the Company maintained high levels of utilization. These rigs are owned by SeaMex Limited and are on contract with Pemex, drilling in the Gulf of Mexico.

FINANCIAL REVIEW

Abbreviated Income Statement

Figures in US$ million, unless otherwise indicated

	2H21	1H21
Total operating revenues	556	452
Total operating expenses	(548)	(566)
Total other operating items	87	(138)
Operating profit/(loss)	95	(252)
Total financial and other non-operating items, net	(119)	(311)
Income tax benefit/(expense)	6	(11)
Income/(loss) from discontinued operations	36	(31)
Net profit/(loss)	18	(605)
Adjusted EBITDA	118	20

Unless otherwise stated, the following financial information excludes the impact from the discontinued operations held for sale at the period end.

Total operating revenues for 2H21 were $556 million (1H21: $452 million), an increase of $104 million, primarily attributed to the following: Contract revenues increased by $94 million primarily due to the West Phoenix, Sevan Louisiana and West Gemini all commencing work under new contracts after a period of those rigs being idle. There was also improved operational performance across the fleet resulting in lower downtime, as noted in the operating review. Other revenues increased by $8 million due to a $6 million early termination fee for the West Bollsta along with increased charter revenue earned on the West Tucana, which is leased to the Gulfdrill joint venture.

Total operating expenses for 2H21 were $548 million (1H21: $566 million), a decrease of $18 million and primarily attributed to the following: Rig operating expenses increased by $44 million due to increased activity as a result of the West Phoenix, Sevan Louisiana and West Gemini all returning to operations. This was partly off-set by lower COVID-19 related expenditures and continued benefits from our cost reduction programs. Management contract expenses decreased by $56 million primarily due to the non-recurrence of a $48 million credit loss charge that was recorded during the first half of the year following a commercial settlement being reached with Northern Ocean. Depreciation decreased by $11 million due to an impairment charge being recorded against the West Hercules in June 2021.

Total other operating items for 2H21 contributed income of $87 million (1H21: $138 million expense) a favorable movement of $225 million and attributed to the following: Proceeds from rig sales were $36 million in 2H21 compared to $11 million in 1H21 with six cold-stacked units being sold in the second half (West Orion, West Navigator, West Eminence, West Pegasus, West Freedom and West Alpha) compared to one unit in 1H21 (West Vigilant). Other operating items were $51 million in 2H21 compared to $3 million in 1H21. These items included cancellation of debt income on certain liabilities that were extinguished as a consequence of global settlement agreements with Northern Ocean and Aquadrill (formerly Seadrill Partners) becoming effective, as well as a rebate of previously incurred insurance premiums. The West Hercules was impaired by $152 million in 1H21 and there were no further impairments in the second half of the year.

Adjusted EBITDA was $118 million in 2H21 (1H21: $20 million), delivering an adjusted EBITDA margin of 21.2% (1H21: 4.4%). The increase in adjusted EBITDA is due to the variances described above.

Total financial and other items contributed to an expense of $119 million in 2H21 (1H21: $311 million expense), a favorable variance of $192 million that was primarily attributed to the following: Reorganization items decreased due to the non-cash loss of $186 million in 1H21 on the remeasurement of the West Taurus lease liability to SFL, as a result of rejection of the lease through the bankruptcy court, not repeated in 2H21. This was offset by a $14 million increase in Chapter 11 related restructuring fees, to $75 million, in 2H21. Interest expense related to our external debt facilities decreased by $35 million compared to the first half of 2021 as we ceased recognition of interest on these facilities following our Chapter 11 filing in February 2021. The amendment to the West Hercules lease arrangement in August 2021 resulted in a further $14 million decrease in interest expense as the lease was reclassified as an operating lease, decreasing interest expense from $79 million to $30 million. There was a net $5 million decrease in credit loss allowances recognized against loans provided to related parties.

Income/loss from discontinued operations was a gain of $36 million in 2H21 (1H21: $31 million loss), a favorable variance of $67 million that was attributed to the following: Discontinued operations relate to the NSNCo group, which became a 35% owned non-consolidated group of subsidiaries following the disposal of 65% of the interest held to the NSNCO noteholders, shortly after the end of the reporting period on January 20, 2022. The revenues and expenditures of the NSNCo group have been reflected under the discontinued operations line item for all periods presented. This includes SeaMex's consolidated revenues and expenditures from November 2, 2021 onwards. The gain recorded through discontinued operations in the second half of 2021 was mainly attributable to a reversal of previously established credit loss allowances against loans previously advanced by the NSNCo group to the SeaMex joint venture. This gain was recorded in connection to the step acquisition of SeaMex by NSNCo and is one-time in nature and not expected to recur.

Income tax benefit/(expense) for 2H21 was $6 million benefit (1H21: $11 million expense). The increase in net tax benefit is explained by a reduction in current year's provision, increase in prior year current and deferred tax credits, offset by an increase in uncertain tax position liability.Net profit/(loss) for 2H21 was $18 million net profit, or $0.18 profit per share (1H21: $605 million net loss, or $6.03 loss per share).

Abbreviated Cash Flow Statement - Continuing operations

Figures in US$ million, unless otherwise indicated

	2H21	1H21
Net cash used in operating activities	(72)	(64)
Net cash provided by/(used in) investing activities	20	(6)
Net cash used in financing activities	—	—
Effect of exchange rate changes on cash	(6)	4
Net decrease in cash and cash equivalents, including restricted cash	(58)	(66)
Cash and cash equivalents, including restricted cash, at beginning of the period	593	659
Cash and cash equivalents, including restricted cash, at the end of period	535	593

The statement of cash flows excludes $49 million of unrestricted cash and $21 million of restricted cash at December 31, 2021, which is held for sale by our discontinued operations.(December 31, 2020: $35 million unrestricted, $30 million restricted). The total cash flows from discontinuing operations for the twelve months ended December 31, 2021 was a $5 million inflow (December 31,2020: $1 million inflow).

Net cash used in operating activities for 2H21 was $72 million (1H21: $64 million), an increase of $8 million. The increased cash outflow from operating activities was attributable to increased legal and advisory expenses associated with Chapter 11 process, rig reactivation costs, and adverse working capital movements, primarily on accounts receivable, partly offset by increased operating margins as a result of improved activity levels.

Net cash provided by/used in investing activities in 2H21 contributed to a $20 million inflow (1H21: $6 million outflow). The inflow is predominantly due to proceeds from the disposal of the rigs in line with gain on mentioned above in the analysis of operating items

Net decrease in cash in 2H21 was $58 million (1H21: $66 million) resulting in total cash and cash equivalents, including restricted cash of $535 million as at 2H21 (1H21: $593 million).

Abbreviated Balance Sheet

Figures in US$ million, unless otherwise indicated

	2H21	1H21
Cash and cash equivalents	312	422
Restricted cash	223	171
Assets held for sale	1,103	694
Other current assets	388	360
Non-current assets (excluding non-current restricted cash)	1,853	2,011
Total assets	3,879	3,658
Liabilities associated with assets held for sale	948	582
Other current liabilities	289	297
Liabilities subject to compromise	6,235	6,406
Non-current liabilities	123	113
Deficit	(3,716)	(3,740)
Total liabilities and equity	3,879	3,658

Unless otherwise stated, the following financial information excludes the impact from the discontinued operations held for sale at the period end.

Cash and cash equivalents, which excludes restricted cash, was $312 million (1H21: $422 million). The decrease was primarily due to net cash used in operating activities as described in the previous section.

Restricted cash was $223 million (1H21: $171 million). The increase was primarily due to cash receipts of rig proceeds, and net increases on collateral held for guarantee facilities.

Assets held for sale reflect the NSNCo group's assets of $1.1 billion (1H21: $694 million). The increase relates to the consolidation of the SeaMex joint venture after its acquisition by NSNCo on November 2, 2021.

Other current assets were $388 million (1H21: $360 million). The increase was primarily due to increased activity, with more operating rigs in 2H21.

Non-current assets (excluding non-current restricted cash) were $1.9 billion (1H21: $2.0 billion). The decrease is driven by the disposal of the West Hercules following the modification of the lease in August 2021.

Liabilities held for sale reflect the NSNCo group's liabilities of $948 million (1H21: $582 million). The increase results from the consolidation of SeaMex.

Other current liabilities were $289 million (1H21: $297 million). The decrease was attributable to the settlement of the lease liability on the West Bollsta offset by prepetition liabilities reinstated from liabilities subject to compromise.

Liabilities subject to compromise were $6,235 million (1H21: $6,406 million). The decrease was primarily attributable to the de- recognition of the liability to SFL following amendment of the West Hercules lease.

Non-current liabilities were $123 million (1H21: $113 million). The increase was due to increased deferred mobilization revenues and increased liabilities recognized for uncertain tax positions.

Equity was a $3.7 billion deficit (1H21: $3.7 billion deficit).

Liquidity

As of December 31, 2021, total cash and cash equivalents of $535 million was comprised of $312 million of unrestricted cash and $223 million of restricted cash. The major components of restricted cash include:
* $63 million of cash held as collateral for a local tax case in Brazil;
* $47 million sales proceeds on disposal of rigs secured against senior credit facilities;
* $42 million held as a guarantee facility for certain drilling contracts; and
* $37 million of cash held as collateral against the West Linus and West Hercules lease arrangements.

Despite continuing operational challenges presented by COVID-19, Seadrill continues to successfully execute its ongoing cash preservation and cost efficiency plan to further reduce costs whilst continuing to operate safely and deliver for customers. This will preserve liquidity and adjust the cost base to maintain our leadership position in this area. Seadrill’s active management will reduce spend both onshore and offshore.

COMMERCIAL REVIEW

Order Backlog¹

Order Backlog at the end of 2H21, was approximately $2.7 billion, up from $2.1 billion at the end of 1H21. During the second half of the year, the Company added approximately $1 billion of backlog from the following contract awards:
* West Hercules – secured a two well contract with Equinor in Canada adding $57m in backlog. Additionally, Equinor exercised another one well option in Norway for the rig under a continuous optionality provision adding $15m in backlog.
* West Gemini – secured a four well contract plus options in Angola contributing $35m in backlog. The rig commenced operations in Q4.
* West Tellus – Shell exercised options adding $18m backlog.
* West Tellus, West Carina, and West Jupiter each secured multi-year contracts with Petrobras in Brazil, contributing a total of $775 million in backlog. West Tellus and West Carina are expected to commence in September 2022 while West Jupiter is expected to commence in December 2022.
* Sevan Louisiana – secured a two-well contract with ENI in US Gulf of Mexico. In addition, $26m of backlog with Talos was transferred from the West Neptune to the Sevan Louisiana.
* West Neptune – LLOG exercised an option adding $10m in backlog keeping the rig busy into October 2022.

Post 2H21, backlog was reduced by $0.5bn related to the negotiated amendment to the West Linus lease with SFL. The rig is now expected to be delivered to SFL in 2022 at which point Seadrill will no longer be the operator of the drilling contract. Following this adjustment backlog stands at $2.2bn as at February 23, 2022.

Trading Outlook

The offshore drilling sector recovery is beginning to take shape as oil prices continue to trend upwards and demonstrate consistency of outlook. Whilst different markets will readjust at a different pace we are confident of the overall trend moving into 2022 and 2023 when re-contracting of rigs will become important. We welcome the recycling of rigs which will never see competitive work again. However, we see consolidation as the route to delivering a more disciplined supply and demand equilibrium where the returns to offshore drillers justify the investment and associated risks in a market which seek investment to make sustainability goals real.

¹ Order Backlog includes all firm contracts at the maximum contractual operating dayrate multiplied by the number of days remaining in the firm contract period. For contracts which include a market indexed rate mechanism, the Company utilizes the current applicable dayrate multiplied by the number of days remaining in the firm contract period. Order Backlog excludes revenues for mobilization, demobilization and contract preparation or other incentive provisions and excludes backlog relating to Non-Consolidated Entities.

EMERGENCE FROM BANKRUPTCY

In our recent press release, dated February 22, 2022, we were pleased to report that Seadrill concluded its comprehensive restructuring process and emerged from Chapter 11 bankruptcy protection. The following major changes to Seadrill’s capital structure were achieved through the restructuring:
* Additional $350 million of liquidity raised;
* Obligations under external credit facilities decreased from $5,662 million to $683 million of reinstated debt with maturity in 2027;
* Future obligations under finance lease arrangements in respect of the West Taurus, West Hercules, and West Linus substantially eliminated; and
* Elimination of guarantees previously provided to holders of the senior notes previously issued by the NSNCo group.

Seadrill emerged from bankruptcy with cash of $486 million, of which $335 million was unrestricted and $151 million was restricted. Seadrill also had $125 million undrawn on its new revolving credit facility which together with the unrestricted cash provided $460 million of liquidity to the Successor company. Following emergence, Seadrill had total debt obligations of $908 million. This comprised $683 million outstanding on reinstated credit facilities; $175 million drawn on its new term loan; and a $50 million convertible bond. This left the Successor company with net debt of $422 million after adding back its post-emergence cash.# Seadrill Limited (Debtor-in-Possession)

In order to substantially eliminate future commitments under capital lease arrangements with SFL corporation (“SFL”), Seadrill rejected the West Taurus lease through the bankruptcy court in early 2021 and negotiated amendments to the leases of West Hercules and West Linus in August 2021 and February 2022, respectively. The amended leases for Hercules and Linus are short term and we expect to redeliver both rigs to SFL in 2022. In addition to reducing the lease terms, the lease amendments extinguished Seadrill’s obligations to purchase the units at the end of the leases (amongst other changes). As part of Seadrill’s wider process, Seadrill New Finance Limited (“NSNCo”), the holding company for investments in SeaMex, Seabras Sapura, and Archer, concluded a separate restructuring process on January 20, 2022. The restructuring was achieved using a pre-packaged chapter 11 process and had the following major impacts:

Holders of the senior secured notes issued by NSNCo (“notes”, “noteholders”) released Seadrill from all guarantees and securities previously provided by Seadrill in respect of the notes;
Noteholders received a 65% equity interest in NSNCo with Seadrill’s equity interest thereby decreasing to 35% and
Reinstatement in full of the notes on amended terms.

Related to the NSNCo restructuring, the noteholders also financed a restructuring of the bank debt of the SeaMex joint venture. This enabled NSNCo to subsequently acquire a 100% equity interest in the SeaMex joint venture by way of a credit bid, which was executed on November 2, 2021. As Seadrill lost its controlling interest in NSNCo through the disposal of 65% of its equity interest on January 20, 2022, we have presented the results of NSNCo, including the consolidated results of SeaMex from November 2021 onwards, as discontinued operations in Seadrill’s financial statements for the period ended December 31, 2021. NSNCo’s assets and liabilities have similarly been classified as held-for-sale in Seadrill’s December 2021 balance sheet. All periods presented have been recast for this change.

BOARD CHANGES

The period saw the announcement on November 17, 2021, of a new, independent, seven-member Board of Directors (“Board”). The Board assumed the leadership of the new parent company of the Seadrill group following emergence from Chapter 11. The Board is comprised of the following individuals, who collectively bring extensive industry and leadership experience:

Julie Johnson Robertson, Chair of the Board
Mark McCollum, Chair of Audit Committee
Karen Dyrskjot Boesen
Jean Cahuzac
Jan Kjaervik
Andrew Schultz
Paul Smith

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 the Company may have significant, unusual or non-recurring items which may be excluded 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 Seadrill's ongoing financial and operating strength. The Company believes that Adjusted EBITDA assists 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 Limited's performance calculated in accordance with the US GAAP. The table below reconciles operating profit/loss to Adjusted EBITDA.

(In US$ million)

	2H21	1H21
Operating profit/(loss)	95	(252)
Depreciation	72	83
Changes in expected credit loss allowances	(13)	48
Gain on disposals	(36)	(11)
Impairment of long-lived assets	—	152
Adjusted EBITDA	118	20

Seadrill Limited (Debtor-in-Possession)

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

for the six and twelve months ended December 31, 2021 and 2020

(In $ millions, except per share data)

	Six months ended December 31, 2021	Six months ended June 30, 2021	Twelve months ended December 31, 2021	Twelve months ended December 31, 2020
Operating revenues
Contract revenues	429	335	764	703
Reimbursable revenues	18	17	35	37
Management contract revenues	89	88	177	289
Other revenues	20	12	32	30
Total operating revenues	556	452	1,008	1,059
Operating expenses
Vessel and rig operating expenses	(360)	(316)	(676)	(606)
Reimbursable expense	(16)	(16)	(32)	(34)
Depreciation	(72)	(83)	(155)	(346)
Amortization of intangibles	—	—	—	(1)
Management contract expenses	(59)	(115)	(174)	(390)
Selling, general and administrative expenses	(41)	(36)	(77)	(80)
Total operating expenses	(548)	(566)	(1,114)	(1,457)
Other operating items
Loss on impairment of long-lived assets	—	(152)	(152)	(4,087)
Loss on impairment of intangibles	—	—	—	(21)
Gain on disposals	36	11	47	15
Other operating income	51	3	54	9
Total other operating items	87	(138)	(51)	(4,084)
Operating profit/(loss)	95	(252)	(157)	(4,482)
Financial and other non-operating items
Interest income	—	1	1	9
Interest expense	(30)	(79)	(109)	(409)
Share in results from associated companies (net of tax)	2	1	3	—
Gain/(loss) on derivative financial instruments	1	(1)	—	(3)
Foreign exchange (loss)/gain	(13)	9	(4)	(23)
Reorganization items	(81)	(229)	(310)	—
Other financial items	2	(13)	(11)	(45)
Fair value measurement on deconsolidation of VIE	—	—	—	509
Total financial and other non-operating items, net	(119)	(311)	(430)	38
Loss before income taxes	(24)	(563)	(587)	(4,444)
Income tax benefit/(expense)	6	(11)	(5)	(4)
Loss from continuing operations	(18)	(574)	(592)	(4,448)
Income/(loss) from discontinued operations	36	(31)	5	(215)
Net profit/(loss)	18	(605)	(587)	(4,663)
Net profit/(loss) attributable to the shareholder	18	(605)	(587)	(4,659)
Net loss attributable to the non-controlling interest	—	—	—	(3)
Net loss attributable to the redeemable non-controlling interest	—	—	—	(1)
Basic loss per share from continuing operations (US dollar)	(0.18)	(5.72)	(5.90)	(44.29)
Diluted loss per share from continuing operations (US dollar)	(0.18)	(5.72)	(5.90)	(44.29)
Basic earnings/(loss) per share (US dollar)	0.18	(6.03)	(5.85)	(46.43)
Diluted earnings/(loss) per share (US dollar)	0.18	(6.03)	(5.85)	(46.43)

F-10

Seadrill Limited (Debtor-in-Possession)

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

for the six and twelve months ended December 31, 2021 and 2020

(In $ millions)

	Six months ended December 31, 2021	Six months ended June 30, 2021	Twelve months ended December 31, 2021	Twelve months ended December 31, 2020
Net profit/(loss)	18	(605)	(587)	(4,663)
Other comprehensive loss, net of tax, relating to continuing operations:
Actuarial loss relating to pension	—	—	—	(2)
Other comprehensive gain/(loss), net of tax, relating to discontinued operations:
Change in fair value of debt component of Archer convertible bond	1	1	2	4
Share in results from associated companies	5	4	9	(15)
Other comprehensive gain/(loss)	6	5	11	(13)
Total comprehensive income/(loss) for the period	24	(600)	(576)	(4,676)
Comprehensive income/(loss) attributable to the shareholder	24	(600)	(576)	(4,672)
Comprehensive loss attributable to the non-controlling interest	—	—	—	(3)
Comprehensive loss attributable to the redeemable non- controlling interest	—	—	—	(1)

F-11

Seadrill Limited (Debtor-in-Possesion)

UNAUDITED CONSOLIDATED BALANCE SHEETS

as at December 31, 2021 and December 31, 2020

(In $ millions, except per share data)

	December 31, 2021	December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	312	491
Restricted cash	160	103
Accounts receivable, net	169	125
Amounts due from related parties, net	28	85
Assets held for sale -current	1,103	74
Other current assets	191	203
Total current assets	1,963	1,081
Non-current assets
Investments in associated companies	27	24
Drilling units	1,777	2,120
Restricted cash	63	65
Deferred tax assets	11	9
Equipment	11	19
Amounts due from related parties, net	—	6
Assets held for sale - non-current	—	611
Other non-current assets	27	26
Total non-current assets	1,916	2,880
Total assets	3,879	3,961
LIABILITIES AND EQUITY
Current liabilities
Debt due within one year	—	5,662
Trade accounts payable	59	45
Amounts due to related parties - current	—	7
Liabilities associated with assets held for sale - current	948	546
Other current liabilities	230	285
Total current liabilities	1,237	6,545
Liabilities subject to compromise	6,235	—
Non-current liabilities
Long-term debt due to related parties	—	426
Deferred tax liabilities	9	10
Other non-current liabilities	114	120
Total non-current liabilities	123	556
Equity
Common shares of par value US$0.10 per share:
138,880,000 shares authorized and 100,384,435 issued at December 31,2021 and December 31, 2020	10	10
Additional paid-in capital	3,504	3,504
Accumulated other comprehensive loss	(15)	(26)
Retained loss	(7,215)	(6,628)
Total deficit	(3,716)	(3,140)
Total liabilities and equity	3,879	3,961

F-12

Seadrill Limited (Debtor-in-Possesion)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUING OPERATIONS

for the twelve months ended December 31, 2021 and 2020

(In $ millions)

	Twelve months ended December 31, 2021	Twelve months ended December 31, 2020
Cash Flows from Operating Activities
Net loss from continuing operations	(592)	(4,449)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	155	346
Amortization of unfavorable and favorable contracts	—	1
Gain on disposals	(47)	(15)
Loss on impairment of intangible assets	—	21
Share in results from associated companies (net of tax)	(3)	—
Fair value measurement on deconsolidation of VIE	—	(509)
Loss on impairment of long-lived assets	152	4,087
Deferred tax benefit	(3)	(7)
Unrealized loss on derivative	—	3
for the twelve months ended December 31, 2021 and 2020 (In $ millions)

	Twelve months ended December 31, 2021	Twelve months ended December 31, 2020
Cash Flows from Operating Activities
Net income/(loss)	(592)	(1,747)
Adjustments to reconcile net income/(loss) to net cash flows provided by/(used in) operating activities:
Depreciation and amortization	325	356
Amortization of discount on debt	84	122
Unrealized foreign exchange loss	2	19
Change in allowance for credit losses	36	142
Other non-cash reorganization items	176	—
Other cash movements in operating activities:
Payments for long-term maintenance	(64)	(121)
Repayments made under lease arrangements	(46)	—
Changes in operating assets and liabilities, net of effect of acquisitions and disposals:
Trade accounts receivable	(37)	48
Trade accounts payable	17	(38)
Prepaid expenses/accrued revenue	(4)	(55)
Deferred revenue	7	(5)
Related party receivables	(8)	(100)
Related party payables	(7)	(4)
Other assets	(19)	34
Other liabilities	65	76
Other, net	—	8
Net cash flows used in operating activities	(136)	(396)
Cash Flows from Investing Activities
Additions to drilling units and equipment	(29)	(27)
Impact to cash resulting from deconsolidation of VIE	—	(22)
Purchase of call option for non-controlling interest shares	—	(11)
Proceeds from disposal of assets	43	—
Loans granted to related parties	—	(8)
Net cash flows provided by/(used in) investing activities	14	(68)
F-13
Seadrill Limited (Debtor-in-Possession)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUING OPERATIONS
Cash Flows from Financing Activities
Repayments of secured credit facilities	—	(132)
Purchase of redeemable AOD non-controlling interest	—	(31)
Net cash used in financing activities	—	(163)
Effect of exchange rate changes on cash	(2)	(19)
Net decrease in cash and cash equivalents, including restricted cash	(124)	(646)
Cash and cash equivalents, including restricted cash, at beginning of the period	659	1,305
Cash and cash equivalents, including restricted cash, at the end of period	535	659
Supplementary disclosure of cash flow information
Interest paid, net of capitalized interest	—	(181)
Taxes paid	(5)	(13)

F-14

Seadrill Limited (Debtor-in-Possession) UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

for the Six months ended December 31, 2021 and 2020, and June 30, 2021 and 2020 (In $ millions)

	Common shares	Additional paid-in capital	Accumulated other comprehensive loss	Retained loss	Total equity/ (deficit) before NCI	NCI	Total equity/ (deficit)
Balance as at December 31, 2019	10	3,496	(13)	(1,851)	1,642	151	1,793
ASU 2016-13 - Measurement of credit losses on financial instruments	—	—	—	(143)	(143)	—	(143)
Balance as at January 1, 2020	10	3,496	(13)	(1,994)	1,499	151	1,650
Other comprehensive loss from continuing operations	—	—	(7)	—	(7)	—	(7)
Other comprehensive loss from discontinued operations	—	—	(15)	—	(15)	—	(15)
Purchase option on non-controlling interest	—	—	—	—	—	(11)	(11)
Share-based compensation charge	—	2	—	—	2	—	2
Fair value adjustment AOD Redeemable NCI	—	—	—	32	32	—	32
Net loss from continuing operations	—	—	—	(1,576)	(1,576)	(2)	(1,578)
Net loss from discontinued operations	—	—	—	(171)	(171)	—	(171)
Balance as at June 30, 2020	10	3,498	(35)	(3,709)	(236)	138	(98)
Other comprehensive income from continuing operations	—	—	5	—	5	—	5
Other comprehensive income from discontinued operations	—	—	4	—	4	—	4
Cash settlement for cancellation of share scheme	—	(1)	—	—	(1)	—	(1)
Share-based compensation charge	—	7	—	—	7	—	7
Deconsolidation of VIE	—	—	—	—	—	(137)	(137)
Fair value adjustment AOD Redeemable NCI	—	—	—	(7)	(7)	—	(7)
Net loss from continuing operations	—	—	—	(2,868)	(2,868)	(1)	(2,869)
Net loss from discontinued operations	—	—	—	(44)	(44)	—	(44)
Balance as at December 31, 2020	10	3,504	(26)	(6,628)	(3,140)	—	(3,140)

(In $ millions)

	Common shares	Additional paid-in capital	Accumulated other comprehensive loss	Retained loss	Total deficit before NCI	NCI	Total equity/ (deficit)
Balance as at January 1, 2021	10	3,504	(26)	(6,628)	(3,140)	—	(3,140)
Other comprehensive income from discontinued operations	—	—	5	—	5	—	5
Net loss from continuing operations	—	—	—	(574)	(574)	—	(574)
Net loss from discontinued operations	—	—	—	(31)	(31)	—	(31)
Balance as at June 30, 2021	10	3,504	(21)	(7,233)	(3,740)	—	(3,740)
Other comprehensive income from discontinued operations	—	—	6	—	6	—	6
Net loss from continuing operations	—	—	—	(18)	(18)	—	(18)
Net profit from discontinued operations	—	—	—	36	36	—	36
Balance as at December 31, 2021	10	3,504	(15)	(7,215)	(3,716)	—	(3,716)

F-15

Seadrill Limited (Debtor-in-Possession) UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS - DISCONTINUED OPERATIONS

for the six and twelve months ended December 31, 2021 and 2020 (In $ millions)

	Six months ended December 31, 2021	Six months ended June 30, 2021	Twelve months ended December 31, 2021	Twelve months ended December 31, 2020
Operating revenues
Contract revenues	36	—	36	—
Total operating revenues	36	—	36	—
Operating expenses
Vessel and rig operating expenses	(17)	—	(17)	—
Selling, general and administrative expenses	(2)	—	(2)	—
Depreciation	(2)	—	(2)	—
Amortization of intangibles	(7)	—	(7)	—
Total operating expenses	(28)	—	(28)	—
Operating profit	8	—	8	—
Financial and other non-operating items
Interest income	7	11	18	26
Interest expense	(45)	(32)	(77)	(60)
Share in results from associated companies (net of tax)	13	1	14	(77)
(Loss)/gain on derivative financial instruments	(2)	5	3	3
Loss on impairment of investments	—	—	—	(47)
Loss impairment of convertible bond from related party	—	—	—	(29)
(Loss)/gain on marketable securities	(3)	5	2	(3)
Other financial items	56	(21)	35	(27)
Total financial and other non-operating items, net	26	(31)	(5)	(214)
Profit/(loss) before income taxes	34	(31)	3	(214)
Income tax benefit/(expense)	2	—	2	(1)
Net profit/(loss) from discontinued operations	36	(31)	5	(215)
Net profit/(loss) attributable to the shareholder	36	(31)	5	(215)
Basic profit/(loss) per share from discontinued operations (US dollar)	0.36	(0.31)	0.05	(2.10)
Diluted profit/(loss) per share from discontinued operations (US dollar)	0.36	(0.31)	0.05	(2.10)

Seadrill Limited UNAUDITED CONSOLIDATED BALANCE SHEETS - DISCONTINUED OPERATIONS

as at December 31, 2021 and December 31, 2020 (In $ millions)

	December 31, 2021	December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	49	35
Restricted cash	21	30
Accounts receivable, net	318	—
Other current assets	64	9
Total current assets	452	74
Non-current assets
Investments in associated companies	239	224
Drilling units	215	—
Deferred tax assets	6	—
Amounts due from related parties, net	69	387
Other non-current assets	122	—
Total non-current assets	651	611
Total assets	1,103	685
LIABILITIES AND EQUITY
Current liabilities
Debt due within one year	581	515
Trade accounts payable	7	—
Amounts due to related parties - current	12	—
Other current liabilities	89	31
Total current liabilities	689	546
Non-current liabilities
Long-term debt	233	—
Deferred tax liabilities	1	—
Other non-current liabilities	25	—
Total non-current liabilities	259	—
Equity
Common shares	(1)	—
Additional paid-in capital	1,192	1,192
Accumulated other comprehensive loss	(15)	(23)
Retained loss	(1,022)	(1,030)
Total shareholders' equity	155	139
Total liabilities and equity	1,103	685

(1) Below $1 million.

Seadrill Limited

Report on Form 6-K for the twelve months ended December 31, 2021

EXPLANATORY NOTE

This Form 6-K contains the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the unaudited interim condensed Consolidated Financial Statements and related information and data of the Company as of and for the six month period ended December 31, 2021. This Form 6-K is hereby incorporated by reference into our Registration Statements on (i) Form F-3 (Registration No. 333-224459), and (ii) Form S-8 (Registration No. 333-227101).

INDEX

Cautionary Statement Regarding Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of Operations
Interim Financial Statements (unaudited)
- Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2020 and the three and six months ended June 30, 2019. F-
- Unaudited Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2020 and the three and six months ended June 30, 2019. F-
- Unaudited Consolidated Balance Sheets as at June 30, 2020 and December 31, 2019. F-
- Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and the six months ended June 30, 2019. F-
- Unaudited Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2020 and the three and six months ended June 30, 2019. F-
- Notes to Unaudited Consolidated Financial Statements F-

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, or the PSLRA, and are including this cautionary statement inэль thereof. The PSLRA provides safe harbor protections for forward-looking statements to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical or present facts or conditions. This report on Form 6-K and any other written or oral statements made by us or on our behalf may include forward-looking statements which reflect our current views with respect to future events and financial performance.The words “believe,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,” “may,” “should,” “expect” and similar expressions identify forward-looking statements. The forward-looking statements in this document are based upon various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies that are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. In addition to these important factors and matters discussed elsewhere in this report on Form 6-K, and in the documents incorporated by reference to this report, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include:

the impact of our decision to prepare for a comprehensive restructuring of our Balance Sheet, the outcome of which is uncertain;
factors related to the offshore drilling market, including volatility and changes in oil and gas prices and the state of the global economy on market outlook for our various geographical operating sectors and classes of rigs;
the impact of global economic conditions, including potential trade wars and global health threats, such as the coronavirus, or COVID-19, outbreak on us, our customers and suppliers;
supply and demand for drilling units and competitive pressure on utilization rates and dayrates;
customer contracts, including contract backlog, contract commencements, contract terminations, contract option exercises, contract revenues, contract awards and rig mobilizations;
the repudiation, nullification, modification or renegotiation of drilling contracts;
delays in payments by, or disputes with, our customers under our drilling contracts;
fluctuations in the market value of our drilling units and the amount of debt we can incur under certain covenants in our debt financing agreements;
our liquidity and the adequacy of cash flow for our obligations;
our ability to successfully employ our drilling units;
our ability to procure or have access to financing;
our expected debt levels;
the impact of the operating and financial restrictions imposed by covenants in our debt agreements;
our ability to satisfy our obligations, including certain covenants, under our debt agreements and, if needed, to raise new capital or refinance our existing indebtedness;
the ability of our affiliated or related companies to service their debt requirements and comply with the provisions contained in their loan agreements;
credit risks of our key customers;
political and other uncertainties, including political unrest, risks of terrorist acts, war and civil disturbances, public health threats, piracy, corruption, significant governmental influence over many aspects of local economies, or the seizure, nationalization or expropriation of property or equipment;
our ability to maintain relationships with suppliers, customers, employees and other third parties in light of our decision to prepare for a comprehensive restructuring of our Balance Sheet;
our ability to maintain and obtain adequate financing to support our business plans in light of our decision to prepare for a comprehensive restructuring of our Balance Sheet;
the concentration of our revenues in certain geographical jurisdictions;
limitations on insurance coverage, such as war risk coverage, in certain regions;
any inability to repatriate income or capital;
the operation and maintenance of our drilling units, including complications associated with repairing and replacing equipment in remote locations and maintenance costs incurred while idle;
newbuildings, upgrades, shipyard and other capital projects, including the completion, delivery and commencement of operation dates;
import-export quotas;
wage and price controls and the imposition of trade barriers;
the recruitment and retention of personnel;
regulatory or financial requirements to comply with foreign bureaucratic actions, including potential limitations on drilling activity, changing taxation policies and other forms of government regulation and economic conditions that are beyond our control;
the level of expected capital expenditures, our expected financing of such capital expenditures, and the timing and cost of completion of capital projects;
fluctuations in interest rates or exchange rates and currency devaluations relating to foreign or US monetary policy;
future losses generated from investments in associated companies or receivable balances held with associated companies;
tax matters, changes in tax laws, treaties and regulations, tax assessments and liabilities for tax issues, including those associated with our activities in Bermuda, Brazil, Norway, the United Kingdom and the United States;
legal and regulatory matters, including the results and effects of legal proceedings, and the outcome and effects of internal and governmental investigations;
hazards inherent in the drilling industry and marine operations causing personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, claims by third parties or customers and the suspension of operations;
customs and environmental matters;
our decision to voluntarily withdraw our common shares from listing on the New York Stock Exchange; and
other important factors described from time to time in the reports filed or furnished by us with the SEC.

We caution readers of this report on Form 6-K not to place undue reliance on these forward-looking statements, which speak to circumstances only as at their dates. We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.

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

You should read the following discussion of our financial condition and results of operations in conjunction with the interim Financial Statements presented in this report, as well as the historical Consolidated Financial Statements and related notes of Seadrill Limited included in our annual report on Form 20-F filed with the SEC on April 2, 2020 (SEC File No. 333-224459) (the “20-F”). Among other things, those financial statements include more detailed information regarding the basis of presentation for the following information. The unaudited Consolidated Financial Statements of Seadrill Limited included in this report have been prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”) and are presented in US Dollars. Except where the context otherwise requires or where otherwise indicated, the terms "Seadrill," "the Group," "we," "us," "our," "the Company" and "our Business" refer to either Seadrill Limited, any one or more of its consolidated subsidiaries, or to all such entities. References to the term “Predecessor” refers to the financial position and results of operations of Seadrill prior to, and including, July 1, 2018. This is also applicable to terms “Seadrill,” “the Group,” “we,” “us,” “our,” “the Company” or “our Business” in context of events before emergence from Chapter 11 Proceedings on July 2, 2018.

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

Overview
Significant developments
Contract backlog
Market overview and trends
Results of operations
Liquidity and capital resources
Contractual obligations
Quantitative and qualitative disclosures about market risk
Critical accounting estimates

Overview

We are an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. Our primary business is the ownership and operation of drillships, semi-submersible rigs and jack-up rigs for operations in shallow to ultra-deepwater areas in both benign and harsh environments. We contract our drilling units to drill wells for our customers on a dayrate basis. Typically, our customers are oil super-majors, state-owned national oil companies and independent oil and gas companies. Through a number of acquisitions of companies, second-hand units and newbuildings, we have developed into one of the world's largest international offshore drilling contractors. We also provide management services to our related parties: Seadrill Partners, SeaMex, Northern Ocean and Sonadrill.

Significant Developments for the period from January 1, 2020 through and including June 30, 2020

Impairment of assets

Archer convertible note

On March 13, 2020, Archer announced that it had successfully secured a consensual amendment and extension to its debt facilities. This included a reduction to the principal and interest on the convertible loan due to us from Archer, in exchange for a reduced stock conversion price and removal of certain restrictions regarding the sale or conversion of the loan (see Note 26 - "Related party transactions" for details regarding the loan). Following the amendment, the principal due on the loan was reduced to $13 million and the stock conversion price decreased from $2.083 per share to $0.40. The maturity date of the loan was extended to April 1, 2024. The transaction was executed on April 9, 2020.

New York Stock Exchange delisting

On March 26, 2020, we received written notice from the NYSE that we were not in compliance with the continued listing standard with respect to the minimum average share price required of $1.00 per share over a period of thirty consecutive trading days. On April 8, 2020, the Company notified the NYSE of its intention to cure the non-compliance. However, in light of the significant impact of COVID-19 on the Company and the drilling industry as well as the challenges posed by the continued volatility in the offshore oil and gas industry, and taking into account other factors associated with maintaining a NYSE listing, the Board of Directors determined that it was in the best interests of the Company to voluntarily withdraw our common shares from listing on the NYSE. We filed a Form 25 with the SEC on June 11, 2020 in order to delist our common shares from the NYSE, which occurred ten days thereafter upon effectiveness of the Form 25. Accordingly, the Company's last day of trading on the NYSE was on June 19, 2020, which was the last trading day prior to effectiveness of the Form 25. While the Company's common shares are currently traded on the OTCQX market, an electronic inter-dealer quotation system based in the United States, our listing on the Oslo Stock Exchange, where our common shares trade under the ticker symbol 'SDRL', is now our sole exchange listing. We expect to continue to make required filings with the SEC.

Bank negotiations and lender consent

During the first quarter, we were engaged in discussions with our lenders over potential amendments to our credit facilities that would have provided the Company with greater operational flexibility and additional near-term liquidity. Whilst these amendments were supported by a majority of our secured lenders, certain amendments needed 100% approval across 43 institutions, and recent market uncertainties prevented us from obtaining the required level of support. As a consequence, we did not proceed with the bank consent and have retained financial and legal advisors to prepare for a comprehensive restructuring of our balance sheet. With the help of these advisors, we have engaged in negotiations with our lenders surrounding a comprehensive restructuring. Whilst we continue to evaluate various alternatives to address the cost of debt service and overall volume of debt, we anticipate that a comprehensive restructuring may require a substantial conversion of our indebtedness to equity. As of June 30, 2020, Seadrill has $1.0 billion of cash which we believe provides sufficient liquidity to complete a comprehensive restructuring process. Our business operations remain unaffected by the negotiations and related contingency planning efforts, and we expect to meet our ongoing customer and business counterparty obligations as they become due. Although we have not yet reached an agreement with our lenders on any refinancing or extension of obligations, we may determine that it is in our best interests to pursue a deleveraging of our capital structure, which may be accomplished on an out-of-court basis or in-court basis, in which case, our existing common shareholders could experience a substantial dilution in their voting and economic interests in the Company or may receive minimal or no recovery for their existing equity interests.

Contract Backlog

Contract Backlog includes all firm contracts at the maximum contractual operating dayrate multiplied by the number of days remaining in the firm contract period. For contracts which include a market indexed rate mechanism we utilize the current applicable dayrate multiplied by the number of days remaining in the firm contract period. Contract Backlog excludes revenues for mobilization, demobilization and contract preparation or other incentive provisions and excludes backlog relating to Non-Consolidated Entities. The disruptive impacts of the oil price decline and COVID-19 could have an adverse effect on our ability to realize our backlog. Our customers may seek to terminate or renegotiate our contracts, which could result in lower dayrates or less favorable economic terms.

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

(In $ millions)

Contract backlog	December 31, 2021	December 31, 2020
Floaters	693	803
Jack-ups	1,642	1,741
Total	2,335	2,544

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

We project our December 31, 2021 contract backlog to unwind over the following periods:

(In $ millions)

Year ended Contract backlog	Total	2020	2021	2022	2023+
Floaters	693	192	259	131	111
Jack-ups	1,642	130	272	271	969
Total	2,335	322	531	402	1,080

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

Market Overview and Trends

The below table shows the average oil price for the three months ended December 31, 2021 and for each year ended December 31 over the period 2016 to 2020. The Brent oil price at December 31, 2021 was $41.

	Dec-2016	Dec-2017	Dec-2018	Dec-2019	Jun-2020
Average Brent oil price ($/bbl)	45	55	71	64	33

Although we saw a stabilization in the oil and gas market in 2019, recent developments have created significant uncertainty on the industry’s trajectory for the near to medium term. The global impacts surrounding the COVID-19 outbreak combined with actions by certain members of OPEC and its partners led to a substantial decrease in the price of Brent oil in the first quarter, which reached $22 per barrel on March 30, 2020. Whilst there has been some improvement in the oil price in the second quarter, with Brent reaching $41 per barrel on December 31, 2021, demand remains below the levels reached before the COVID-19 pandemic and the market continues to be oversupplied. As a result, our customers have continued to reduce capital expenditures which is likely to lead to lower utilization levels and downward pressure on dayrates in future quarters.

The below table shows the global number of rigs on contract and marketed utilization at December 31, 2021 and for each of the four preceding years ending December 31.

	Dec-2016	Dec-2017	Dec-2018	Dec-2019	Jun-2020
Contracted rigs
Harsh environment floater	35	30	31	35	31
Benign environment floater	139	120	116	119	115
Jack-up (1)	152	154	168	204	211
Marketed utilization
Harsh environment floater	81%	83%	85%	87%	81%
Benign environment floater	71%	71%	73%	77%	78%
Jack-up (1)	70%	70%	74%	86%	86%

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

Floater segment

After several years of decreased contracting activity, we saw an increase in the number of opportunities for floaters in 2019 which, in combination with continued attrition in the benign-environment sub-segment, has led to improved utilization for both harsh-environment and benign-environment units. This trend reversed in the first half of 2020, in line with the market trends described in the previous section, with the global number of contracted floaters at June 2020 falling back to December 2018 levels. Whilst there has been a decrease in the number of contracted rigs during 2020, marketed utilization for benign environment floaters has remained at a similar level to December 2019 due to the high level of attrition in that sub-segment continuing in 2020. There has been a lower level of attrition in the harsh environment sub-segment and therefore the lower level of contracting activity has led to a decrease in marketed utilization. We expect to see continued effects of the impact of COVID-19 pandemic and the oil price decline on utilization across both sub-segments and downward pressure on dayrates.# Jack-up segment
Over recent years we have seen an increase in the number of contracted jack-up rigs with the global number of contracted units increasing from 152 at December 2016 to 204 at December 2019. Whilst this trend continued in the first quarter of 2020, marketed utilization at June 2020 had decreased back to December 2019 levels following a number of contract terminations in the second quarter. We anticipate further decreases in upcoming quarters due to limited visibility of immediate demand. We provide operations in oil and gas exploration and development in regions throughout the world and our customers include integrated oil and gas companies, state-owned national oil companies and independent oil and gas companies. Over the course of the last several years, oil and gas companies have focused on preserving cash and reducing their spend, in some cases consciously allowing the production decline rate on producing fields to accelerate.

The worldwide fleet of semi-submersible rigs and drillships totaled 248 units as at October 31, 2018. Of the total delivered fleet, 160 units are capable of ultra-deepwater operations above 7,500 feet, 31 are classed for deepwater operations up to 7,500 feet and 57 are classed for mid-water operations up to 4,500 feet. Overall, the average global fleet is 15 years old. The average age of ultra-deepwater units is eight years, 26 years for units classed for deepwater operations and 29 years for units classed for mid-water operations. Included in the global floater fleet are units classed for operations in harsh environments. The global harsh environment floater fleet is comprised of 70 units and is 18 years old on average.

During 2017 and 2018, we have seen an increase in the activity level in the floater market, albeit at low dayrates. This improvement was from a low base and we expect activity levels to continue to improve. There has been a significant improvement in the harsh environment floater market where recent contracts have been entered into at rates closer to USD 300k/day for high spec rigs. Based on the level of current activity and the aging floater fleet, we expect stacking and scrapping activity to continue. A total of 114 floaters have been scrapped or retired since the beginning of 2014, equivalent to 36% of the total fleet, and currently there are 23 cold or warm stacked units with no follow-on work identified that are 30 years old or older. In the next 18 months, a further 26 units that are 30 years old or older will be coming off contract with no follow-on work identified which represent 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 are expected to choose to retire the unit rather than incur this cost without a visible recovery in demand on the horizon. Cold stacked units will generally require an improvement in dayrates sufficient to overcome reactivation costs before they are reintroduced into marketed supply. Continued cold stacking of units 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. Older units that roll off contract may require significant capital expenditure to remain in the working fleet and are therefore more likely to be cold stacked and ultimately scrapped. We expect the combination of improving activity levels, cold stacking and scrapping activity to lead to a balanced market at some point. Based on the expected level of scrapping activity and the number of units that are anticipated to be cold stacked, a relatively small increase in spending could meaningfully tighten the floater markets. The global floater order book stands at approximately 42 units, comprised of 28 drillships and 14 semi-submersible rigs. 3 are scheduled for delivery in 2018, 20 in 2019 and 19 in 2020 and beyond. Due to the subdued level of contracting activity, we expect that it is likely that a significant number of newbuild orders will be delayed or cancelled until an improved market justifies taking delivery.

The worldwide fleet of jack-up rigs totaled 520 units at October 31, 2018. Of the total delivered fleet, 245 units were high specification and capable of operations in water depths of 350 feet and above and 275 units were standard jack-ups and capable of operations in water depths up to 350 feet. Overall, the global jack-up fleet is 21 years old on average. The average age of high specification units is 10 years and 30 years for standard units. Included in the global jackup fleet are units classed for operations in harsh environments. As at October 31, 2018, the global harsh environment jack-up fleet is comprised of 71 units and is 12 years old on average. Tendering activity in the jack-up market continued during 2017 and 2018, albeit at low dayrates. The shorter-term contract profile in this market lends itself to more turnover and the market has likely reached the base level of units required to maintain existing decline curves. A total of 83 jack-ups have been scrapped since the beginning of 2014, equivalent to 16% of the total fleet, and at October 31, 2018 there were 89 cold or warm stacked units that were 30 years old or older, which were prime scrapping candidates. In the next 18 months, 79 units that are 30 years old or older will be coming off contract with no follow on work identified which represent additional scrapping candidates, however scrapping activity in the jack-up segment may remain subdued relative to the floater segment due to the lower cost of stacking and classing these units. The global jack-up order book stood at approximately 81 units at October 31, 2018. However, a significant portion of these orders were placed by investors with little or no operating track record. While a number of these speculators may exit projects, these units may eventually reach the market, possibly in the hands of more established companies. The deployment of this incremental supply may be somewhat rationalized in the longer term as the more established players will likely only take delivery when economically viable. In 2018, 5 units are scheduled for delivery, with an additional 51 scheduled for 2019 and 25 in 2020 and beyond. Due to the subdued level of contracting activity we believe that it is likely that a significant number of jack-up orders may be delayed until an improved market justifies taking delivery or be cancelled.

Results of Operations

The tables included below set out financial information for the three and six months ended December 31, 2021 and the three and six months ended December 31, 2020.

(In $ millions)
| | Three months ended December 31, 2021 | Three months ended December 31, 2020 | Twelve months ended December 31, 2021 | Six months ended December 31, 2020 |
| :------------------------------------ | :----------------------------------- | :----------------------------------- | :------------------------------------ | :--------------------------------- |
| Operating revenues | 305 | 302 | 1,008 | 1,059 |
| Operating expenses | 22 | 21 | 77 | 80 |
| Other operating items | 76 | 26 | (51) | (4,084) |
| Operating loss | 96 | (71) | (157) | (4,482) |
| Interest expense | (11) | (132) | (109) | (409) |
| Loss on impairment of equity method investments | — | — | — | — |
| Other income and expense | (55) | (2,492) | (321) | 447 |
| Loss before income taxes | 30 | (2,695) | (587) | (4,444) |
| Income tax (expense) / benefit | 10 | 8 | (5) | (4) |
| Net loss | 104 | (2,723) | (587) | (4,663) |

1) Operating revenues

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

a) Contract revenues

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

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

i. Average number of rigs on contract

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

(Number)
| | Three months ended December 31, 2021 | Three months ended December 31, 2020 | Twelve months ended December 31, 2021 | Six months ended December 31, 2020 |
| :----------------------------- | :----------------------------------- | :----------------------------------- | :------------------------------------ | :--------------------------------- |
| Floaters | 4Q21 | 4Q20 | | |
| Jack-ups | — | — | — | — |
| Average number of rigs on contract | — | — | — | — |

The average number of floaters on contract for the three months ended December 31, 2021 decreased by one compared to the three months ended June 30, 2019. The West Jupiter and West Saturn were off-contract in 2020 but operated in 2019 and the West Gemini's contract with Total in Angola was suspended during the second quarter of 2020. This was offset by a full quarter of operations on the West Phoenix in the second quarter of 2020 and by the Sevan Louisiana operating in 2020 after being under repair in the second quarter of 2019.The average number of floaters on contract for the six months ended December 31, 2021 decreased by two compared to the six months ended June 30, 2019 due to the second quarter variances described above and because the West Carina was warm stacked in the first quarter of 2020 whilst it was on contract the entirety of the six months ended June 30, 2019. The average number of jack-ups on contract for the three months ended December 31, 2021 decreased by two compared to the three months ended December 31, 2020. This was primarily due to the West Castor and West Telesto being leased to the Gulfdrill joint venture in 2020 and the West Tucana being warm stacked in May 2020 offset by idle time on the West Telesto during the second quarter of 2019. The average number of jack-ups on contract for the six months ended December 31, 2021 decreased by one compared to the six months ended June 30, 2019 due to the second quarter variances described above offset by idle time on the West Cressida during the first quarter of 2019.

ii. Average contractual dayrates

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

(In $ thousands)	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Floaters
Jack-ups

The average contractual dayrate for floaters decreased during the three and six months ended December 31, 2021 as the West Tellus was on a lower dayrate for the three and six months ended December 31, 2021 compared to the previous year and the West Jupiter completed a legacy dayrate contract at the end of 2019. The average contractual dayrate for jack-ups increased between the three and six months ended December 31, 2021 and the three and six months ended December 31, 2020 due to the West Linus and West Elara going onto market indexed rates.

iii. Economic utilization for rigs on contract

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

(Percentage)	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Floaters	—%	—%
Jack-ups

The economic utilization for floaters for the three and six months ended December 31, 2021 decreased in comparison to the three and six months ended December 31, 2020 due to the West Tellus undergoing their recertifications in the second quarter of 2020. The economic utilization for jack-ups for the three and six months ended December 31, 2021 remained consistent to the three and six months ended December 31, 2020.

b) Reimbursable revenues

We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel and other services provided at their request in accordance with a drilling contract. We classify such revenues as reimbursable revenues. Reimbursable revenues have remained broadly constant over the reporting periods presented in this report.

c) Management contract revenue

Management contract revenues includes revenues related to contracts where we are providing management, operational and technical support services to other parties. The below table provides an analysis of management contract revenues for periods presented in this report.

(In $ millions)	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021
Management fee revenues
Managed rig reimbursable revenues
Three Months Ended December 31, 2021
Year Ended December 31, 2020
Three Months Ended December 31, 2020
Related party inventory sales	14	100	37
Total management contract revenues	—	1	—

The increase in management fee revenues for the three and six months to June 30, 2020 compared to the equivalent periods in 2019 was primarily related to management fees from managing the harsh-environment semi-submersible rig West Mira for Northern Ocean and the drillship Libongos for Sonadrill. Both rigs commenced their first drilling contracts in the fourth quarter of 2019. The increase in managed rig reimbursable revenues for the three and six months to June 30, 2020 related to contracts to perform the first mobilization of the harsh-environment semi-submersible rig West Bollsta for Northern Ocean and drillship Quengela for Sonangol as well as crewing services provided on a reimbursable basis.

d) Other revenues

Other revenues include the following:

(In $ millions)	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Lease revenues	5	—	8	—
Other	—	—	1	1
Total other revenues	5	—	9	1

Other revenues for the three and six months ended June 30, 2020 included related party charter income earned by the West Castor and West Telesto, which have been leased to Gulfdrill.

2) Operating expenses

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

(In $ millions)	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Vessel and rig operating expenses (i)	26	136	174	390
Reimbursable expense	191	152	676	606
Management contract expense (ii)
Depreciation (iii)	8	7	32	34
Amortization of intangibles (iv)	38	78	155	346
Selling, general and administrative expenses (v)	—	1	—	1
Total operating expenses	22	21	77	80

i. Vessel and rig operating expenses

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

(In $ millions)	Three months ended December 31, 2021	Three months ended December 31, 2020
Floaters	—	—
Jack-ups	—	—
Vessel and rig operating expenses

Vessel and rig operating expenses are mainly driven by rig activity. On average, we incur higher vessel and rig operating expenses when a rig is operating compared to when it is stacked. For stacked rigs we incur higher vessel and rig expenses for warm stacked rigs compared to cold stacked rigs. We incur one-time costs for activities such as preservation and severance when we cold stack a rig. We also incur significant costs when re-activating a rig from cold stack, a proportion of which is expensed as incurred. Where a rig is leased to another operator, the majority of vessel and rig expenses are incurred by the operator. We have analyzed the average number of rigs by status and segment over the reporting period in the table below:

(Number of rigs)	Three months ended December 31, 2021	Three months ended December 31, 2020
Floaters
Operating
Warm stacked
Cold stacked
Average number of Floaters	4Q21	4Q20
Jack-ups
Operating	—	—
Warm stacked	—	—
Cold stacked	19	1
Chartered to Gulfdrill joint venture	1	2
Average number of Jack-ups

Vessel and rig expenses for the floater segment decreased by $9 million for the three months ended December 31, 2021 compared to the three months ended December 31, 2020 and by $37 million for the six months ended December 31, 2021 compared to the six months ended December 31, 2020. This decrease was primarily due to there being fewer operating rigs in 2020, as described in the revenue section above, and because the West Eclipse was cold stacked in 2020 but warm stacked in the first half of 2019. Vessel and rig expenses for the jack-up segment decreased by $12 million for the three months ended December 31, 2021 compared to the three months ended December 31, 2020 and by $23 million for the six months ended December 31, 2021 compared to the six months ended December 31, 2020. This decrease was primarily due to there being fewer operating rigs in 2020 as a result of the West Castor and West Telesto being chartered to the Gulfdrill joint venture.

ii. Management contract expenses

Management contract expenses include the costs incurred to manage drilling units on behalf of Seadrill Partners, SeaMex, Sonadrill and Northern Ocean.We have analyzed the main components of management contract expenses in the table below:

(In $ millions)

	Three months ended June 30, 2020	Three months ended June 30, 2019	Six months ended June 30, 2020	Six months ended June 30, 2019
Managed rig operating expenses	26	15	58	31
Managed rig reimbursable expenses	37	34	100	51
Changes in allowances for expected credit losses	41	—	50	—
Total management contract expenses	104	49	208	82

The increase in managed rig operating expenses for the three and six months to June 30, 2020 compared to the equivalent periods in 2019 primarily related to additional costs incurred to manage the harsh-environment semi-submersible rig West Mira for Northern Ocean and drillship Libongos for Sonadrill. The increase in managed rig reimbursable expenses for the three and six months to June 30, 2020 related to contracts to perform the first mobilization of the harsh-environment semi-submersible rig West Bollsta for Northern Ocean and drillship Quengela for Sonangol and to crewing costs provided on a reimbursable basis.

On January 1, 2020, we established allowances for estimated future credit losses on trade receivables in accordance with ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). We reported changes in credit loss allowances related to trade receivables from managed rig arrangements through management contract expenses.

iii. Depreciation

We record depreciation expense to reduce the carrying value of drilling unit and equipment balances to their residual value over their expected remaining useful economic lives. The decrease for the three and six months ended December 31, 2021 compared to the three and six months ended June 30, 2019 was primarily due to assets becoming fully depreciated following the impairment of assets recognized in the three months ended March 31, 2020.

iv. Amortization of intangibles

On emergence from Chapter 11 and application of fresh start accounting, we recognized intangible assets and liabilities for favorable and unfavorable drilling contracts at fair value. We amortize these assets and liabilities over the remaining contract period and classify the amortization under operating expenses. The majority of our favorable and unfavorable contracts completed in prior periods, therefore the amount recognized in the three and six months ended June 30, 2020 was nil.

v. Selling, general and administrative expenses

Selling, general and administrative expenses include the cost of our corporate and regional offices, certain legal and professional fees as well as the remuneration and other compensation of our officers, directors and employees engaged in central management and administration activities. The decrease for the three and six months ended December 31, 2021 compared to the three and six months ended June 30, 2019 was primarily due to lower personnel costs and lower legal and advisory costs.

3) Other operating items

Other operating items include the following:

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Impairment of long-lived assets (i)	—	(2,857)	(152)	(4,087)
Other operating income (ii)	51	—	54	9
Total other operating items	76	(2,875)	(51)	(4,084)

i. Impairment of long-lived assets

ii. Other operating income

Other operating income for the six months ended December 31, 2021 represents the settlement of a loss of hire insurance claim in relation to a subsea equipment incident on the Sevan Louisiana. Other operating income for the three and six months ended December 31, 2020 represents cash received for the recovery of receivable balances previously written down to nil on fresh start.

4) Interest expense

Interest expense for each of the periods presented in this report is set out in the table below:

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Interest expense	(11)	(166)	(109)	(409)

We have analyzed interest expense into the following components:

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Cash and payment-in-kind interest on debt facilities	—	—	—	—
Unwind of discount on debt	—	—	—	—
Interest expense

Cash and payment-in-kind interest on debt facilities

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

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Senior credit facilities	—	—	—	—
Senior secured notes
Debt of consolidated variable interest entities	4Q21	4Q20

Cash and payment-in-kind interest

We are charged interest on our senior credit facilities at LIBOR plus a margin. There has been a decrease in LIBOR rates contributing to the decrease in interest expense on our senior credit facilities. We are charged a fixed interest rate on the Senior Secured Notes of 12% of which 4% is cash interest and 8% payment-in-kind interest. We repurchased $311 million of principal on the notes on April 10, 2019, which has led to a decrease in the interest expense between 2019 and 2020. Our Consolidated Balance Sheet includes $598 million of debt facilities held by subsidiaries of Ship Finance that we consolidate as variable interest entities. The decrease in interest expense on the debt of consolidated variable interest entities was primarily driven by lower LIBOR rates.

Unwind of discount on debt

On emergence from Chapter 11 and application of fresh start accounting, we recorded a discount against our debt to reduce its carrying value to equal its fair value. The debt discount is unwound over the remaining terms of the debt facilities and the resulting amortization expense has remained broadly constant across the reporting periods presented in this report.

5) Loss on impairment of equity method investment

Loss on impairment of equity method investments for each of the periods presented in this report is set out in the table below:

(In $ millions)

	Three months ended June 30, 2020	Three months ended June 30, 2019	Six months ended June 30, 2020	Six months ended June 30, 2019
Loss on impairment of equity method investments	—	—	—	—

During the first quarter, the impact of COVID-19 on the global economy has had a negative impact on our industry. As global oil demand has fallen, we have also seen an increase in oil supply, leading to a surplus of reserves. Brent crude has fallen from $66 as at December 31, 2019 to $23 as at March 31, 2020. The oil price decline has led to pressures on our customers to reduce their capital expenditures in the near-term until we see a recovery in the oil price. As a consequence, this has led to reduced forecasted day rates and utilization for 2020 and beyond and therefore, as at March 31, 2020, we had indicators of impairment against our investments. Following this impairment review, we concluded that our investments in Seadrill Partners were impaired in full and we recorded an impairment charge of $0 million.

6) Other income and expense

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

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Interest income (i)	—	1	1	9
Share in results from associated companies (ii)	—	2	3	—
Loss on derivative financial instruments (iii)	—	2	—	(3)
Foreign exchange (loss)/gain (iv)	(4)	5	(4)	(23)
Net loss on debt extinguishment	—	—	—	—
Gain/(loss) on marketable securities (v)	—	—	—	—
Impairment of convertible bond from related party (vi)	—	—	—	—
Other financial items (vii)	1	(16)	(11)	(45)
Total financial items and other expense, net	(3)	(6)	(11)	(62)

i) Interest Income

Interest income relates to interest earned on cash deposits and other related party loans.

ii) Share in results from associated companies

Share of results in associated companies represents our share of earnings or losses in our investments accounted under the equity method. We reduced the carrying value of our equity method investments when we applied fresh start accounting on emergence from Chapter 11. This led to the recognition of basis differences between the book value of the drilling unit or pipe laying service vessel and contract intangible balances recorded in the balance sheets of our equity method investees and the implied value of those assets reflected in the equity method investments recorded in our Consolidated Balance Sheet.We unwind these basis differences over the lives of the associated assets and liabilities when calculating our share of results of the equity method investments. We have analyzed our share of results in associated companies by equity method investment below:

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Six months ended June 30, 2020	Six months ended June 30, 2019
Share of net income / (loss)
Seadrill Partners	—	(29)	(427)	(60)
Seabras Sapura	15	25	30	44
Seamex	—	2	1	1
Total share of net income / (loss)	15	(2)	(396)	(15)
Unwind of basis differences
Seadrill Partners	—	(7)	352	(18)
Seabras Sapura	(4)	(7)	(8)	(18)
Seamex	(7)	(7)	(14)	(14)
Total unwind of basis differences	(11)	(21)	330	(50)
Share of results from associated companies	4	(23)	(66)	(65)

The share of results from associated companies for the three months ended December 31, 2021 was an income compared to a loss for the three months ended June 30, 2019 due primarily to no further losses recognized for Seadrill Partners as the investment was impaired to a nil carrying value during the three months ended March 31, 2020. The share of results from associated companies for the six months ended December 31, 2021 remained consistent to the six months ended June 30, 2019 due primarily to the increase in the share of loss in Seadrill Partners in the three months ended March 31, 2020 due to impairments recognized against their long-lived assets offset by a reduced basis difference following rig impairments recognized in Seadrill Partners, and completion of the West Capricorn, Sapura Topazio and Diamante contracts.

iii) Loss on derivative financial instruments

On May 11, 2018, we bought an interest rate cap from Citigroup for $68 million. The interest rate cap mitigates our exposure to future increases in LIBOR over 2.87% from our floating bank debt. We also have a conversion option on a bond issued to us by Archer Limited. We record both of these assets at fair value, with changes in fair value being taken to net income. The loss on derivatives for the three and six months ended December 31, 2021 were $nil and $1 million (three and six months ended June 30, 2019: $2 million and $33 million, respectively). The losses in 2019 were primarily due to a decrease in LIBOR rates which caused a decrease in the fair value of the interest rate cap. Whilst respectively there was a further decrease in LIBOR rates in 2020, this did not generate a similar decrease in fair value of the interest rate cap. This was because LIBOR rates were already significantly below the cap rate, such that the interest rate cap already had minimal value.

iv) Foreign exchange (loss)/gain

Foreign exchange gains and losses relate to exchange differences on the settlement or revaluation of monetary balances denominated in currencies other than the US Dollar. In May 2019, we placed a total of 330 million Brazilian Reais of collateral with BTG bank under a letter of credit arrangement. There has been a significant weakening of the Brazilian Reais against the US Dollar during 2020, which has generated a $4 million foreign exchange loss in three months ended December 31, 2021 and a $24 million loss in the six months ended December 31, 2021.

v) Gain/(loss) on marketable securities

The gain/loss on marketable securities reflect the changes in mark-to-market movements in our investments in Seadrill Partners common units and our Archer shares.

vi) Impairment of convertible bond from related party

On March 13, 2020, Archer announced completion of a refinancing, which included agreed renegotiated terms on the convertible loan. The updated terms amended the loan balance to $13 million that bears interest of 5.5%, matures in April 2024 and includes an equity conversion option. The renegotiated terms resulted in a $— million impairment being recognized in the six months ended June 30, 2020, following a reduction in loan balance and an increase to the discount rate.

vii) Other financial items

Other financial items for the three and six months ended June 30, 2020 represent changes in the allowances for related party loan receivables following adoption of expected credit loss accounting guidance and professional and advisory fees incurred.

7) Income taxes

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

Operating Results

We provide drilling and related services to the offshore oil and gas industry. The split of our organization into segments has historically been based on differences in management structure and reporting, economic characteristics, customer base, asset class and contract structure. We currently operate in the following segments:

Floaters: We offer services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts relate to semi-submersible rigs and drillships for harsh and benign environments in mid-, deep- and ultra-deep waters.
Jack-up rigs: We offer services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts relate to jack-up rigs for operations in harsh and benign environment.

Segment results are evaluated on the basis of operating profit, and the information given below is based on the internal reporting structure used in the reporting to the Executive Management and the Board. The accounting principles for the segments are the same as for the Company's Consolidated Financial Statements.

"Other" predominately represents management services to third and related parties. In addition to Floaters and Jack-up rigs, the Company also provide management services to third and related parties. These services, along with any other source of income, not directly derived from services provided under the Floaters or the Jack-up rigs segments, are considered ancillary and have been presented as "Other".

Three Months Ended December 31, 2021 Compared to Three Months Ended December 31, 2020

The following table sets forth our operating results for three months ended December 31, 2021 and 2020.

	Three months ended December 31, 2021		Three months ended December 31, 2020
	Floaters	Jack-up rigs	Other	Total
In US$ millions
Total operating revenues	—	—	—	—
Loss on disposals	—	—	—	—
Contingent consideration realized	—	26	—	26
Total operating expenses	265	95	43	403
Net operating (loss)/income	—	—	—	—
Interest expense	(130)
Other financial items	(155)
(Loss)/income before taxes	(354)
Income taxes	(6)
Net (loss)/income	(360)

Total operating revenues

Three months ended December 31,

In US $millions	2021	2020	Change
Floaters	—	355	(100)%
Jack-up rigs	—	172	(100)%
Other	—	96	(100)%
Total operating revenues	—	623	(100)%

Total operating revenues were ### for the three months ended December 31, 2021, compared to ### for the three months ended December 31, 2020, ### of ### or ###. Total operating revenues are predominantly contract revenues with additional amounts of reimbursable and other revenues. The decrease was mainly attributable to disposal of two floaters to Seadrill Partners and five Jack-ups to SeaMex, since December 31, 2020 in addition to a certain rigs being stacked as well as reduction in the day rates of rigs under contract. This decrease was partially offset by addition of four new floaters which started operation during the same period.

Total operating revenues in the floaters segment were ### for the three months ended December 31, 2021 compared to ### for the three months ended December 31, 2020, ### of ### or ### despite an ### in the number of drilling units in the floaters segment to ### as of December 31, 2021 from ### at December 31, 2020. The decrease in operating revenues in the floaters segment was primarily due to the sale of West Polaris on June 19, 2015 and West Vela on November 4, 2014, both to Seadrill Partners. Further decrease has resulted from completion of customer contracts and subsequent stacking of certain rigs since December 31, 2020 mainly West Navigator, West Taurus and West Eclipse. Reduction in dayrates of certain rigs also contributed to this decline, primarily from West Alpha. This decrease was partially offset by the addition of three new drilling units in late 2014: West Neptune, West Saturn and West Jupiter, in addition to West Carina which started operations in June 2015.

Total operating revenues in the jack-up rigs segment were ### for the three months ended December 31, 2021 compared to ### for the three months ended December 31, 2020, ### of ### or ###. This was mainly attributable to the completion of customer contracts and subsequent stacking of certain rigs since December 31, 2020 mainly West Leda, West Resolute and West Vigilant. A further decrease resulted from ### the number of drilling units in the Jack-up segment to ### as of December 31, 2021 from ### at December 31, 2020 primarily due to the disposal of five Jack-up rigs West Titania, West Oberon, West Defender, West Courageous and West Intrepid to SeaMex Limited in March 2015.

'Other' revenues predominately represents management fee income for the provision of management services to third and related parties. ###

For the three months ended December 31, 2021 we recorded a ### on disposals of ### (Three months ended December 31, 2020: ###) mainly resulting from disposal of West Mira. Refer to Note 8 - Gain / (Loss) on disposals forming part of the this interim report, for further details.### For the three months ended December 31, 2021 we realized contingent considerations of ### (Three months ended December 31, 2020: ###) primarily related to the disposal of West Polaris. Total operating expenses

	Three months ended December 31,
In US$ millions	2021	2020	Change
Floaters	265	#REF!	—%
Jack-up rigs	95	#REF!	—%
Other	43	#REF!	—%
Total operating expenses	403	#REF!	—%

Total operating expenses were ### for the three months ended December 31, 2021 compared to ### for the three months ended December 31, 2020, ### of ###, or ###. Total operating expenses consist of vessel and rig operating expenses, depreciation and amortization, loss on goodwill impairment, reimbursable expenses and general and administrative expenses. The increase in total operating expenses was mainly due to an impairment of goodwill (relating to the floaters segment) recorded in the quarter, amounting to ###. This increase was partially offset by cost savings in general and administrative category and decrease in number of rigs in operation. For further details about goodwill impairment, refer to "Critical Accounting Estimates" section in this document and Note 11 - Goodwill, forming part of this interim report.

Total operating expenses for the floaters operating segment were ### for the three months ended December 31, 2021 compared to ### for the three months ended December 31, 2020, ### of ###, or ###. This is mainly related to an impairment of goodwill recorded in the quarter, amounting to ### together with the addition of three new rigs towards the end of 2014 (West Neptune, West Saturn and West Jupiter) in addition to West Carina which started operations in June 2015. The increase in operating expenses in the floaters segment was partially offset by the sale of West Polaris on June 19, 2015 and West Vela on November 4, 2014 together with the impact from completion of customer contracts and subsequent stacking of certain rigs since December 31, 2020 mainly West Navigator, West Taurus and West Eclipse.

Total operating expenses for the jack-up rigs operating segment were ### for the three months ended December 31, 2021 compared to ### for the three months ended December 31, 2020, ### of ###, or ###. Operating costs mainly decreased due to the completion of customer contracts and subsequent stacking of certain rigs since December 31, 2020 mainly West Leda, West Resolute and West Vigilant. The decrease in the number of rigs in operation also contributed to the decrease in operating expenses, which was primarily due to the disposal of five Jack-up rigs West Titania, West Oberon, West Defender, West Courageous and West Intrepid to SeaMex Limited in March 2015.

'Other' expenses predominately relate to costs associated with the provision of management services to third and related parties.

Interest expense

Interest expense was ### for the three months ended December 31, 2021 compared to ### for the three months ended December 31, 2020, ### of ###, or ###. The decrease is primarily due to the reduction in interest bearing debt.

Other financial items

Other financial items reported in the income statement include the following items:

	Three months ended December 31,
In US$ millions	2021	2020
Interest income	21	22
Share in results from associated companies (net of tax)	(73)	(17)
Loss on impairment of investments	—	—
(Loss)/Gain on derivative financial instruments	(34)	3
Gain on debt extinguishment	—	—
(Loss)/Gain on foreign exchange	(1)	(3)
Other financial items and other income and expense, net	—	(3)
Total other financial items	(87)	2

Interest income was ### for the three months ended December 31, 2021 compared to ### for the three months ended December 31, 2020, ### of ###, or ###. Interest income for the three months ended December 31, 2021 primarily comprised of interest earned on loans granted to SeaMex in addition to interest earned on restricted cash balances.

During the three months ended December 31, 2021 the Company recorded a loss on impairment of investments of ###. The reduction in value of the Seadrill Partners common units was determined to be an indicator of impairment of the Seadrill member interest. The fair value of equity method investments was determined using the Monte Carlo model, updated for applicable assumptions as at September 30, 2015 and compared with the carrying value of investments as at the same date. Whereas, the carrying value of marketable securities was reduced to the current market price and related unrealized losses were written of to the income statement. The reduction in value of the Seadrill Partners common units was also determined to be an indicator of impairment of Seadrill's investment in associated companies. Refer to Notes 7 and 8, forming part of this interim report, for further details.

The table below summarizes the total impairments made during the three months ended December 31, 2021:

(In $ millions)
three months ended September 30, 2015
Impairments of Investment in associated companies
Seadrill Partners - Total direct ownership investments —
Seadrill Partners - Subordinated units —
Seadrill Partners - Seadrill member interest and IDRs —
Total impairment of investments in associated companies —
Impairments of Marketable securities
Seadrill Partners - Common Units - OCI —
SapuraKencana —
Total impairment of marketable securities investments (reclassification from OCI) —
Total impairment of investments —

The ### on derivative financial instruments was ### for the three months ended December 31, 2021 compared to a ### of ### for the three months ended December 31, 2020. The loss in 2015 mainly related to a loss of $107 million on our interest rate swap agreements and a loss of $49 million on our cross currency interest swaps due to unfavorable movement in swap interest rates during the year together with a loss on our TRS agreements of $15 million. Losses in 2014 were mainly related to a loss of $18 million on our cross currency interest rate swap agreements; loss on our TRS agreements of $45 million; and losses on foreign exchange swap agreements of $40 million, which were partially offset by gains on interest rate Swaps of $24 million.

Foreign exchange ### amounted to ### for the three months ended December 31, 2021 compared to ### of ### for the three months ended December 31, 2020. The gain in 2014 was mainly due to the revaluation of our NOK and SEK denominated bonds to the US dollar and was favorable due to the weakening of NOK and SEK compared to the US Dollar.

Included in the results for the three months ended December 31, 2021 is ### on debt extinguishment of ### as compared to a net ### of ### for the three months ended December 31, 2020. The loss in 2014 primarily related to the extinguishment of the Company's convertible bond resulting from an incentive payment made to the bondholders.

Income taxes

Income tax expense was ### for the three months ended December 31, 2021 compared to ### for the three months ended December 31, 2020. The decrease was mainly due to changes in uncertain tax positions taken in prior periods that were recognized during the year ended December 31, 2014. Our effective tax rate was approximately 1% for the year ended December 31, 2014 as compared to 5% for the year ended December 31, 2013. The decrease in the effective rate is principally due to the non-taxable gain on deconsolidation of Seadrill Partners.

Certain of the Company's Norwegian subsidiaries have been party to an ongoing dispute to a tax reassessment issued in October 2011 by the Norwegian tax authorities in regards to the transfer of certain legal entities to a different tax jurisdiction and the principles for conversion of functional currency. In April 2014 these subsidiaries entered into a settlement agreement with the Norwegian tax authorities resulting in discontinued legal proceedings in the Oslo District Court. The terms of the settlement agreement included the Company making a cash payment to the tax authorities for settlement of revised reassessments agreed between the parties. Following settlement of the uncertainties arising from these matters, we recognized a $94 million positive impact on our second quarter 2014 effective tax rate.

Significant amounts of our income and costs are reported in non-taxable jurisdictions such as Bermuda. The drilling rig operations are normally carried out in taxable jurisdictions. In the tax jurisdictions where we operate, the corporate income tax rates range from 17% to 35% for earned income and the deemed tax rates vary from 4% to 10% of revenues. Further, losses in one tax jurisdiction may not be offset against taxable income in other jurisdictions. Accordingly, our effective tax rate may differ significantly from period to period depending on the level of activity in and mix of each of tax jurisdictions in which our operations are conducted.

###, net

The net unrealized gain/loss at December 31, 2021 was nil, compared to a gain of 31 million at December 31, 2020, presented in the statement of total comprehensive income. The unrealized loss in 2014 was a result of reductions in the market capitalization of Seadrill Partners and Sapura Energy Berhad. During 2015, these losses are considered other than temporary and have been realized in to the Statement of Operations as Impairment on investments.

Liquidity and Capital Resources

1) Introduction

We operate in a capital-intensive industry. We have historically funded acquisitions of drilling units and investments in associated companies through a combination of debt and equity issuances and from cash generated from operations. Although we restructured our debt through the Chapter 11 Reorganization, we remain a highly leveraged company with outstanding borrowings on our external debt facilities totaling $6.2 billion as at December 31, 2021.# Liquidity and Capital Resources

Our liquidity requirements relate to servicing and repaying our debt, making capital investments, funding working capital requirements and maintaining adequate cash reserves to mitigate the effects of fluctuations in operating cash flows. Most of our contract and other revenues are received between 30 and 60 days in arrears, and most of our operating costs are paid monthly. We have historically relied on our cash generated from operations to meet our short-term liquidity needs. Our debt agreements contain cross-default provisions (or, in certain instances, cross-acceleration provisions), meaning that if we are in default under one of our debt agreements, amounts outstanding under our other debt agreements may also be in default, accelerated and become due and payable. In addition, we have provided guarantees over certain debt facilities of our affiliates and related companies, and the lenders under such facilities could look to us to meet such liabilities if such affiliates and related companies are unable to meet their obligations. If any of these events occur, we may not be able to satisfy our obligations and our ability to continue our operations or generate adequate cash flow in the future could be impaired. We had previously been engaged in discussions with our secured lenders regarding potential amendments to our credit facilities that would have provided operational flexibility and additional near-term liquidity by, among other things, converting certain interest payments under our credit facilities to payment-in-kind (“PIK”) interest and deferring certain scheduled amortization payments (or increasing the aggregate amount of such payments that may be converted to loans payable at the final scheduled maturity date of the relevant facility pursuant to the amortization conversion election provisions contained in the facility agreements). Our debt service is anticipated to be primarily comprised of interest through at least Q1 2021 because our facility agreements contain certain provisions that allow us to elect to defer and convert up to $500 million in the aggregate of scheduled amortization payments under certain of our credit facilities. We have already elected to use a portion of this capacity with respect to the scheduled amortization installments under our credit facilities occurring in Q1, Q2 and Q3 2020. We intend to continue exercising this option for each subsequent scheduled amortization payment date until such capacity is fully utilized; however, we cannot guarantee that we will be able to satisfy the conditions set forth in the facility agreements in order to be able to do so. We have also forecasted that we will not be able to meet the requirements under our ongoing liquidity financial covenant contained in the facility agreements within a twelve-month period following the date of this report and had requested consent for certain liquidity enhancing measures in order to mitigate this. Failure to comply with such liquidity requirements could result in a default under the terms of our facility agreements if we are unable to obtain a waiver or amendment from our lenders for such non-compliance. We had also requested that our lenders consent to an extension of the periods before which we are required to comply with the net leverage and debt service coverage financial covenants in our facility agreements because we currently anticipate that we will not be able to meet these requirements when such covenants begin to be tested at the end of Q1 2021. If we are unable to comply with the net leverage and debt service covenants in our debt agreements between Q1 2021 and Q4 2021 this will lead to an interest margin increase of up to 100 bps in the form of PIK interest. However, this does not constitute an event of default. Whilst substantial support was indicated by our secured lenders for the consents discussed above, as certain of the amendments impacting economic terms required 100% approval across 43 institutions, recent market uncertainties had prevented a coalescing of views. As a consequence, Seadrill decided not to proceed with the bank consent and has retained financial and legal advisors to prepare for a comprehensive restructuring of the balance sheet. With the help of these advisors, we have engaged in negotiations with our lenders surrounding a comprehensive restructuring. Whilst we continue to evaluate various alternatives to address the cost of debt service and overall volume of debt, we anticipate that a comprehensive restructuring will require the use of an in-court process and may require a substantial conversion of our indebtedness to equity. As of June 30, 2020, Seadrill had $1.0 billion of cash which we believe provides sufficient liquidity to complete a comprehensive restructuring process. However, until such time that an agreement is reached to restructure our borrowing commitments, substantial doubt remains over our ability to continue as a going concern. Our business operations remain unaffected by the negotiations and related contingency planning efforts, and we expect to meet our ongoing customer and business counterparty obligations as they become due. Our funding and treasury activities are conducted in accordance with our corporate policies, which aim to maximize returns while maintaining appropriate liquidity for our operating requirements. Cash and cash equivalents are held mainly in U.S. dollars, with lesser amounts held in Norwegian Kroner, Brazilian Reais and Great British Pounds. This section discusses the most important factors affecting our liquidity and capital resources.

2) Liquidity

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

As at December 31, 2021	As at December 31, 2020
Cash and cash equivalents	312
Restricted cash	223
Cash and cash equivalents, including restricted cash	535

(In $ millions)

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

	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Cash flows from operating activities (a)	—	(420)
Cash flows from investing activities (b)	—	(32)
Cash flows from financing activities (c)	—	(163)
Effect of exchange rate changes in cash and cash equivalents	—	(19)
Change in period	—	(634)

(In $ millions)

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

	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Opening cash and cash equivalents, included restricted	—	1,357
Change in period	—	(634)
Closing cash and cash equivalents, included restricted	—	723

a) Cash flows from operating activities

Cash flows from operating activities can include cash receipts from customers, cash paid to employees and suppliers (except for capital expenditure), interest and dividends received (except for returns of capital), interest paid, income taxes paid and other operating cash payments and receipts. We calculate cash flows from operating activities using the indirect method as summarized in the below table.

	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Net loss	—	(4,663)
Adjustments to reconcile net loss to net cash provided by operating activities(1)	4,854	434
Net loss after adjustments	4,854	(4,229)
Distributions received from associated company	—	2
Payments for long-term maintenance	—	(121)
Settlement of payment-in-kind interest on Senior Secured Notes	—	—
Changes in operating assets and liabilities	(4,854)	3,928
Net cash flows used in operating activities	—	(420)
(1) Includes depreciation, amortization, share of results of joint ventures and associates, impairment of investments, impairment of long-lived assets, unrealized gains and losses on derivatives, unrealized gains and losses on marketable securities, deferred tax expense and other non-cash items shown under the sub-heading "adjustments to reconcile net loss to net cash provided by operating activities" in the Consolidated Statements of Cash Flows presented in the Consolidated Financial Statements included in this report.

Market conditions in the offshore drilling industry in recent years have led to lower levels of spending for offshore exploration and development. This has negatively affected our revenues, profitability and operating cash flows. During the twelve months ended December 31, 2021 and six months ended June 30, 2019 our cash flows from operating activities were negative, as cash receipts from customers from all segments were insufficient to cover operating costs, payments for long-term maintenance of our rigs, interest payments and tax payments.

b) Cash flows from investing activities

Net cash flows from investing activities for the twelve months ended December 31, 2021 were primarily from capital expenditures, purchase of non-controlling interest shares and additional funding provided to SeaMex. This is offset by contingent consideration receipts from Seadrill Partners from the sale of the drillship West Vela in 2015 and amounts received on loans due from Seabras Sapura. Net cash flows from investing activities for the six months ended June 30, 2019 were primarily generated by capital expenditures, offset by contingent consideration receipts from Seadrill Partners.

c) Cash flows from financing activities

Net cash flows from financing activities for the twelve months ended December 31, 2021 was driven by debt amortization payments related to debt facilities held by consolidated variable interest entities.# Net cash flows from financing activities for the six months ended June 30, 2019 were primarily driven by the purchase of the senior secured notes in April 2019 and repayments of debt for our consolidated variable interest entities. Cash flows from investing activities can include purchases and sales of newbuildings, drilling units and equipment, investments and sales of investments in unconsolidated entities, cash flows from purchases and sales of debt or marketable securities and certain cash flows from business combinations. Cash flows from financing activities can include proceeds from issue of new equity and payment of cash dividends, proceeds from issuing debt and repayments of debt, payment of debt issue costs, purchases of treasury shares, proceeds from exercise of stock options and cash flows from transactions with non-controlling interests.

Cash Flows

Net cash used in / provided by operating activities
Net cash ### operating activities was ### for the period from July 2, 2018 through December 31, 2018 (Successor), ### for the period from January 1, 2018 through July 1, 2018 (Predecessor) and net cash provided by operating activities was ### for the twelve months ended December 31, 2020 (Predecessor).

Net cash provided by investing activities
Net cash ### investing activities was ### for the for period from July 2, 2018 through December 31, 2018 (Successor). This cash was primarily generated from the proceeds from Sapura Kencana contingent consideration, proceeds from Seadrill Partners for contingent consideration with regard to the West Vela, offset by capital expenditure. Net cash provided by investing activities was ### for the period from January 1, 2018 through July 1, 2018 (Predecessor) which was driven by our share of proceeds from the sale of the West Rigel, proceeds from Seadrill Partners for contingent consideration with regard to the West Vela and payments received from loans granted to Seadrill Partners, offset by capital expenditure. Net cash ### investing activities for the twelve months ended December 31, 2020 (Predecessor) was ### driven by the settlement of the West Mira construction contract, sale of the West Resolute, West Mischief and West Triton, proceeds from Seadrill Partners for contingent consideration related to the West Vela and West Polaris, payments of interest and remaining principal on loans granted to Seadrill Partners and Sevan Developer yard installment refunds, offset by capital expenditures and a payment to remove guarantees on Archer debt.

Net cash used in / provided by financing activities
Net cash used in financing activities were ### for the period from July 2, 2018 through December 31, 2018 (Successor) for repayments of debt. Net cash ### financing activities during the period from January 1, 2018 through July 1, 2018 (Predecessor) was ### which is driven by proceeds from debt and revolving lines of credit and assurance of shares following emergence from Chapter 11, offset by repayments of debt and debt fees paid. Net cash ### financing activities during the twelve months ended December 31, 2020 (Predecessor) was ### reflecting repayments of debt and revolving lines of credit and debt fees paid.

Borrowing Activities

The total carrying values of outstanding debt as at September 30, 2018 (Successor) and December 31, 2017 (Predecessor) were as follows:

Outstanding debt as at December 31, 2021 (Successor)

	Principal outstanding	Less: Discount on debt (1)	Less: Debt Issuance Costs	Total Debt including related party
Debt due within one year	200	(35)	—	165
Long-term debt	7,065	(146)	—	6,919
Total external debt	7,265	(181)	—	7,084
Debt due to related parties	314	(91)	—	223
Total outstanding debt	7,579	(272)	—	7,307

(1) Discount on debt comprise fair value adjustments recognized on emergence from Chapter 11 of $283 million, offset by $11 million of unwinding for the period of July 2, 2018 to September 30, 2018

Outstanding debt as at December 31, 2017 (Predecessor)

	Principal outstanding	Less: Discount on debt	Less: Debt Issuance Costs	Total Debt including related party
Debt due within one year	511	—	(2)	509
Long-term debt	485	—	—	485
Debt held as subject to compromise	7,705	—	—	7,705
Total external debt	8,701	—	(2)	8,699
Debt due to related parties	314	—	—	314
Total outstanding debt	9,015	—	(2)	9,013

Fresh start accounting

On emergence from Chapter 11 and application of fresh start accounting, we recorded fair value adjustments against our debt, which reduced its carrying value by $283 million, and wrote-off any previously capitalized debt issue costs and discounts. In addition, during bankruptcy proceedings we recorded interest payments on secured debt facilities held within "Liabilities subject to compromise" as reductions on the principal amount of the debt outstanding. On emergence from Chapter 11 we expensed $186 million of these interest payments. We classified these expenses within reorganization items in the period January 1, 2018 to July 1, 2018 (Predecessor).

Key terms of borrowing facilities

The below table summarizes the key terms of our borrowing facilities at September 30, 2018.

(In $ millions)

	Maturity	Installments to be paid before maturity	Final Repayment	Total
Credit facilities:
$400m facility	4Q 2022	51	84	135
$2,000m facility	1Q 2023	268	640	908
$440m facility	3Q 2023	24	40	64
$1,450m facility	4Q 2023	87	235	322
$360m facility (Asia Offshore Drilling)	4Q 2023	78	132	210
$300m facility	1Q 2024	48	96	144
$1,750m facility	1Q 2024	316	559	875
$450m facility	4Q 2024	60	205	265
$1,500m facility	4Q 2024	355	770	1,125
$1,350m facility	4Q 2024	351	594	945
$950m facility	4Q 2024	207	359	566
$450m facility (2015)	4Q 2024	63	40	103
Total credit facilities		1,908	3,754	5,662
New Secured Notes:
$880m Senior Secured Notes	3Q 2025	—	890	890
Total New Secured Notes		—	890	890
*Credit facilities within VIEs:**
$390m facility	4Q 2022	64	145	209
$375m facility	2Q 2023	82	149	231
$475m facility	2Q 2023	93	180	273
Total credit facilities within VIEs		239	474	713
Total external debt				7,265
*Related party debt within VIEs:**
$290m facility	4Q 2023	—	113	113
$145m facility	4Q 2023	—	80	80
$195m facility	2Q 2029	—	121	121
Total related party debt within VIEs		—	314	314
Total outstanding debt				7,579

*Debt contained within VIEs includes third party debt of the Ship Finance entities that we consolidate as variable interest entities plus related party loans from Ship Finance to those variable interest entities.

Key changes to borrowing facilities

Senior credit facilities

The terms our senior credit facilities were amended when we emerged from Chapter 11 as follows:
* Amortization payments on our debt facilities were deferred until 2020;
* Maturities on our senior credit facilities extended to fall due between June 2022 and December 2024; and,
* 1% increase in margin.

Unsecured bonds

The unsecured bonds were extinguished when we emerged from Chapter 11.

New Secured Notes

On July 2, 2018, we issued $880 million of 12.00% senior secured notes due in 2025. The notes bear interest at the annual rate of 4.00% payable in cash plus at the annual rate of 8.00% payable in kind. The principal amount shown in the above table includes the initial $880 million principal value of the notes plus $10 million of payment-in-kind interest that was compounded into the principal on emergence from Chapter 11. Per the terms of the New Secured Notes, we were required to redeem a proportion of the principal and interest outstanding on the notes using our share of the West Rigel sale proceeds. We received $126 million proceeds from the sale of the West Rigel on May 9, 2018 and used this to make a mandatory redemption of $121 million of principal and $5 million of accrued interest on November 1, 2018. We were also required to make an offer to repurchase a proportion of the New Secured Notes using proceeds from a deferred consideration arrangement relating to the sale of our tender rig business to Sapura Energy in 2013. We made an offer to purchase up to $56 million of the New Secured Notes on October 10, 2018. On expiry of the offer, $0.1 million in aggregate principal amount of the notes were validly tendered. We accepted and made payment for the tendered notes on November 14, 2018.

Collateral

Our secured credit facilities are secured by, among other things, liens on our drilling units. All of our loan agreements contain cross- default provisions, meaning that if we defaulted and amounts became due and payable under one of our loan agreements, this would trigger a cross-default in our other facilities so that amounts outstanding under our other loan agreements become due and payable and capable of being accelerated. The New Secured Notes are secured by, among other things, our investments in Seadrill Partners, SeaMex and Seabras Sapura.

Covenants contained in our debt facilities

Following emergence from Chapter 11, except for minimum liquidity requirements, we are exempt from financial covenants until Q1 2021. Thereafter, in addition to minimum liquidity requirements we are required to maintain and satisfy certain financial ratios and covenants, relating to net leverage and debt service coverage. Please refer to ### "Debt" of the unaudited interim financial statements included herein for detailed information on our borrowings and credit facilities.

We operate in a capital-intensive industry. Historically our investments in newbuildings, secondhand drilling units and acquisitions of other companies have been financed through borrowings from commercial banks and export credit agencies, cash generated from operations, and a combination of equity, bond and convertible bond offerings. Our funding and treasury activities are conducted within corporate policies to maximize returns while maintaining appropriate liquidity for our operating requirements.# Cash and cash equivalents and cash flows

Cash and cash equivalents are held mainly in US dollars, with lesser amounts held in Norwegian Kroner, Malaysian Ringgit, British Pounds and Brazilian Reais. Our liquidity requirements relate to servicing and repaying debt, funding investment in drilling units, funding working capital requirements and maintaining adequate cash reserves to mitigate the effects of fluctuations in operating cash flows. Most of our contract and other revenues are generally received between 30 and 60 days in arrears, and most of our operating costs are paid on a monthly basis. 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 RSA and Investment Agreement, we commenced Chapter 11 proceedings under the Bankruptcy Code on September 12, 2017. In our Form 20-F for the year ended December 31, 2017, 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 $1.08 billion in 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 $2.1 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 next twelve months following the date of issue of the financial statements. The financial information included herein has been prepared on the basis that we will continue as a going concern, which presumes that we will be able to realize our assets and discharge our liabilities in the normal course of business as they come due.

The following tables summarize our cash and cash equivalents for the periods presented and our net cash flows from operating, investing and financing activities:

Successor	December 31, 2021	Predecessor
Cash and cash equivalents	1,542	1,255
Restricted cash	461	104
Cash and cash equivalents, including restricted cash	2,003	1,359

Successor	Period from July 2, 2018 through December 31, 2018	Period from January 1, 2018 through July 1, 2018	Twelve months ended December 31, 2020
Net cash flows used in operating activities	(26)	(76)	399
Net cash provided by investing activities	61	149	358
Net cash (used in)/provided by financing activities	(208)	887	(846)
Effect of exchange rate changes on cash	(1)	(6)	5
Net (decrease)/increase in cash and cash equivalents, including restricted cash	(174)	818	#REF!
Cash and cash equivalents, including restricted cash, at beginning of the period	2,177	1,288	1,443
Cash and cash equivalents, including restricted cash, at the end of period	2,003	2,177	1,359

Net cash used in / provided by operating activities

Cash flows from operating activities include cash receipts from customers, cash paid to employees and suppliers (except for capital expenditure), interest and dividends received (except for returns of capital), interest paid, income taxes paid and other operating cash payments and receipts. We calculate cash flows from operating activities using the indirect method as summarized in the below table.

Successor	Period from July 2, 2018 through December 31, 2018	Period from January 1, 2018 through July 1, 2018	Twelve months ended December 31, 2020
Net loss	(605)	(3,885)	(3,102)
Add back: non-cash items	509	3,998	3,642
Net loss, excluding non-cash items	(96)	113	540
Payments for long-term maintenance	(71)	(114)	(58)
Changes in operating assets and liabilities	141	(75)	(83)
Net cash flows used in operating activities	(26)	(76)	399

Net cash provided by investing activities

Cash flows from investing activities include purchases and sales of newbuildings, drilling units and equipment, investments and sales of investments in unconsolidated entities, cash flows from purchases and sales of debt or marketable securities and certain cash flows from business combinations. Net cash ### investing activities for the period from July 2, 2018 through December 31, 2018 (Successor) was primarily generated from the proceeds from Sapura Kencana contingent consideration and proceeds from Seadrill Partners for contingent consideration with regard to the West Vela, offset by capital expenditure. Net cash provided by investing activities for the period from January 1, 2018 through July 1, 2018 (Predecessor) was driven by our share of proceeds from the sale of the West Rigel and proceeds from Seadrill Partners for contingent consideration with regard to the West Vela and West Polaris and payments received from loans granted to Seadrill Partners, offset by capital expenditure. Net cash ### investing activities for the twelve months ended December 31, 2020 (Predecessor) was driven by the settlement of the West Mira construction contract, sale of the West Resolute, West Mischief and West Triton, proceeds from Seadrill Partners for contingent consideration related to the West Vela and West Polaris and payments of interest and remaining principal on loans granted to Seadrill Partners and Sevan Developer yard installment refunds, offset by capital expenditures and a payment to remove guarantees on Archer debt.

Net cash used in / provided by financing activities

Cash flows from financing activities include proceeds from issue of new equity and payment of cash dividends, proceeds from issuing debt and repayments of debt, payment of debt issue costs, purchases of treasury shares, proceeds from exercise of stock options and cash flows from transactions with non-controlling interests. Net cash used in financing activities for the period from July 2, 2018 through December 31, 2018 (Successor) was for repayments of debt. Net cash ### financing activities during the period from January 1, 2018 through July 1, 2018 (Predecessor) was driven by proceeds from issue of New Secured Notes and new equity on emergence from Chapter 11, offset by repayments of debt and debt fees paid. Net cash ### financing activities during the twelve months ended December 31, 2020 (Predecessor) was for repayments of debt and revolving lines of credit and debt fees paid.

Contractual Obligations

At December 31, 2021, we had the following contractual obligations and commitments:

Payment due by period	2021	2022 - 2023	2024 - 2025	Thereafter	Total
Interest-bearing debt (1) (2) (3)	—	—	—	—	—
Related party interest-bearing debt	—	—	193	121	314
Total debt repayments	—	—	193	121	314
Pension obligations (4)	2	5	5	12	24
Operating lease obligations	—	—	#VALUE!	—	#VALUE!
Total contractual obligations	2	5	#VALUE!	133	#VALUE!

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

(2) The above table assumes that we will make amortization payments on our secured credit facilities from September 2020. Per the terms of our senior secured credit facilities, we can elect to defer up to $500 million of amortization payments until 2021 through the initiation of new loans. In November 2019, we made the election to defer $63 million of balances that would have otherwise fallen due in the quarter ended March 2020. In March 2020, we elected to defer a further $74 million that would have otherwise fallen due in the current quarter and in June 2020 we elected to defer a further $111m that would otherwise have fallen due in the quarter ended September 30, 2020. This leaves a remaining $252 million to be deferred in future periods. If we defer the remaining balance then the amounts due in the year ended June 30, 2021 will reduce to $168 million.

(3) Our secured credit facilities are subject to a minimum liquidity requirement for the Group, which is measured at RigCo Group level. If breached, this would cause our debt obligations to become due prior to their contractual maturities.

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

In addition to the above, as of December 31, 2021 we have recognized liabilities for uncertain tax positions of , inclusive of interest and penalties.

Quantitative and Qualitative Disclosures About Market Risk

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

Credit risk

We have financial assets, including cash and cash equivalents, marketable securities, other receivables and certain amounts receivable on derivative instruments. These assets expose us to credit risk arising from possible default by the counterparty. Most of our counterparties are creditworthy financial institutions or large oil and gas companies. We do not expect any significant loss to result from non- performance by such counterparties. However, we are exposed to a higher level of credit risk on certain related party receivable balances. We do not demand collateral in the normal course of business.The credit exposure of derivative financial instruments is represented by the fair value of contracts with a positive fair value at the end of each period, adjusted for our non-performance credit risk assumption.

Concentration of Risk

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

Foreign Exchange Risk

As is customary in the oil and gas industry, most of our revenues and expenses are denominated in U.S. dollars, which is the functional currency of most of our subsidiaries and equity method investees. However, a portion of the revenues and expenses of certain of our subsidiaries and equity method investees are denominated in other currencies. We are therefore exposed to foreign exchange gains and losses that may arise on the revaluation or settlement of monetary balances denominated in foreign currencies. Our foreign exchange exposure primarily relates to foreign denominated cash and working capital balances. Historically, these exposures have not caused a significant amount of fluctuation in net income or cash flows and therefore we have not hedged them.

Interest Rate Risk

Our exposure to interest rate risk relates mainly to our floating rate debt and balances of surplus funds placed with financial institutions. We manage this risk through the use of derivative arrangements. On May 11, 2018, we purchased an interest rate cap for $68 million to mitigate our exposure to future increases in LIBOR on our Senior Credit Facility debt. The interest rate cap is not designated as a hedge and we do not apply hedge accounting. The capped rate against the 3-month US LIBOR is 2.87% and covers the period from June 15, 2018 to June 15, 2023. We have set out our exposure to interest rate risk on our net debt obligations at December 31, 2021 in the table below:

(In $ millions)

	Principal	Hedging instruments	Total	Impact of 1% increase in rates
Senior Credit Facilities	5,662	(4,500)	1,162	12
Ineffective portion of interest rate cap (1)	—	4,500	4,500	45
Debt contained within VIEs	—	—	6	6
Debt exposed to interest rate fluctuations	5,662	—	5,662	63
Less: Cash and Restricted Cash	—	—	(10)
Net debt exposed to interest rate fluctuations (2)	5,662	—	5,662	53

(1) The 3-month LIBOR rate as at December 31, 2021 was 0.30%. As this rate was more than 1% below the 2.87% cap rate, the interest cap would not mitigate any impact of a theoretical 1% point increase in LIBOR.
(2) The $581 million of Senior Secured Notes are a fixed rate debt instrument and are therefore excluded from the above table.

Critical Accounting Estimates

The preparation of the Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures about contingent assets and liabilities. We base these estimates and assumptions on historical experience and on various other information and assumptions that we believe to be reasonable. Critical accounting estimates are important to the portrayal of both our financial position and results of operations and require us to make subjective or complex assumptions or estimates about matters that are uncertain. The basis of preparation and significant accounting policies are disclosed in our annual report on Form 20-F. Critical accounting estimates that have significantly impacted the twelve months ended December 31, 2021 are as follows:

Drilling Units

Generally, the carrying amount of our drilling units including rigs, vessels and related equipment are recorded at historical cost less accumulated depreciation. However, drilling units acquired through a business combination or remeasured through the application of fresh start accounting are measured at fair value as of the date of acquisition or the date of emergence, respectively. Our drilling units are subject to various estimates, assumptions, and judgments related to capitalized costs, useful lives and residual values, and impairments. Our estimates, assumptions, and judgments reflect both historical experience and expectations regarding future operations, utilization and performance. At December 31, 2021, the carrying amount of our drilling units was close to $5 billion, representing 70% of our total assets.

Useful lives and residual value

The cost of our drilling units less estimated residual value is depreciated on a straight-line basis over their estimated remaining useful lives. The estimated useful life of our semi-submersible drilling rigs, drillships and jack-up rigs, when new, is 30 years. The useful lives of rigs and related equipment are difficult to estimate due to a variety of factors, including technological advances that impact the methods or cost of oil and gas exploration and development, changes in market or economic conditions and changes in laws or regulations affecting the drilling industry. We re-evaluate the remaining useful lives of our drilling units as and when events occur which may directly impact our assessment of their remaining useful lives. This includes changes in the operating condition or functional capability of our rigs as well as market and economic factors. The use of different estimates, assumptions and judgments in establishing estimated useful lives and residual values could result in significantly different carrying values for our drilling units which could materially affect our results of operations.

Impairment considerations

The carrying values of our long-lived assets are reviewed for impairment when certain triggering events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Asset impairment evaluations are, by nature, highly subjective. They involve expectations about future cash flows generated by our assets and reflect management’s assumptions and judgments regarding future industry conditions and their effect on future utilization levels, dayrates and costs. The use of different estimates and assumptions could result in significantly different carrying values of our assets and could materially affect our results of operations. An impairment loss is recorded in the period in which it is determined that the aggregate carrying amount is not recoverable. With regard to our older drilling units, which have relatively short remaining estimated useful lives, the results of impairment tests are particularly sensitive to management’s assumptions. These assumptions include the likelihood of the unit obtaining a contract upon the expiration of any current contract, and our intention for the drilling unit should no contract be obtained, including warm/cold stacking or scrapping. The use of different assumptions in the future could potentially result in an impairment of older drilling units, which could materially affect our results of operations. In the three months ended December 31, 2021, no indicators of impairment were identified against our drilling units.

Impairment recognized and methodology - first quarter 2020

During the first quarter of 2020 there was a significant decrease in the price of oil due to the actions of OPEC and its partners combined with the global impact of the COVID-19 pandemic, with Brent Oil reaching a low of $22 per barrel on March 30, 2020. The impact of these events on the drilling market has had an impact on our industry with expected decreases in utilization going forward and downward pressure on dayrates. We therefore concluded that an impairment triggering event had occurred for our drilling unit fleet in the three months ended March 31, 2020. We assessed recoverability of our drilling units by first evaluating the estimated undiscounted future net cash flows based on a number of assumptions, including projected dayrates, utilization of the units, operating costs, maintenance costs, reactivation costs, likelihoods of any required scrapping activity, and applicable tax rates. These assumptions are necessarily subjective and the use of different assumptions could produce results that differ from those reported. These include uncertainties over future demand for services, dayrates, expenses and other market-based future events, and expectations may not be indicative of future outcomes. Our estimate of fair value generally requires us to use significant unobservable inputs, therefore making it a Level 3 fair value measurement. Given the material change in the macro environment we also assessed whether the continued cold stacking of assets and the associated reactivation costs would produce a sufficient return to justify the investment. These evaluations were factored into the scrapping probabilities referenced above. There is significant uncertainty regarding the timing or extent of any market recovery. Altering the dayrate and other assumptions used in our cash flow forecasts could have led to significantly different estimated fair values. As a result, the assessment as to whether an asset should have been impaired or otherwise was dependent on the timing of assessment and market expectations at that time. As the long- range outcomes are unpredictable due to this volatility, it is not possible to reasonably quantify the impact of changes in the assumptions used in our projected cash flows. As at March 31, 2020, the undiscounted future net cash flows were not greater than the carrying values for seven of our drilling units; this led to an impairment of the rig carrying value.Following an assessment of recoverability, utilizing a discounted cash flow model incorporating assumptions as noted above and a weighted average cost of capital of 12.8%, we recorded an impairment charge of $137 million. We recognized the impairment within “Impairment of long-lived assets” in our Consolidated Statement of Operations for the three months ended March 31, 2020.

Impairment of Equity Method Investment in Seadrill Partners

Overview

Seadrill Partners is an international offshore drilling contractor formed in 2012. It has a fleet of 11 drilling units. This comprises 4 drillships, 4 semi-submersible rigs and 3 tender rigs. All the rigs were acquired from Seadrill between 2012 to 2015. Seadrill is responsible for managing, marketing and operating the rigs and charges SDLP a management fee for these services.

Seadrill Partners has issued 3 categories of equity instrument. This includes two classes of stock (“common units” and “subordinated units”) and incentive distribution rights (“IDRs”). We have several investments in Seadrill Partners. These include (i) 35% of the common units (2.6 million out of 7.5 million total units); (ii) 100% of the subordinated units (1.6 million units); and (iii) 100% of the IDRs.

i. Common Units

The common units do not meet the definition of common stock under US GAAP as they are not the lowest class of stock (because they have an additional right to dividends compared to the subordinated units). The common units have a readily ascertainable fair value and are therefore recorded at fair value with gains or losses taken to the Consolidated Statement of Operations. Refer to Note 11 in the accompanying financial statements for further information.

ii. Subordinated Units and iii. IDRs

In September 2019, we recognized impairments against the subordinated units and IDRs to take their carrying value down to nil.

Direct investments in Seadrill Partners subsidiaries

In addition to our interests in the top holding company, we hold non-controlling interests in the common stock of 4 operating subsidiaries (“OPCOs”) controlled by Seadrill Partners. This includes (i) a 42% interest in Seadrill Operating LLP which wholly owns 4 rigs and has a 56% interest in 1 rig; (ii) a 49% interest in Seadrill Capricorn LLC which wholly owns 4 rigs, (iii) a 39% interest in Seadrill Deepwater Drillship Ltd and (iv) a 49% interest in Seadrill Mobile Units Ltd which, together, own a 44% interest in 1 rig. In total, the 4 OPCOs own 9 out of Seadrill Partners' 11 drilling units. We account for these investments under the equity method. These investments were recorded at fair value when we applied fresh start accounting on July 2, 2018.

Impairment review

Each reporting period, we are required to consider whether there have been any indicators of 'other than temporary impairment' ("OTTI") of our direct method equity method investments. We record an impairment charge for other-than-temporary declines in fair value when the fair value is not anticipated to recover above the carrying value within a reasonable period after the measurement date, unless there are mitigating factors that indicate impairment may not be required.

During the first quarter of 2020, the impact of COVID-19 on the global economy has had a negative impact on our industry. As global oil demand has fallen, we have also seen an increase in oil supply, leading to a surplus of reserves and a decline in the oil price. This has led to reduced forecasted dayrates and utilization for 2020, and an extended time for these to recover in future years as market supply and demand re-balance. We therefore concluded that an indicator of impairment against our investments arose in the quarter.

Impairment

Having identified an indicator of OTTI, we were required to value our direct investments in Seadrill Partners to calculate the impairment at March 31, 2020. We valued our investments in the direct interests using an income approach which discounted future free cashflows (“DCF model”). The cash flows were estimated over the remaining useful economic lives of the underlying assets and discounted using an estimated market participant weighted average cost of capital of 12.8%. The DCF model derived an enterprise value of the OPCOs, after which associated debt was subtracted to provide equity values. Our DCF model considered a range of scenarios to reflect different potential refinancing outcomes for Seadrill Partners.

The key assumptions used in the DCF were derived from significant unobservable inputs based on our best judgments and assumptions available at the time of performing the impairment test. The underlying assumptions used to model future rig cash flows used a methodology that examined historical data for each rig, considering the rig’s age, rated water depth and other attributes and then assessed its future marketability considering the current and projected market environment at the time of assessment. Other assumptions, such as operating, maintenance and inspection costs, were estimated using historical data adjusted for known developments and future events that are anticipated by management at the time of the assessment. The probability applied to each scenario was set with reference to the price of Seadrill Partners traded debt as at March 31, 2020. These 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. Our assumptions involve uncertainties about future demand for our services, dayrates, expenses and other market based future events, and expectations may not be indicative of future outcomes. If actual events differ from these estimates, or to the extent that these estimates are adjusted in the future, our financial condition and results of operations could be affected in the period of any such change of estimate.

We calculated the fair value of our investments in Seadrill Partners direct interests to be nil. The value of our direct ownership interests prior to impairment was $47 million, after recognizing a $75 million share of loss in the three months ended March 31, 2020. As a result, we recorded an impairment charge of $47 million as at March 31, 2020. We recognized the impairment of these investments within “Loss on impairment of equity method investments” in our Consolidated Statement of Operations for the three months ended March 31, 2020.

We have summarized the carrying value of our investments before and after this impairment review in the below table.

Investment Basis	As at December 31, 2021	As at December 31, 2019
Seadrill Partners subsidiaries - Common units	Fair value	—
Seadrill Partners - Direct ownership interests	Equity method	—
Total carrying value of our investments	—	—

Current expected credit losses

As set out in Notes 2 and 3 to the Consolidated financial statements included in this report, we adopted accounting standard update 2016-13 effective January 1, 2020. Under this guidance, we are required to record allowances for the expected future credit losses to be incurred on trade and loan receivable balances. We have used a probability-of-default model to estimate these expected credit losses. Under this methodology we use data such as customer credit ratings, maturity of loan, security of loan, and incorporate historical data published by credit rating agencies, to estimate the chance of default and loss given default. We then multiply the balance outstanding by the estimated chance of default and loss given default to calculate the allowance required for the expected credit loss.

To estimate probability-of-default we have cross referenced the customer credit ratings and expected loan maturities for our receivable balances against historical default rates published by credit rating agencies. The counterparties to our related party receivable balances do not typically have published credit ratings, in which case we have estimated a shadow credit rating. To estimate loan maturities, we have considered both the contractual maturity date of the loan or receivable balance as well as an internal assessment of the counterparties' ability to settle the amount owed by that date. We estimated loss-given-default based on historical recovery rates published by credit rating agencies for claims with similar security and priority as the receivable being assessed.

Fair Value of Archer Convertible Bond

At each reporting period, we record the Archer bond at fair value in Seadrill’s balance sheet, with any gains or losses being recorded in other comprehensive income, unless the convertible bond is impaired, under the impairment guidance of ASC 326-30, in which case the impairment loss is recorded in net income. The Archer convertible debt instrument is bifurcated into two elements (i) the debt component and (ii) embedded conversion option.

i. Debt component

The fair value of the debt component is derived using the discounted cash flow model including assumptions relating to cost of debt and credit risk associated to the instrument. The principal and payment-in-kind coupon is discounted at a rate of 18.8%. The additional key inputs used in the model is the principal initial value of $13 million, payment-in-kind interest of 5.5% and maturity date of April 1, 2024.

ii. Embedded conversion option

The fair value of the embedded derivative option is calculated using a modified version of the Black-Scholes formula for a currency translated option. The bond can be converted into equity at any stage between now and April 1, 2024. When calculating the fair value we have used the mid-point in this range. The key model input assumptions include Archer's share price in NOK, NOK/ USD FX volatility and historical and forecasted equity volatility. As the conversion price is significantly below the current trading price the fair value of the conversion option is immaterial.# Notes to Consolidated Financial Statements

Our estimate of fair value generally requires us to use significant unobservable inputs, therefore making it a Level 3 fair value measurement.

Redeemable non-controlling interests

Subsequent to filing bankruptcy petitions, the Predecessor executed a Transaction Support Agreement (“TSA”) on April 4, 2018 with a minority shareholder of one of our subsidiaries, Asia Offshore Drilling Limited (“AOD”). The purpose of the TSA was to provide a framework for a monetization event for the minority shareholder of AOD as well as obtain unanimous approval of the AOD board of directors (which included the minority shareholder) in order for AOD to become a party to the TSA and participate in the Predecessor’s broader debt restructuring under its Chapter 11 reorganization. The TSA executed between the parties provides an option to the holders of non-controlling interest shares to sell the shares it owns to Seadrill Limited subject to a price ceiling ("Put Option"). After the end of the effective period of the Put Option, if the right remains unexercised, Seadrill Limited has the option to purchase the non-controlling interest in AOD at a price subject to the floor price (“Call Option”). The Put Option generates a redemption feature for the non-controlling interest holder that is outside the control of Seadrill Limited. To calculate the fair value of the non-controlling interest shares, we estimated the fair value of AOD in total and then allocated this between the shares held by us and by those held by the non-controlling interest. We estimated the fair values of AOD in total by adjusting the Consolidated Balance Sheet position of AOD as at each reporting period for an updated fair value of the three drilling units: AOD I, AOD II and AOD III. We derived the fair value of the three drilling units using a market approach discounted using a weighted average cost of capital of 12.8%. We derived the fair value of the external debt facilities with a discounted cash flow using a weighted average cost of debt of 4%.

Income taxes

Seadrill is a Bermuda company that has a number of subsidiaries and affiliates in various jurisdictions. We are not currently required to pay income taxes in Bermuda on ordinary income or capital gains because we qualify as an exempt company. We have received written assurance from the Minister of Finance in Bermuda that we will be exempt from taxation until March 2035. Certain of our subsidiaries operate in other jurisdictions where income taxes are imposed. Consequently, income taxes have been recorded in these jurisdictions as appropriate. Our income tax expense is based on our income, statutory tax rates and various deductions & credits available to us in the various jurisdictions in which we operate. We provide for income taxes based on the tax laws and rates in effect in the countries in which our operations are conducted and income is earned. The income tax rates and methods of computing taxable income vary substantially between jurisdictions. Our income tax expense is expected to fluctuate from year to year because our operations are conducted in different tax jurisdictions and the amount of pre-tax income fluctuations. The determination and evaluation of our annual group income tax provision involves the interpretation of tax laws in the various jurisdictions in which we operate and requires significant judgment and the use of estimates and assumptions regarding significant future events, such as amounts, timing and the character of income, deductions and tax credits. There are certain transactions for which the ultimate tax determination is unclear due to uncertainty in the ordinary course of business. We recognize tax liabilities based on our assessment of whether our tax positions are more likely than not sustainable, based solely on the technical merits and considerations of the relevant taxing authorities widely understood administrative practices and precedence. Changes in tax laws, regulations, agreements, treaties, foreign currency exchange restrictions or our levels of operations or profitability in each jurisdiction may impact our tax liability in any given year. While our annual income tax provision is based on the information available to us at the time, a number of years may elapse before the ultimate tax liabilities in certain tax jurisdictions are determined. Current income tax expense reflects an estimate of our income tax liability for the current year, withholding taxes, changes in prior year tax estimates as tax returns are filed or from tax audit adjustments. Our deferred tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reflected on the balance sheet. To determine the amount of deferred tax assets and liabilities, as well as valuation allowances, we must make estimates and certain assumptions regarding future taxable income, including where our drilling units are expected to be deployed. A change in such estimates and assumptions, along with any changes in tax laws, could require us to adjust the amount of deferred taxes. In addition, our uncertain tax positions are estimated and presented within other current liabilities, other liabilities, and as reductions to our deferred tax assets within our Consolidated Balance Sheets. Refer to Note 8 – "Taxation" to our Consolidated Financial Statements included herein for further information.

Responsibility Statement

We confirm, to the best of our knowledge, that the Consolidated Financial Statements for the period ended December 31, 2021, have been prepared in accordance with accounting principles generally accepted in the United States of America, and give a true and fair view of the assets, liabilities, financial position and results of the Group taken as a whole. We also confirm that, to the best of our knowledge, these financial statements include a true and fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties facing the Group.

Date: March 21, 2022

The Board of Directors
Seadrill Limited
Hamilton, Bermuda

/s/ Birgitte Ringstad Vartdal
Director

/s/ Eugene I. Davis
Director

/s/ Harald Thorstein
Director

/s/ John Fredriksen
Director and Chairman of the Board

/s/ Kjell-Erik Østdahl
Director

/s/ Peter J. Sharpe
Director

/s/ Scott D. Vogel
Director

September 30, 2018	September 30, 2017	September 30, 2018	September 30, 2017
(In $ millions)	Outstanding principal	Fair value	Outstanding principal
Other non-current liabilities	134.6	0.2	164.3

Qualitative and quantitative disclosures about market risk - Interest rate risk

As of December 31, 2021 (Successor), our net exposure to floating interest rate fluctuations within the Consolidated Statement of Operations on our outstanding external debt was ###, compared with ### as of December 31, 2020 (Predecessor), offset by ### total notional principal on our interest rate cap. The exposure as at December 31, 2017 is reduced as during Chapter 11 interest payments on liabilities subject to compromise were made against the debt principal and therefore did not impact the Consolidated Statement of Operations. As such, a ### decrease in short-term interest rates would increase our net income on an annual basis by approximately $64 million, or 1% increase in short-term interest rates would decrease our net income on an annual basis by approximately $35 million. For the year ended December 31, 2017 (Predecessor), an increase or decrease to short-term interest rates would adjust our net income by ### due to reduced exposure on the Statement of Operations whilst filed for Chapter 11.

Interest rate swaps

At the date of filing for Chapter 11 (Predecessor), we had interest rate swap agreements with maturity dates between November 2, 2017 and January 29, 2027, which swapped the floating element of interest on our facilities for fixed rates ranging between 0.74% and 3.34%. In addition, we had an interest rate swap contract principal, which was entered into in February 2014 with a forward start in March 2016, under which it paid a floating rate of LIBOR and receive a fixed rate of 2.12%. These agreements did not qualify for hedge accounting, and accordingly any changes in the fair values of the swap agreements were included in the Consolidated Statement of Operations under “Gain/(loss) on derivative financial instruments”. We recognized total realized and unrealized losses of $31 million for the nine months ended September 30, 2017 (Predecessor). No gains or losses were made in the period from January 1, 2018 through July 1, 2018 (Predecessor) or the period from July 2, 2018 through September 30, 2018 (Successor) following the termination of interest rate swaps under the ISDA.

Cross currency interest rate swaps

At the date of filing for Chapter 11 (Predecessor), we had outstanding cross-currency interest rate swaps with maturity dates between March 2018 and March 2019 at fixed rates ranging from 4.94% to 6.18%. These agreements did not qualify for hedge accounting and accordingly any changes in the fair values of the swap agreements were included in the Consolidated Statement of Operations under “Gain/(loss) on derivative financial instruments”. We recognized total realized and unrealized gains of $46 million for the nine months ended September 30, 2017 (Predecessor). No gains or losses were made in period from January 1, 2018 through July 1, 2018 (Predecessor) or the period from July 2, 2018 through September 30, 2018 (Successor) following the termination of the cross-currency interest rate swaps under the ISDA.

Interest rate cap

On May 11, 2018, we purchased an interest rate cap for $68 million to mitigate our exposure to future increases in LIBOR on our floating rate debt. The capped rate against the 3-month US LIBOR is 2.87% and covers the period from June 15, 2018 to June 15, 2023.The principal amount covered by the cap as at September 30, 2018 (Successor) is $4.5 billion. As at September 30, 2018 (Successor) the fair value of the interest rate cap was $72 million. We did not designate the interest rate cap for hedge accounting and accordingly changes in the fair value of the interest rate cap are recorded in net income. We classified the unrealized gain in the period from July 2, 2018 through September 30, 2018 (Successor) of $11 million and unrealized loss of $7 million for period from January 1, 2018 through July 1, 2018 (Predecessor) under the line item "(loss) / gain on derivative financial instruments" in the Consolidated Statement of Operations.

Hedge Accounted Interest Rate Swaps

A Ship Finance subsidiary consolidated by Seadrill Limited as a Variable Interest Entity ("VIE") (refer to ### "Variable Interest Entities") has entered into interest rate swaps in order to mitigate its exposure to variability in cash flows for future interest payments on the loans taken out to finance the acquisition of the West Linus. These interest rate swaps qualify for hedge accounting and any changes in fair value are initially recorded within Other Comprehensive Income and then reclassified to the Consolidated Statement of Operations on settlement of the swap.

In the period from July 2, 2018 through September 30, 2018 (Successor), the VIE Ship Finance subsidiary recorded $0.2 million fair value losses. In the period from January 1, 2018 through July 1, 2018 (Predecessor) and the nine months ended September 30, 2017 (Predecessor), the VIE Ship Finance subsidiary recorded $0.3 million and $1 million fair value gains respectively.

Any such gains or losses recorded by the VIE in OCI are allocated to non-controlling interests due to their ownership by Ship Finance. Any change in fair value resulting from hedge ineffectiveness is recognized immediately in earnings. The VIE, and therefore the Company, recognized no gain or loss due to hedge ineffectiveness in the consolidated financial statements during the period from July 2, 2018 through September 30, 2018 (Successor), the period from January 1, 2018 through July 1, 2018 (Predecessor), or the nine months ended September 30, 2017.

The net cash settlements on these swaps for the period from July 2, 2018 through September 30, 2018 (Successor) was $0.3 million, period from January 1, 2018 through July 1, 2018 (Predecessor) was $0.1 million and for the nine months ended September 30, 2017 was $0.6 million.

Other Derivative Agreements

Archer Convertible Debt Instrument

On April 26, 2017 we agreed with Archer to convert total outstanding subordinated loans provided to Archer, inclusive of associated fees and interest, with a carrying value of $37 million, into a $45 million loan. The new loan receivable is a convertible debt instrument comprised of a debt instrument and a conversion option, classed as an embedded derivative. Both elements are required to be measured at fair value at each reporting date. The fair value of the new loan receivable as at inception, April 26, 2017, was $56 million, resulting in a $19 million gain on the extinguishment of the original subordinated debt in the statement of operations.

At at September 30, 2018 (Successor) the fair value of the convertible debt instrument was $47 million of which the split between debt and embedded derivative option was $46 million and $1 million respectively. The debt and embedded derivative option was revalued at the period end and we have recognized a fair value gain on the debt component of $0.3 million and a fair value loss on the embedded conversion option of $8 million for period from July 2, 2018 through September 30, 2018 (Successor). In the period from January 1, 2018 through July 1, 2018 (Predecessor) we recognized a fair value gain on the debt component of $2 million and a fair value gain on the embedded conversion option of $2 million.

We, in the normal course of business, do not demand collateral. The credit exposure of interest rate swap agreements, currency option contracts and foreign currency contracts is represented by the fair value of contracts with a positive fair value at the end of each period, reduced by the effects of master netting agreements, adjusted for counterparty non-performance credit risk assumptions. It is our policy to enter into master netting agreements with the counterparties to derivative financial instrument contracts, which give us the legal right to discharge all or a portion of amounts owed to a counterparty by offsetting them against amounts that the counterparty owes to us.

[Removed wording as now covered by subsequent events footnote].

It was agreed as part of the New Secured Note Indenture that the $126 million of sale proceeds from the West Rigel rig could be used to redeem New Secured Notes. As a result during 4Q 2018, $121 million of Notes principal has been redeemed plus accrued cash interest of $2 million and accrued payment-in-kind (PIK) interest of $3 million.

Risk Factors

Please see “Item 3D - Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2019 for a discussion of the risk material to our business. Additionally, the risk factor below has been updated as a result of recent developments.

We Voluntarily Delisted Our Common Stock from the NYSE.

On June 1, 2020, our Board of Directors approved the voluntarily withdrawal of our common shares from listing on the NYSE. We filed a Form 25 with the SEC on June 11, 2020 in order to delist our common shares from the NYSE, which occurred ten days thereafter upon effectiveness of the Form 25. Accordingly, our last day of trading on the NYSE was on June 19, 2020, the last trading day prior to the effectiveness of the Form 25.

While the Company's common shares are currently traded on the OTCQX market, an electronic inter-dealer quotation system based in the United States, our OSE listing is now our sole listing, subject to our compliance with the OSE’s continued listing standards. A delisting of our common shares from the OSE and, to a lesser extent, the lack of trading on the OTCQX, could negatively impact us because it could:

(i) reduce the liquidity and market price of our common shares,
(ii) reduce the number of investors willing to hold or acquire our common shares, which could negatively impact our ability to raise equity financing,
(iii) limit our ability offer and sell freely tradable securities, including under U.S. state securities laws, thereby preventing us from accessing the public capital markets,
(iv) impair our ability to provide equity incentives to our employees and
(v) lead to a default under one or more of our credit facilities under certain circumstances.

Certain of our credit facilities include a covenant requiring our common shares to be listed on the NYSE or the OSE or, in certain cases another internationally recognized stock exchange (which would not include the OTCQX). While the voluntary delisting of our common shares from the NYSE did not breach this reporting covenant, if our common shares were to be delisted from the OSE and not listed on another internationally recognized exchange permitted under such credit facilities, we could be in default under such facilities. Given the cross-default and cross-acceleration provisions in our other debt agreements, we could be in default under those other debt agreements as well, with the result that some or all of our indebtedness could be declared immediately due and payable (or accelerated after the expiration of any applicable grace period), and we may not have sufficient assets available to satisfy our obligations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of August 2020

Commission File Number 333-224459

SEADRILL LIMITED

(Exact name of Registrant as specified in its Charter)

Par-la-Ville Place, 4th Floor
14 Par-la-Ville Road
Hamilton HM 08
Bermuda
(441) 295-6935
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [ ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): Yes [ ] No [X]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): Yes [ ] No [X]

INFORMATION CONTAINED IN THIS FORM 6-K REPORT

Attached hereto as Exhibit 99.1 is a copy of the earnings release of Seadrill Limited (the "Company"), announcing the Company's results for the fourth quarter ended December 31, 2021.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SEADRILL LIMITED

Date: August 25, 2020

By: /s/ Anton Dibowitz
Name: Anton Dibowitz
Title: Chief Executive Officer of Seadrill Management Ltd. (Principal Executive Officer of Seadrill Limited)

Document and Entity Information (USD $)

Document and Entity Information
Entity Registrant Name	SEADRILL LTD
Entity Central Index Key	0001737706
Current Fiscal Year End Date	Dec 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Document Type	6-K
Amendment Flag	false
Document Period End Date	Jun 30, 2020

Seadrill Limited

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2020 and the three and nine months ended September 30, 2019. F-##
Unaudited Consolidated Balance Sheets as at September 30, 2020 and December 31, 2019. F-##
Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and the nine months ended September 30, 2019.# Seadrill Limited (Debtor-in-Possesion) UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS for the twelve months ended December 31, 2021 and 2020

(In $ millions)

	Twelve months ended December 31, 2021	Twelve months ended December 31, 2020
Cash Flows from Operating Activities
Net loss	(587)	(4,663)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	155	346
Amortization of unfavorable and favorable contracts	—	1
Gain on disposals	(47)	(15)
Loss on impairment of intangible assets	—	21
Share in results from associated companies (net of tax)	(3)	—
Fair value measurement on deconsolidation of VIE	—	(509)
Loss on impairment of long-lived assets	152	4,087
Deferred tax benefit	(3)	(7)
Unrealized loss on derivative	—	3
Non cash reorganization items	176	—
Amortization of discount on debt	84	122
Unrealized foreign exchange loss	2	19
Change in allowance for credit losses	36	142
Other cash movements in operating activities
Payments for long-term maintenance	(64)	(121)
Repayments made under lease arrangements	(46)	—
Changes in operating assets and liabilities, net of effect of acquisitions and disposals
Trade accounts receivable	(37)	48
Trade accounts payable	17	(38)
Prepaid expenses/accrued revenue	(4)	(55)
Deferred revenue	7	(5)
Related party receivables	(8)	(100)
Related party payables	(7)	(4)
Other assets	(19)	34
Other liabilities	65	76
Other, net	—	8
Cash flow from operating activities (discontinued operations)
Net cash flows used in operating activities	(136)	(396)
Cash Flows from Investing Activities
Additions to drilling units and equipment	(29)	(27)
Impact to cash resulting from deconsolidation of VIE	—	(22)
Purchase of call option for non-controlling interest shares	—	(11)
Proceeds from disposal of assets	43	—
Loans granted to related parties	—	(8)
Cash flows from investing activities (discontinued operations)
Net cash flows provided by/(used in) investing activities	14	(68)

Seadrill Limited (Debtor-in-Possesion) UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS for the twelve months ended December 31, 2021 and 2020

(In $ millions)

	Twelve months ended December 31, 2021	Twelve months ended December 31, 2020
Cash Flows from Financing Activities
Repayments of secured credit facilities	—	(132)
Purchase of redeemable AOD non-controlling interest	—	(31)
Cash flows from financing activities (discontinued operations)
Net cash used in financing activities	—	(163)
Effect of exchange rate changes on cash	(2)	(19)
Net decrease in cash and cash equivalents, including restricted cash	(124)	(646)
Cash and cash equivalents, including restricted cash, at beginning of the period	659	1,305
Included in cash and cash equivalents and restricted cash per the balance sheet	659	1,305
Included in assets of discontinued operations
Cash and cash equivalents, including restricted cash, at the end of period	535	659
Included in cash and cash equivalents and restricted cash per the balance sheet	535	659
Included in assets of discontinued operations
Supplementary disclosure of cash flow information
Interest paid, net of capitalized interest	—	(181)
Taxes paid	(11)	(13)

Seadrill Limited NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – General information

Seadrill Limited is incorporated in Bermuda and is a publicly listed company on the Oslo Stock Exchange. We provide offshore drilling services to the oil and gas industry. As at December 31, 2021 we owned and operated 35 offshore drilling units. Our fleet consists of drillships, jack-up rigs and semi-submersible rigs for operations in shallow and deepwater areas, and in benign and harsh environments. We also manage and operate a further 20 drilling units for our related parties Seadrill Partners, SeaMex, Northern Ocean and Sonadrill. Except where the context otherwise requires or where otherwise indicated, the terms “Seadrill,” “the Group,” “we,” “us,” “our,” “the Company” and “our Business” refer to either Seadrill Limited, any one or more of its consolidated subsidiaries, or to all such entities.

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 (though not directly or indirectly holding more than 50% of the voting control).

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, 2019 (SEC File No. 333-224459).

The financial information in this report has been prepared on the basis that we will continue as a going concern, which presumes that we will be able to realize our assets and discharge our liabilities in the normal course of business as they come due. Therefore, financial information in this report does not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary if we were unable to realize our assets and settle our liabilities as a going concern in the normal course of operations. Such adjustments could be material.

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, 2020, except as set out below and in Note 2 - Recent accounting pronouncements.

Credit Losses

We adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) on January 1, 2020. Refer to Note 3 – Current Expected Credit Losses for more information on the adoption of this update and the changes to our accounting policy.

Use of Estimates

The preparation of our consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses and reserves and allowances will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates.

Presentation of rig management revenues and expenses

In 2019, we entered into management contract arrangements with Sonadrill and Northern Ocean which increased the volume of activity where we are managing rigs on behalf of other parties. We have therefore separately presented the revenues and expenses earned under arrangements where we provide management or operational services to other parties as separate revenue and expense line items and have presented the results of these activities as a separate operating segment (see Note 4 - Segment information). We have recast the comparative figures in this report for the new presentation. The below table provides a comparison of the current presentation of the comparatives back to the previously reported numbers, for affected line items:

Consolidated Statement of Operations for the three months ended June 30, 2019
(In $ millions)

	As previously reported	Adjustment	As currently reported
Reimbursable revenues	44	(34)	10
Management contract revenues	—	58	58
Other revenues	24	(24)	—
Vessel and rig operating expenses	(182)	9	(173)
Reimbursable expenses	(43)	34	(9)
Management contract expenses	—	(49)	(49)
Selling, general and administrative expenses	(30)	6	(24)

Consolidated Statement of Operations for the six months ended June 30, 2019
(In $ millions)

	As previously reported	Adjustment	As currently reported
Reimbursable revenues	70	(51)	19
Management contract revenues	—	95	95
Other revenues	45	(44)	1
Vessel and rig operating expenses	(381)	17	(364)
Reimbursable expenses	(69)	51	(18)
Management contract expenses	—	(82)	(82)
Selling, general and administrative expenses	(61)	14	(47)

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 which covered the period to# December 31, 2019.

ASU 2016-13 - Financial Instruments - Measurement of Credit Losses on Financial Instruments (Also 2019-04, 2019-05, 2019-10 & 2019-11)

Effective January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). The accounting standard update requires us to establish allowances for estimated future credit losses on all trade and loan receivables, based on a broad range of supportable information and evidence to inform our estimates. Refer to Note 3 - Current Expected Credit Losses. This is different to the previous guidance, which applied an "incurred loss" model and only required us to record allowances for credit losses where it was probable that a receivable would not be recovered in full.

On adoption of the guidance, we recorded an allowance of $143 million, primarily related to subordinated loan receivables due from certain affiliated entities (see note 26 for details). Our third party customers are mostly international or national oil companies with high credit standing and we have historically had a very low incidence of bad debt expense from these customers. Therefore, the adoption of the new guidance has not had a material impact on receivables due to third party customers. We have recorded the offsetting entry for the initial reserve as a direct adjustment to retained earnings. The new guidance requires us to reassess the allowance each reporting period and record any adjustment to the reserve as a credit loss expense in the Consolidated Statement of Operations. The expense is allocated between operating and financial items on the statement of operations based on the nature of the assessed balance. Receivable balances are presented net of the allowance on the Consolidated Balance Sheet.

Other ASUs

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

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

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

ASU 2018-15 Intangibles

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

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

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

Recently issued accounting standards

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

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

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

ASU 2020-04 Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This update is intended to provide relief to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The optional amendments are effective for all entities as of March 12, 2020, through December 31, 2022. We are in the process of evaluating the impact of this standard update on our Consolidated Financial Statements and related disclosures.

Note 3 – Current Expected Credit Losses

As set out in note 2, we adopted accounting standard update 2016-13 effective January 1, 2020. The new guidance replaces the “incurred loss” model required under the previous guidance with a current “expected credit loss” (or CECL) model that contemplates a broader range of information to estimate expected credit losses over the contractual lifetime of the asset. The CECL impairment model requires an estimate of expected credit losses that considers forecasts of future economic conditions in addition to information about past events and current conditions. It also requires us to consider the risk of loss even if it is remote. This is a departure from the previous guidance, where we recorded an allowance against a receivable balance only if it was probable that we would not recover the full amount due to us.

The standard provides flexibility in how to determine the expected credit loss for financial assets, including the ability to group financial assets with similar risk characteristics, assess the contractual term where it is not formalized, and obtain and adjust the relevant historical loss information. The in-scope balances required to be assessed under the new standard include external trade receivables, related party reimbursable balances, related party loan receivables and related party trade receivables. Refer to Note 26 - Related Party Transactions for detail of related party receivables.

We have used a probability-of-default model to estimate expected credit losses for all classes of in-scope receivable balances. Under this methodology we use data such as customer credit ratings, maturity of loan, security of loan, and incorporate historical data published by credit rating agencies, to estimate the chance of default and loss given default. We then multiply the balance outstanding by the estimated chance of default and loss given default to calculate the allowance required for the expected credit loss. We monitor the credit quality of receivables by re-assessing credit ratings, assumed maturities and probability-of-default on a quarterly basis.

The following table summarizes the movement in the allowance for credit losses for the three and six months ended December 31, 2021:

Allowance for credit losses - trade receivables	Allowance for credit losses - other current assets	Allowance for credit losses - related party ST	Allowance for credit losses related party LT	Total Allowance for credit losses
As at January 1, 2020	—	—	15	128
Credit loss expense	—	—	18	2
As at March 31, 2020	—	—	33	130
Credit loss expense	—	5	36	2
As at December 31, 2021	—	5	69	132

The below table shows the classification of the credit loss expense within the consolidated statement of operations.

(In $ millions)

	Three months ended December 31, 2021	Twelve months ended December 31, 2021
Management contract expenses	41	50
Other financial items	2	13
Total	43	63

Changes in allowances for external and related party trade receivables and reimbursable amounts due are included in operating expenses, while changes in the allowances for related party loan receivables are included in other financial items. The increase in the allowance for the three months ended December 31, 2021 was caused by a decline in credit ratings, driven by market conditions in the period, together with an increase in expected maturities for receivables due from certain related parties. These factors led to a higher probability of default for certain related party receivables, which drove an increase in the overall credit loss allowance.

Note 4 – Segment information

Operating segments

We provide drilling and related services to the offshore oil and gas industry. We have four operating segments:

Floaters: Services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts relate to semi-submersible rigs and drillships for harsh and benign environments in mid-, deep- and ultra-deep waters;
Jack-ups: Services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts relate to jack-up rigs for operations in harsh and benign environments;
Management contracts: Management services to third parties and related parties. Income and expenses related to these management services are classified under this segment; and
Other: Corporate items that are not allocated to the three segments above.# Segment Results

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

Total operating revenue

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Floaters	#N/A	#N/A	#N/A	#N/A
Jack-ups	#N/A	#N/A	#N/A	#N/A
Management contracts	#N/A	#N/A	#N/A	#N/A
Other	#N/A	#N/A	#N/A	#N/A
Total operating revenues	#N/A	#N/A	#N/A	#N/A

Depreciation

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Floaters	#N/A	#N/A	#N/A	#N/A
Jack-ups	#N/A	#N/A	#N/A	#N/A
Management contracts	#N/A	#N/A	#N/A	#N/A
Total	#N/A	#N/A	#N/A	#N/A

Amortization of intangibles

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Floaters	4Q21	4Q20	#N/A	#N/A
Jack-ups	#N/A	#N/A	#N/A	#N/A
Management contracts	#N/A	#N/A	#N/A	#N/A
Total	#N/A	#N/A	#N/A	#N/A

Operating loss - Net loss

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020
Floater operating loss
Jack-up operating income	4Q21	4Q20
Management contracts operating (loss)/income	—	#N/A
Other operating loss	—	#N/A
Operating loss	—	#N/A
Unallocated items:
Total financial items and other
Income taxes	4Q21	4Q20
Net loss	#N/A	#N/A

Drilling units - Total assets

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Floaters	742	5,144
Jack-ups	925	1,104
Other	110	153
Total drilling units	138,880,000	138,880,000
Unallocated items:
Investments in associated companies	100,384,435	100,384,435
Marketable securities
Cash and restricted cash	535	593
Other assets	(239,261,091)	(239,261,370)
Total assets	3,879	3,658

Drilling units - Capital expenditures

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020
Floaters
Jack-ups	4Q21	4Q20
Other	—	#N/A
Total	—	#N/A

Geographic segment data

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

Revenues

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Revenues - geographic
Angola	#N/A	#N/A	#N/A	#N/A
Saudi Arabia	#N/A	#N/A	#N/A	#N/A
United States	#N/A	#N/A	#N/A	#N/A
Brazil	4Q21	4Q20
Others (1)	#N/A	#N/A
Total	#N/A	#N/A

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

Fixed assets – drilling units (1)

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Norway
Malaysia
United States	#N/A
Spain	4Q21
Namibia	#N/A
Other (2)
Total	#N/A

(1) The countries in this table represent the location of the drilling unit at the end of the reporting period and are not necessarily indicative of the geographic distribution of the revenues or operating profits generated by the assets during the period. In most cases these locations are different to the country in which the Company that owns the drilling unit is registered.
(2) "Other" represents countries in which we operate that individually had fixed assets representing less than 10% of total fixed assets for any of the periods presented.

Major Customers

We had the following customers with total revenues greater than 10% in any of the periods presented:
(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020
4Q21	4Q20
Equinor	#N/A	#N/A
CHECK TO BS:	#N/A	#N/A
Petrobras

Note 5 – Revenue from Contracts with Customers

The following table provides information about receivables and contract liabilities from our contracts with customers:
(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Accounts receivable, net	169	122
Current contract liabilities (deferred revenue) (1)	(25)	(24)
Non-current contract liabilities (deferred revenue) (2)	(10)	(7)

(1) Current contract liabilities balances are included in “Other current liabilities” in our Consolidated Balance Sheet.
(2) Non-current contract liabilities balances are included in “Other non-current liabilities” in our Consolidated Balance Sheet.

Significant changes in the contract assets and the contract liabilities balances during the three months ended December 31, 2020 are as follows:
(In $ millions)

	Contract Assets	Contract Liabilities	Net Contract Balances
Net contract liability at January 1, 2019	—
Amortization of revenue that was included in the beginning contract liability balance	—
Cash received, excluding amounts recognized as revenue	—
Cash received against the beginning contract asset balance	—
Contract assets recognized during the period	—
Net contract liability at June 30, 2019	—	—	(33)

Significant changes in the contract assets and the contract liabilities balances during the twelve months ended December 31, 2021 are as follows:
(In $ millions)

	Contract Assets	Contract Liabilities	Net Contract Balances
Net contract liability at January 1, 2020	—
Amortization of revenue that was included in the beginning contract liability balance	—
Cash received, excluding amounts recognized as revenue	—
Net contract liability at June 30, 2020	—	—	—

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

Deferred revenue - The deferred revenue balance of $25 million reported in "Other current liabilities" at December 31, 2021 is expected to be realized within the next twelve months and $10 million reported in "Other non-current liabilities" is expected to be realized within the following next twelve months. The deferred revenue included above consists primarily of mobilization and upgrade revenue for both wholly and partially unsatisfied performance obligations as well as expected variable mobilization and upgrade revenue for partially unsatisfied performance obligations, which has been estimated for purposes of allocating across the entire corresponding performance obligations. The amounts are derived from the specific terms within drilling contracts that contain such provisions, and the expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract based on information known at December 31, 2021. The actual timing of recognition of such amounts may vary due to factors outside of our control.

Note 6 – Impairment of long-lived assets

We review the carrying value of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be appropriate. No indicators of impairment have been identified in the three months ended June 30, 2020. During the first quarter, the impact of COVID-19 on the global economy had a negative impact on our industry. As global oil demand fell, we also saw an increase in oil supply, leading to a surplus of reserves. Brent crude fell from $66 as at December 31, 2019 to $23 as at March 31, 2020. The oil price decline has led to pressures on our customers to reduce their capital expenditures in the near-term until we see a recovery in the oil price. As a consequence, this has led to reduced forecasted day rates and utilization for 2020, and an extended time for these to recover in future years as the market supply and demand re-balance. We have therefore concluded that an impairment triggering event had occurred for our drilling unit fleet in the three months ended March 31, 2020. On assessment of asset recoverability through an estimated undiscounted future net cash flow we calculated the value to be lower than the carrying value for seven of our older units, resulting in an impairment expense of $137 million which was classified within "Impairment of long-lived assets" on our Consolidated Statement of Operations for the twelve months ended December 31, 2021. We derived the fair value of the rigs using an income approach based on updated projections of future dayrates, contract probabilities, economic utilization, capital and operating expenditures, applicable tax rates and asset lives. The cash flows were estimated over the remaining useful economic lives of the assets and discounted using an estimated market participant weighted average cost of capital "WACC" of 12.8%. To estimate these fair values, we were required to use various unobservable inputs including assumptions related to the future performance of our rigs as explained above. We based all estimates on information available at the time of performing the impairment test. For fair value considerations refer to Note 24 - Risk management and financial instruments.

Note 7 – Loss on impairment of equity method investments

The loss on impairments of our equity method investments for the three and twelve months ended December 31, 2021 and three and twelve months ended December 31, 2020 were as follows:
(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Seadrill Partners - Direct ownership interests	—	—	(47)	—
Total loss on impairment of equity method investments	—	—	(47)	—

During the first quarter, the impact of COVID-19 on the global economy had a negative impact on our industry.As global oil demand fell, we also saw an increase in oil supply, leading to a surplus of reserves. Brent crude fell from $66 as at December 31, 2019 to $23 as at March 31, 2020. The oil price decline has led to pressures on our customers to reduce their capital expenditures in the near-term until there is sufficient recovery in the oil price. As a consequence, this has led to reduced forecasted day rates and utilization for 2020 and the recovery of the market we forecast beyond and therefore we identified indicators of impairment against our investments in our first quarter results. An impairment of $0 million was recognized against the Seadrill Partners direct ownership interests in the Consolidated Statements of Operations within "Loss on impairment of equity method investments" in the three months ended March 31, 2020. No further impairments have been recognized in the three months ended June 30, 2020 or in the six months ended June 30, 2019. We hold direct ownership interests in controlled subsidiaries of Seadrill Partners, which are accounted for under the equity method. The fair values of these investments are not readily determinable, as they are not publicly traded. These investments were recognized at fair value on application of fresh start accounting on July 2, 2018 and therefore categorized at level three on the fair value hierarchy. Level three inputs are unobservable inputs for the asset or liability, which are typically based on an entity's own assumptions, as there is little, if any, related market activity. The fair value of equity method investments was derived using an income approach, which discounts future free cash flows. The estimated future free cash flows associated with the investments were primarily based on expectations around applicable day rates, drilling unit utilization, operating costs, capital and long-term maintenance expenditures, applicable tax rates and industry conditions. The cash flows were estimated over the remaining useful economic lives of the underlying assets and discounted using an estimated market participant WACC of 12.8%.

Note 8 – Taxation

Income tax expense for the three months ended December 31, 2021 was $10 million (three months ended December 31, 2020: benefit of $8 million). Income tax expense for the twelve months ended December 31, 2021 was $5 million (twelve months ended December 31, 2020: benefit of $4 million). The income tax expense of $5 million for the six months ended June 30, 2020 was primarily due to ordinary taxes in Saudi Arabia, Angola, UK partially offset by a benefit as a result of Coronavirus Aid, Relief, and Economic Security Act introducing a carry back of net operating losses in the U.S. Seadrill Limited is incorporated in Bermuda, where a tax exemption has been granted until 2035. Other jurisdictions in which Seadrill's subsidiaries operate are taxable based on rig operations. A loss in one jurisdiction may not be offset against taxable income in other jurisdictions. Thus, we may pay tax within some jurisdictions even though we might have losses in others. Tax authorities in certain jurisdictions examine our tax returns and some have issued assessments. We are defending our tax positions in those jurisdictions. The Brazilian tax authorities have issued a series of assessments with respect to our returns for certain years up to 2012 for an aggregate amount equivalent to $161 million including interest and penalties. The relevant group companies are robustly contesting these assessments, including filing relevant appeals, an adverse outcome on these proposed assessments could result in a material adverse impact on our Consolidated Balance Sheet, Statement of Operations or Statement of Cash Flow. In 2019, we placed a total of $330 million Brazilian Reais of collateral in order to continue with our appeal against certain years. This amount is held as restricted cash. See Note 10 - Restricted cash. The Nigerian tax authorities have issued a series of claims and assessments both directly and lodged through the Chapter 11 process with respect to returns for subsidiaries for certain years up to 2016 for an aggregate amount equivalent to $171 million. The relevant group companies are robustly contesting these assessments including filing relevant appeals in Nigeria and it is also intended that one or more formal objections against these claims for distribution purposes may be filed in the US court. An adverse outcome on these proposed assessments could result in a material adverse impact on our Consolidated Balance Sheet, Statement of Operations or Statement of Cash Flow.

Note 9 – Loss per share

The computation of basic loss per share (“LPS”) is based on the weighted average number of shares outstanding during the period. Diluted LPS includes the effect of the assumed conversion of potentially dilutive instruments. However, as the current and comparative periods are all loss making, the effect of dilution is nil.

The components of the numerator for the calculation of basic and diluted LPS were as follows:

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Net loss attributable to shareholder	104	(2,723)	(587)	(4.98)
Effect of dilution	—	—	—	—
Diluted net loss available to shareholders	104	(2,723)	(587)	(5)

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

(In millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Basic loss per share: Weighted average number of common shares outstanding
Diluted loss per share: Effect of dilution	—	—	—	—
Weighted average number of common shares outstanding adjusted for the effects of dilution

The basic and diluted loss per share were as follows:

(In $)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Basic loss per share	(27.14)	(1.99)	(29.02)	(4.98)
Diluted loss per share	—	(6.03)	(45.93)	(12.18)

Note 10 – Restricted cash

Restricted cash as at December 31, 2021 and December 31, 2020 was as follows:

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Accounts pledged as collateral for Senior Secured Notes (1)	—	46
Accounts pledged as collateral for performance bonds and similar guarantees (2)	—
Demand deposit pledged as collateral for tax related guarantee (3)	63	36
Other	42	31
Total restricted cash	105	113

(1) In April 2020, Seabras Sapura repaid $6 million of related party and shareholder loans, with the cash proceeds held in escrow against a future redemption of senior secured notes.
(2) On February 24, 2020 we agreed with Danske Bank to reduce our guarantee facility from $90 million to $45 million. As a result, the cash collateral required to be held was reduced.
(3) We placed a total of 330 million Brazilian Reais of collateral with BTG Pactual under a letter of credit agreement. This related to long-running tax disputes which are currently being litigated through the Brazilian courts. This is held as non-current within the Consolidated Balance Sheet.

Restricted cash is presented in our Consolidated Balance Sheets as follows:

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Current restricted cash	160	102
Non-current restricted cash	63	69
Total restricted cash	223	171

Note 11 – Marketable securities

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

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Seadrill Partners - Common units	—	—
Archer	13	13
Total marketable securities	—	13

The below table shows the gain and losses recognized through net loss for the periods presented in this report.

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Seadrill Partners - Common units - unrealized loss on marketable securities	—	—	—	(2)
Archer - unrealized gain / (loss) on marketable securities	—	3	5	(1)
Total unrealized gain / (loss) on marketable securities	—	3	5	(3)

Note 12 – Accounts receivable

Accounts receivable are held at their nominal amount less an allowance for credit losses. The adoption of ASC 326 on January 1, 2020 resulted in an immaterial allowance against our outstanding amounts due. Refer to Note 3 - Current expected credit losses for further information.

Note 13 - Other Assets

As at December 31, 2021 and December 31, 2020, other assets included the following:

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Reimbursable amounts due from customers (1)	5	6
Taxes receivable	—	—
Prepaid expenses	48	32
Favorable drilling and management services contracts	24	57
Deferred contract costs	15	14
Insurance receivable	33	32
Marketable Securities	—	—
Derivative asset - interest rate cap	13	11
Total other assets	218	229

Check — —

(1)Includes reimbursable amounts due from related parties, net of expected credit loss allowance. For further information refer to Note 26 – Related party transactions and Note 3 - Current expected credit losses.

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

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Other current assets	191	158
Other non-current assets	27	59
Total other assets	218	217

Note 14 – Investment in associated companies

As at December 31, 2021 and December 31, 2020, the carrying values of our investments in associated companies were as follows.# Note 14 – Investments in associated companies

(In $ millions)	As at December 31, 2021	As at December 31, 2020
Seadrill Partners direct ownership interest	—	—
Seabras Sapura	—	—
Seabras Sapura Holding GmbH- Shareholder loans held as equity	—	—
SeaMex	—	—
Sonadrill	27	23
Gulfdrill	—	—
Total investment in associated companies	27	23

Seadrill Partners direct ownership interest impairment

In March 2020 we impaired the remaining investment value to nil, recognizing a $0 million loss within "Loss on impairment of equity method investments" in our Consolidated Statement of Operations. See Note 7– Loss on impairment of equity method investments for further details.

Note 15 – Drilling units

The following table summarizes the movement for the twelve months ended December 31, 2020:

(In $ millions)	Cost	Accumulated depreciation	Net book value
As at January 1, 2019	6,890	(231)	6,659
Additions	158	—	158
Depreciation	—	(416)	(416)
As at June 30, 2019	7,048	(647)	6,401

The following table summarizes the movement for the twelve months ended December 31, 2021:

(In $ millions)	Cost	Accumulated depreciation	Net book value
As at January 1, 2020	3,108	(988)	2,120
Additions	61	—	61
Depreciation	—	(112)	(112)
Impairment	(137)	—	—
As at June 30, 2020	(152)	—	(152)

In March 2020 we recorded a $137 million impairment against our fleet. Refer to Note 6 – Impairment of long-lived assets for further information.

Note 16 – Equipment

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

The following table summarizes the movement for the twelve months ended December 31, 2020:

(In $ millions)	Cost	Accumulated depreciation	Net book value
As at January 1, 2019
Additions	34	(5)	29
Depreciation	4	—	4
As at June 30, 2019	—	(10)	-10

The following table summarizes the movement for the twelve months ended December 31, 2021:

(In $ millions)	Cost	Accumulated depreciation	Net book value
As at January 1, 2020
Depreciation	—	—	—
As at June 30, 2020	—	(5)	(5)

Note 17 – Debt

As at December 31, 2021 and December 31, 2020, we had the following liabilities for third party debt agreements:

(In $ millions)	As at December 31, 2021	As at December 31, 2020
Secured credit facilities	5,662	—
Senior Secured Notes	—	581
Credit facilities contained within variable interest entities	—	—
Total debt principal	6,243	581
Less: debt discount and fees	(5,662)	—
Carrying value	581	581

This was presented in our Consolidated Balance Sheets as follows:

(In $ millions)	As at December 31, 2021	As at December 31, 2020
Debt due within one year	—	—
Long-term debt	—	—
Total debt principal	—	—

Key changes to borrowing facilities

Senior secured notes

On April 10, 2019, we repurchased $311 million of our principal senior secured notes for $342 million. The $31 million additional cash paid represents the 7% purchase premium and settlement of accrued payment-in-kind and cash interest. On July 15, 2019, $18 million of accrued payment-in-kind interest on our senior secured notes was compounded and additional notes were issued. On January 15, 2020, $19 million of accrued payment-in-kind interest on our senior secured notes was compounded and additional notes were issued.

Collateral

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

Debt maturities

The outstanding debt as at December 31, 2021 is repayable as follows:

(In $ millions)	Year ended December 31,						Total debt principal (1)
	2022	2023	2024	2025	2026	2027 and thereafter
	—	(1)

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

Debt maturities

The outstanding debt as at December 31, 2021 is repayable as follows:

(In $ millions)	Year ended December 31,						Total debt principal (1)
	2022	2023	2024	2025	2026	2027 and thereafter
	—

Amortization Conversion Election facility ("ACE")

The above table assumes that we will make amortization payments on our secured credit facilities from June 2020. Per the terms of our senior secured credit facilities, we can elect to defer up to $500 million of such amortization payments until 2021 through the initiation of new loans. In November 2019, we made the election to defer $63 million of balances that would have otherwise fallen due in the quarter ended March 2020. In March 2020, we elected to defer a further $74 million that would have otherwise fallen due in the current quarter and in June 2020 we elected to defer a further $111 million that would otherwise have fallen due in the quarter ended September 30, 2020. This leaves a remaining $252 million to be deferred in future periods. If we defer the remaining balance then the amounts due in the year ended June 30, 2021 will reduce to $168 million.

Substantial doubt over going concern

Since the fourth quarter of 2019, we have been engaged in discussions with our secured lenders regarding potential amendments to our credit facilities to provide operational flexibility and additional near-term liquidity by, among other things, converting certain interest payments under our credit facilities to payment-in-kind (“PIK”) interest and deferring certain scheduled amortization payments (or increasing the aggregate amount of such payments that may be converted to loans payable at the final scheduled maturity date of the relevant facility pursuant to the amortization conversion election provisions contained in the facility agreements). Our debt service is anticipated to be primarily comprised of interest through at least Q1 2021 because our facility agreements contain certain provisions that allow us to elect to defer and convert up to $500 million in the aggregate of scheduled amortization payments under certain of our credit facilities. We have already elected to use a portion of this capacity with respect to the scheduled amortization installments under our credit facilities occurring in Q1, Q2 and Q3 2020. We intend to continue exercising this option for each subsequent scheduled amortization payment date until such capacity is fully utilized; however, we cannot guarantee that we will be able to satisfy the conditions set forth in the facility agreements in order to be able to do so. We have forecasted that we will not be able to meet the requirements under our ongoing liquidity financial covenant contained in the facility agreements within a twelve-month period following the date of this report and had requested consent for certain liquidity enhancing measures in order to mitigate this. Failure to comply with such liquidity requirements could result in a default under the terms of our facility agreements if we are unable to obtain a waiver or amendment from our lenders for such non-compliance. We had also requested that our lenders consent to an extension of the periods before which we are required to comply with the net leverage and debt service coverage financial covenants in our facility agreements because we currently anticipate that we will not be able to meet these requirements when such covenants begin to be tested at the end of Q1 2021. If we are unable to comply with the net leverage and debt service covenants in our debt agreements between Q1 2021 and Q4 2021 this will lead to an interest margin increase of up to 100 bps in the form of PIK interest. However, this does not constitute an event of default. Whilst substantial support was indicated by our secured lenders for the consents discussed above, as certain of the amendments impacting economic terms required 100% approval across 43 institutions, recent market uncertainties have prevented a coalescing of views. As a consequence, Seadrill has decided not to proceed with the bank consent and has retained financial and legal advisors to prepare for a comprehensive restructuring of the balance sheet. With the help of these advisors, we have engaged in negotiations with our lenders surrounding a comprehensive restructuring. Whilst we continue to evaluate various alternatives to address the cost of debt service and overall volume of debt, we anticipate that a comprehensive restructuring will require the use of an in-court process and may require a substantial conversion of our indebtedness to equity. As of June 30, 2020, Seadrill had $1.0 billion of cash which we believe provides sufficient liquidity to complete a comprehensive restructuring process. However, until such time that an agreement is reached to restructure our borrowing commitments, substantial doubt remains over our ability to continue as a going concern. Our business operations remain unaffected by the negotiations and related contingency planning efforts, and we expect to meet our ongoing customer and business counterparty obligations as they become due.

Credit facilities:
* $700 facility: 700
* $2,000 facility (North Atlantic Drilling): 2,000
* $400 facility: 400
* $420 facility: 420
* $440 facility: 440
* $450 facility: 450
* $1,450 facility: 1,450
* $360 facility (Asia Offshore Drilling): 360
* $300 facility: 300
* $1,750 facility (Sevan Drilling): 1,750
* $150 facility: 150
* $450 facility: 450
* $1,500 facility: 1,500
* $1,350 facility: 1,350
* $950 facility: 950
* $450 facility (2015): 450
Total credit facilities:

Ship Finance International Loans:
* $375 facility: 375
* $390 facility: 390
* $475 facility: 475
Total Ship Finance International Loans:

West Eclipse 2.00% $700 million senior secured term loan

In October 2010, the Company entered into a $700 million senior secured loan facility with a syndicate of banks to partly fund the acquisition of seven jack-up drilling rigs, which were pledged as security. The facility bore interest at LIBOR plus 2.50% per annum and is repayable over a term of five years. During the twelve months ended December 31, 2021, the facility was repaid in full.The outstanding balance as at December 31, 2021 was nil (December 31, 2020: $— million) as the facility is now closed.

$400 million senior secured credit facility
In December 2011, the Company entered into a $400 million senior secured credit facility with a syndicate of banks. The jack-up rigs West Cressida, West Callisto, West Leda and West Triton have been pledged as security. The facility has a five year term and bears interest of LIBOR plus 2.50% per annum. During the three months ended March 31, 2016 we repaid $200 million as well as drew down $200 million of the revolving credit tranche. Quarterly payments of $10 million were also paid. The outstanding balance as at March 31, 2016 was $230 million (December 31, 2015: $240 million).

$450 million senior secured credit facility
In December 2012, we entered into a $450 million senior secured credit facility with a syndicate of banks, and was drawn down on January 3, 2013. The West Eclipse semi-submersible rig was pledged as security. The facility was scheduled to mature within one year and bore interest of LIBOR plus 3.00%. On December 20, 2013, we amended this facility for an additional one year, with an amended interest rate of LIBOR plus 2.00%. On December 19, 2014, we amended this facility with a new maturity date of February 3, 2015 on the same terms. In January 2015, this facility was repaid in full and replaced with a new $950 million facility. The outstanding balance as at March 31, 2016 was nil (December 31, 2015: $0 million).

$150 million senior secured credit facility
In October 2013, we entered into a $150 million secured credit facility with a bank. The West Oberon and the West Prospero were pledged as security. The facility bore interest of LIBOR plus a margin of 0.75%, with a maturity date in June 2014. The loan was subsequently amended with a new maturity date of March 31, 2015 and revised margin of 1.0%. In March 2015, this facility was repaid in full as part of the SeaMex transaction - for further details see Note 4 to the consolidated financial statements, included herein. The outstanding balance as at March 31, 2016 was nil (December 31, 2015: $0 million).

$950 million senior secured credit facility
In January 2015 the Company entered into a $950 million senior secured credit facility with a syndicate of banks and export credit agencies to fund the delivery of the West Carina and to refinance the Company's indebtedness related to the West Eclipse. The facility comprises of a $60 million term loan, a $250 million revolving facility and a $190 million ECA facility for the West Carina; and a $225 million term loan and a $225 million revolving facility for the West Eclipse. The term loans and revolving credit facilities bear interest at LIBOR plus 2.00% and the ECA facility has a CIRR fixed interest rate of 2.12%. The West Carina term loan and revolving credit facility have a five year maturity and a twelve year profile, with a balloon payment of $187 million in year five. The West Carina ECA facility has a twelve year maturity and a twelve year profile. The West Eclipse term loan has a five year maturity and a five year profile. The West Eclipse revolving credit facility has a maturity of five years and is non-amortizing, with a balloon payment of $225 million in year five. If the commercial facilities are not refinanced satisfactorily after five years then the ECA facility also becomes due. During the three months ended March 31, 2016 we repaid $245 million of the facility. The total outstanding balance as at March 31, 2016 was $672 million (December 31, 2015: six hundred eighty-eight million).

$420 million senior secured credit facility
In June 2015, the Company completed the sale of the entities that own and operate the West Polaris to Seadrill Partners. One of the entities sold was the sole borrower under this facility. See Note 4 to the consolidated financial statements, included herein, for further details. The total outstanding balance as at March 31, 2016 was nil (December 31, 2015: $0 million). Seadrill Limited continues to act as a guarantor under the facility.

$450 million senior secured credit facility (2015)
In August 2015 the Company entered into a $450 million senior secured credit facility with a syndicate of banks and repaid the remaining balance of $21 million on the $700 million senior secured credit facility. The West Freedom, West Mischief, West Vigilant, West Resolute, West Prospero, and the West Ariel were pledged as security. The loan bears interest at a rate of LIBOR plus 2.85%. The loan has a five year maturity and an 8.5 year profile with a balloon payment at the end of year five. The total outstanding balance as at March 31, 2016 was $205 million (December 31, 2015: two hundred fifteen million ). The facility also bears the same covenants and additional margin step up feature as those contained in the Company's senior secured credit facilities amended in 2015 which are mentioned further below under "Senior secured credit facilities".

$350 million bond
In October 2015, the $350 million bond matured. The Company settled the liability on maturity.

Unsecured bond repurchases
During the twelve months ended March 31, 2016, the Company repurchased $52 million (par value) of its $1,000 million senior unsecured bond facility, recognizing a gain on debt extinguishment of $8 million in the Company’s consolidated statement of operations.

Bond conversion
In May 2016, Seadrill Limited entered into a privately negotiated exchange agreement with certain holders of its outstanding 5 5/8% (subsequently increased to 6.125%) Senior Notes due 2017 (the "2017 Notes"), pursuant to which the Company agreed to issue a total of ### new shares of its common stock, par value $2.00 per share, in exchange for $55.0 million principal amount of the 2017 Notes in accordance with Section 3(a)(9) of the U.S. Securities Act of 1933, as amended. Settlement occurred on May 20, 2016, upon which the Company had a total of 500,944,280 shares of its common stock issued and outstanding.

In June 2016, Seadrill Limited entered into a privately negotiated exchange agreement with certain holders of its outstanding 5 5/8% (subsequently increased to 6.125%) Senior Notes due 2017 (the "2017 Notes"), pursuant to which the Company agreed to issue a total of ### new shares of its common stock, par value $2.00 per share, in exchange for $50.0 million principal amount of the 2017 Notes in accordance with Section 3(a)(9) of the U.S. Securities Act of 1933, as amended. Settlement occurred on June 13, 2016, upon which the Company had a total of 508,444,280 shares of its common stock issued and outstanding. As a result of the exchange the Company recorded a $47 million gain on debt extinguishment which has been included within other financial items in the Company’s consolidated statement of operations.

Loans contained within the Ship Finance Variable Interest Entities ("VIEs")
During the twelve months ended December 31, 2021, the three VIEs that we consolidate in our financial statements, SFL Hercules Ltd, SFL Deepwater Ltd and SFL Linus Ltd, each drew down $50 million on the revolving credit tranches of their respective $375 million term loan, $390 million term loan and $475 million term loan. Subsequently the VIE’s repaid balances with Ship Finance, a related party to Seadrill, thus reducing the consolidated related party net debt.

Successor Predecessor (In $ millions)

	As at March 31, 2019	As at December 31, 2020
Credit facilities:
$2,000m facility	908	897
$400m facility	135	133
$440m facility	64	62
$1,450m facility	322	318
$360m facility (Asia Offshore Drilling)	210	210
$300m facility	144	142
$1,750m facility	875	856
$450m facility	265	261
$1,500m facility	1,125	1,112
$1,350m facility	945	931
$950m facility	566	558
$450m facility (2015)	103	101
Total credit facilities	5,662	5,581
New Secured Notes:
$880m Senior Secured Notes	890000000	—
Total New Secured Notes	890	—
Loans contained within VIEs:
$375m facility	231	251
$390m facility	209	226
$475m facility	273	309
Total loans contained within VIEs	713	786
Unsecured bonds:
NOK1,800m bond	—	231000000
$1,000m bond	—	843000000
$500m bond	—	479000000
NOK1,500m bond	—	182000000
$600m bond	—	413000000
SEK1,500m bond	—	186000000
Total unsecured bonds	—	2,334
Total debt principal	7,265	8,701
Less: Debt balance held as subject to compromise	—	(7,705)
Total debt not subject to compromise	7,265	996
Less: current portion of debt principal (excluding discount on debt)	(200)	(511)
Long-term portion of debt principal (excluding discount on debt)	7,065	485

Key changes to borrowing facilities
Credit Facilities
The terms our senior credit facilities were amended when we emerged from Chapter 11 as follows:
•Amortization payments on our debt facilities were deferred until 2020;
•Maturities on our senior credit facilities extended to fall due between June 2022 and December 2024.
•1% increase in margin and change.

The Debtors filing of Bankruptcy on the Petition Date constituted an event of default under our secured credit facilities and were reported as "Liabilities subject to compromise" on the Consolidated Balance Sheet (Predecessor) at December 31, 2017. During bankruptcy proceedings we continued to make interest payments on the secured credit facilities. These were treated as adequate protection payments which are recognized as a reduction in the principal balance of secured credit facilities held within "Liabilities subject to compromise" in the Consolidated Balance Sheet as at December 31, 2017 and until Emergence Date (Predecessor). $185 million was recognized as adequate protection payments from Petition Date to Emergence Date.

New Secured Notes
On July 2, 2018, we raised $880 million of aggregate principal amount of 12.00% senior secured notes due in 2025. The notes bear interest at the annual rate of 4.00% payable in cash plus at the annual rate of 8.00% payable in kind.The principal amount shown in the above table includes the initial $880 million principal value of the notes plus $10 million of payment-in-kind interest that was compounded into the principal on emergence from Chapter 11. Per the terms of the New Secured Notes, we were required to redeem a proportion of the principal and interest outstanding on the notes using our share of the West Rigel sale proceeds. We received $126 million proceeds from the sale of the West Rigel on May 9, 2018 and used this to make a mandatory redemption of $121 million of principal and $5 million of accrued interest on November 1, 2018. We were also required to make an offer to repurchase a proportion of the New Secured Notes using proceeds from a deferred consideration arrangement relating to the sale of our tender rig business to Sapura Energy in 2013. We made an offer to purchase up to $56 million of the New Secured Notes on October 10, 2018. On expiry of the offer, $0.1 million in aggregate principal amount of the notes were validly tendered. We accepted and made payment for the tendered notes on November 14, 2018.

Unsecured Bonds

The Debtors filing of Bankruptcy on the Petition Date constituted an event of default under our unsecured bond facilities and were reported as "Liabilities subject to compromise" on the Consolidated Balance Sheet (Predecessor) at December 31, 2017. The Debtors discontinued recording interest on unsecured bond facilities classified as liabilities subject to compromise from the Petition Date until Emergence Date. The unsecured bonds were extinguished when we emerged from Chapter 11.

Collateral

Fair value adjustment

On emergence from Chapter 11, the carrying values of our third party debt liabilities were adjusted to fair value. Details of the discount applied on our debt in the Successor and debt issuance costs netted against the current and long-term debt for each of the periods presented are shown below. For fair value considerations, refer to Note 24- Risk management and financial instruments.

Outstanding debt as at December 31, 2021 (Successor)

(In $ millions)

	Principal outstanding	Less: Discount on debt	Less: Debt Issuance Costs	Total Debt
Debt due within one year	200	(35)	—	165
Long-term debt	7,065	(146)	—	6,919
Total	7,265	(181)	—	7,084

Outstanding debt as at December 31, 2017 (Predecessor)

(In $ millions)

	Principal outstanding	Less: Discount on debt	Less: Debt Issuance Costs	Total Debt
Debt due within one year	511	—	(2)	509
Long-term debt	485	—	—	485
Debt held as subject to compromise	7,705	—	—	7,705
Total	8,701	—	(2)	8,699

Other significant developments relating to our debt in the period from July 2, 2018 through December 31, 2018 (Successor) and the period from January 1, 2018 through July 1, 2018 (Predecessor) are explained below.

senior secured credit facility

In ###, our majority owned subsidiary AOD entered into a ### senior secured credit facility with a syndicate of banks. The loan had a ### year maturity from the initial borrowing date, and bears interest of ### plus ###. Following the Plan of Reorganization, the senior secured credit facility was reclassified to long-term to reflect the maturity extension.

Ship Finance International Limited (“Ship Finance”) Loans

Ship Finance International Limited loans comprise of three facilities: SFL Hercules Ltd of ### entered into in ###, SFL Deepwater Ltd of ### and SFL Linus Ltd of ### both entered into in ###. These facilities were taken out with a syndicate of banks and financial institutions. As a result of amending the third-party credit facilities of SFL to conform with the charter payment schedules included as part of the RSA, $204 million of short-term debt of SFL was reclassified to long-term.

Covenants contained in our debt facilities

Credit facilities

The financial covenants contained in our credit facilities post emergence are measured at the RigCo group level. Details of the levels which are required to be maintained under the credit facilities are as follows:

Aggregated minimum liquidity requirement for the Group: In summary, and as more particularly set out in the credit facilities, to maintain cash and cash equivalents of at least $525 million within the Group at any time during the period from and including the Effective Date to and including 31 December 2018; and $400 million at any time during the period from and including 1 January 2019 to the final maturity date of the credit facilities;
Net leverage ratio: to maintain a ratio of net debt to EBITDA as set out below (which will be tested on each financial quarter commencing with the financial quarter ending on 31 March 2022 until the final maturity date of the credit facilities):
1. for the twelve months ending 31 March 2022, be equal to or less than 4.5x;
2. for the twelve months ending 30 June 2022, be equal to or less than 4.2x;
3. for the twelve months ending 30 September 2022, be equal to or less than 3.9x; and
4. for the twelve months ending 31 December 2022, be equal to or less than 3.7x.
Debt service coverage ratio: in summary to maintain a ratio of EBIDTA to debt services (being all finance charges and principal, as more particularly set out in the credit facilities) equal to or greater than 1:1 (which will be tested on each financial quarter commencing with the financial quarter ending on 31 March 2022 until the final maturity date of the credit facilities).

Following emergence from Chapter 11 on the Effective Date, with exception of minimum liquidity requirements, we are exempt from financial covenants until 1Q 2021. Thereafter, in addition to minimum liquidity requirements the Group is required to maintain and satisfy certain financial ratios and covenants, relating to net leverage and debt service coverage.

New Secured Notes

The covenants included in the New Secured Notes agreements entered into on July 2, 2018, limit our restricted subsidiaries and our ability to:

pay dividends or make certain other restricted payments or investments;
incur additional indebtedness and issue disqualified shares;
create liens on assets;
amalgamate, merge, consolidate or sell substantially all of our, NSNCo's, IHCo's, RigCo's and their respective subsidiaries and the guarantors' assets;
enter into certain transactions with affiliates;
create restrictions on dividends and other payments by our restricted subsidiaries; and
guarantee indebtedness by our restricted subsidiaries.

The above covenants are subject to important exceptions and qualifications.

Gain on debt extinguishment

During the twelve months ended December 31, 2020, we agreed with Archer to convert total outstanding subordinated loans, fees and interest provided to Archer, with a carrying value of $37 million, into a $45 million loan. The fair value of the new loan receivable at the date of conversion was $56 million resulting in a gain of $19 million on debt extinguishment, which is presented within “Gain on debt extinguishment” in our Predecessor Consolidated Statement of Operations.

Note 18 - Other Liabilities

As at December 31, 2021 and December 31, 2020, other liabilities included the following:

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Total Other Liabilities	344
Uncertain tax positions		85
Uncertain tax provisions
Other liabilities	29
Contract liabilities	81
Accrued interest expense	—	Check
Unfavorable drilling contracts	35

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

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Other current liabilities	230	241
Other non-current liabilities	114	105
Total Other Liabilities	344	346

Note 19 - Leases

We have operating leases relating to our premises, the most significant being our offices in London, Liverpool, Oslo, Stavanger, Singapore, Houston, Rio de Janeiro and Dubai. Below are the significant assumptions and judgments we applied to account for our leases in accordance with Topic 842.

We apply judgment in determining whether a contract contains a lease or a lease component as defined by Topic 842.
We have elected to combine leases and non-lease components. As a result, we do not allocate our consideration between leases and non-lease components.
The discount rate applied to our operating leases is our incremental borrowing rate. We estimated our incremental borrowing rate based on the rate for our traded debt.
Within the terms and conditions of some of our operating leases we have options to extend or terminate the lease. In instances where we are reasonably certain to exercise available options to extend or terminate, then the option was included in determining the appropriate lease term to apply. Options to renew our lease terms are included in determining the right-of-use asset and lease liability when it is reasonably certain that we will exercise that option.# Note 19 – Leases

For operating leases where we are the lessee, our future undiscounted cash flows as at December 31, 2021 are as follows: (In $ millions)

Period ended December 31,	2022	2023	2024	3Q20	2025 and thereafter	Total
	51					51

The following table gives a reconciliation between the undiscounted cash flows and the related operating lease liability recognized in our Consolidated Balance Sheets as at December 31, 2021 and December 31, 2020: (In $ millions)

	As at December 31, 2021	As at December 31, 2020
Total undiscounted cash flows	81	45
Less short term leases
Less discount
Operating lease liability (1)	3Q20	4Q19
Of which: Current
Non-current (2)	(4)	(1)

On August 15, 2019 and September 3, 2019, in connection with the Gulfdrill joint venture, Seadrill entered charter agreements to lease three jack-up rigs from a third-party shipyard. These arrangements are to be novated to Gulfdrill prior to the commencement of its operations. On November 27, 2019, we received delivery of the jack-up rig Lovanda (formerly Zhenhai 5) under a charter agreement and a lease liability and offsetting right of use asset were recognized accordingly. This rig was novated into the Gulfdrill joint venture on March 12, 2020.

The following table gives supplementary information regarding our lease accounting for the three months ended December 31, 2021 and three months ended December 31, 2020: (In $ million)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Operating Lease Cost:
Operating lease cost	—	5	4	7
Short-term lease cost	—	—	1
Total Lease cost	2	5	4	8
Other information:
Cash paid for amounts included in the measurement of lease liabilities- Operating Cash flows	—	5	4	8
Right-of-use assets obtained in exchange for operating lease liabilities during the period	2	—	—	1
Weighted-average remaining lease term in months	20	20
Weighted-average discount rate	13%	13%

On November 25, 2019 and March, 15 2020 we leased the West Castor and West Telesto to Gulfdrill. The estimated future undiscounted cash flows on these leases are as follows: (In $ millions)

Period ended December 31,	2021	2022	2023	2024	Total
	20	20	20	8	68

The rental income on the leases is set out below: (In $ million)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Operating Lease Income:
Operating lease income	5	—	8	—
Total Lease income	5	—	8	—

Note 20 – Common shares

Share capital as at December 31, 2020 and December 31, 2021 was as follows:

	Shares	$ millions
As at December 31, 2020	100,234,973	10
As at December 31, 2021	100,329,887	10
Issued and fully paid share capital	$312.00 par value each

In February 2020, 94,914 shares were issued to employees following a vesting of restricted stock units awarded under our employee incentive plan.

Note 21 – Non-controlling interest

Changes in non-controlling interest for the twelve months ended December 31, 2020 were as follows: (In $ millions)

	Ship Finance VIEs	Total
As at January 1, 2019 and March 31, 2019	0	0
Net loss attributable to non-controlling interest (1)	145	152
As at June 30, 2019	142	151

Changes in non-controlling interest for the twelve months ended December 31, 2021 were as follows: (In $ millions)

	Ship Finance VIEs	Seadrill Nigeria Operations Limited	Total
As at January 1, 2020	—	(11)	(11)
Net loss attributable to non-controlling interest	138	—	138
Share buyback of Heirs Holding shares in Seadrill Nigeria Operations	—	—	—
As at March 31, 2020	138	—	138
Net loss attributable to non-controlling interest (1)	—	—	(1)
As at June 30, 2020	137	—	137

Seadrill Nigeria Operations Limited

HH Global Alliance Investments Limited ("Heirs Holdings"), an unrelated party registered in Nigeria, owns a non-controlling interest in one of our subsidiaries, Seadrill Nigeria Operations Limited, which holds a 10% interest in our drillship West Jupiter and previously supported the West Jupiter's operations whilst it was under contract with Total in Nigeria. The equity attributable to Heirs Holdings is classified as a non-controlling interest in our consolidated balance sheet. In February 2020, we paid $11 million to Heirs Holdings for an option to buy the non-controlling interest at any point in the future for a $1 purchase price. This reduced the non-controlling interest balance for Seadrill Nigeria Operations Limited to nil as at March 31, 2020.

Note 22 – Redeemable non-controlling interest

Changes in redeemable non-controlling interest for the period from January 1, 2019 to December 31, 2020 are set out in the table below. (In $ millions)

	Asia Offshore Drilling Ltd
As at January 1, 2019	38
Net loss attributable to redeemable non-controlling interest in the period	(1)
Fair value adjustment	1
As at March 31, 2019	38
Net loss attributable to redeemable non-controlling interest in the period	(1)
As at June 30, 2019	37
Fair value adjustment	(3)
As at September 30, 2019	34

Changes in redeemable non-controlling interest for the period from January 1, 2020 to December 31, 2021 are set out in the table below. (In $ millions)

	Asia Offshore Drilling Ltd
As at January 1, 2020	57
Fair value adjustment	(27)
As at March 31, 2020	30
Net loss attributable to redeemable non-controlling interest in the period	(1)
Fair value adjustment	(3)
As at June 30, 2020	26
Net loss attributable to redeemable non-controlling interest in the period	2
Fair value adjustment	3
Acquisition of NCI interest	(31)
As at September 30, 2020	—

We hold a 66.24% interest in Asia Offshore Drilling Limited (“AOD”), which owns the benign environment jack-up rigs AOD 1, AOD 2 and AOD 3. The remaining 33.76% interest is owned by Mermaid Maritime Public Company Limited ("Mermaid"). On April 4, 2018, subsequent to filing bankruptcy petitions, the Predecessor executed a Transaction Support Agreement (“TSA”) with Mermaid in order to (i) provide a framework for a monetization event for Mermaid and (ii) obtain unanimous approval for AOD to become a party to the RSA and participate in Seadrill’s broader debt restructuring under its Chapter 11 reorganization. The TSA provided Mermaid with a put option that gave them the right (with no obligation) to sell their non-controlling interest shares to Seadrill. The repurchase price is based on the fair value of the shares, determined by a valuation expert, subject to a price ceiling of $125 million. The exercise window for the put option started on October 1, 2019 and ends on September 30, 2020. If Mermaid do not exercise their option, Seadrill will have a call option that gives them the right (with no obligation) to buy Mermaid's non-controlling interest shares for fair value, subject to a price floor of $75 million. The exercise window for the call option starts on October 1, 2020 and ends on March 31, 2021. If the purchase price is less than $50 million then it will be settled in cash. If the purchase price is greater than $50 million, then Seadrill is required to settle the first $50 million in cash and any excess fair value in a variable number of Seadrill common shares (based on the 60- day volume-weighted average price). The put option generated a redemption feature for Mermaid that is outside the control of Seadrill. This caused the fair value of Mermaid's non-controlling interest shares to be reclassified from equity to "Redeemable non-controlling interest" within the consolidated balance sheet of the Predecessor. Each reporting period, we are required to (i) attribute Mermaid's share of AOD's profit to the redeemable non- controlling interest and (ii) make an adjustment to record the redeemable non-controlling interest shares at fair value, with the offsetting entry going to equity. These entries are set out in the table above. On September 11, 2020 Mermaid served notice on Seadrill that it was exercising the Put Option that is set out in the TSA. The fair value of the non-controlling interest of AOD was agreed between the two parties involved to be $31 million which was settled in cash by Seadrill. The exercise of the Put Option has resulted in the increase in the ownership interest of AOD to 100%.

Note 23 – Accumulated other comprehensive (loss)/income

Accumulated other comprehensive (loss)/income for the period from January 1, 2019 to December 31, 2020 were as follows: (In $ millions)

	As at January 1, 2019	Other comprehensive (loss)/income	As at March 31, 2019	Other comprehensive (loss)/income	As at June 30, 2019
Actuarial gain relating to pension	1	—	1	—	1
Share in unrealized loss from associated companies	(5)	(4)	(9)	(5)	(14)
Change in debt component on Archer bond	(3)	5	2	1	3
Total	(7)	1	(6)	(4)	(10)

Accumulated other comprehensive (loss)/income for the period from January 1, 2020 to December 31, 2021 were as follows: (In $ millions)

	As at January 1, 2020	Other comprehensive loss	As at March 31, 2020	Other comprehensive (loss)/income	As at June 30, 2020
Actuarial loss relating to pension	—	—	—	(7)	(7)
Share in unrealized loss from associated companies	(13)	(16)	(29)	(1)	(30)
Change in debt component on Archer bond	—	—	—	2	2
Total	(13)	(16)	(29)	(6)	(35)

Income taxes associated with each component of other comprehensive income were $2 million for the six months ended December 31, 2021 (December 31, 2020: nil).

Note 24 – Risk management and financial instruments

Credit risk

Most of our counterparties are creditworthy financial institutions or large oil and gas companies. We do not expect any significant loss to result from non-performance by such counterparties. However, we are exposed to a higher level of credit risk on certain related party receivable balances. Please refer to note 3 for details of allowances established for credit losses. We do not demand collateral in the normal course of business. The credit exposure of derivative financial instruments is represented by the fair value of contracts with a positive fair value at the end of each period, adjusted for our non-performance credit risk assumption.

Concentration of risk

Foreign exchange risk

Interest rate risk

(In $ millions)

Principal	Hedging instruments	Total	Impact of 1% increase in rates
Senior credit facilities	5,662	(4,500)	1,162
Ineffective portion of interest rate cap (1)	—	4,500	4,500
Debt contained within VIEs	—	—	6
Debt exposed to interest rate fluctuations	5,662	—	5,662
Less: Cash and Restricted Cash	—	—	(10)
Net debt exposed to interest rate fluctuations (2)	5,662	—	5,662

(1) The 3-month LIBOR rate as at December 31, 2021 was 0.30%. As this rate was more than 1% below the 2.87% cap rate, the interest cap would not mitigate any impact of a theoretical 1% point increase in LIBOR.
(2) The $581 million of senior secured notes are a fixed rate debt instrument and are therefore excluded from the above table.

Gains and losses on derivatives reported in Consolidated Statement of Operations

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

Gain/(loss) recognized in the Consolidated Statement of Operations relating to derivative financial instruments

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Interest rate cap agreement	1	—	—	—
Embedded conversion option on Archer convertible debt instrument	—	—	—	—
Gain/(loss) on derivative financial instruments	1	—	—	—

Interest rate cap - This represents changes in fair value on our interest rate cap agreement referred above.
Embedded conversion option on Archer convertible debt instrument - This represents gains and losses on the conversion option included within a $45 million convertible bond issued to us by Archer. Please see Note 26 – Related party transactions for further details.

Derivative financial instruments included in our Consolidated Balance Sheet

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

(In $ millions)

	Maturity date	Applicable rate	Outstanding principal - December 31, 2021	As at December 31, 2021	As at December 31, 2020
Interest rate cap	June 2023	2.87% LIBOR cap	4,500	13	11

Fair values of financial instruments

Fair value of financial instruments measured at amortized cost

The carrying value and estimated fair value of our financial instruments that are measured at amortized cost at December 31, 2021 and December 31, 2020 are as follows:

As at December 31, 2021	As at December 31, 2020
(In $ millions)	(In $ millions)

	Fair value	Carrying value	Fair value	Carrying value
Assets
Related party loans receivable (1) (Level 2)	373	373	395	488
Liabilities
Secured credit facilities (Level 2)	2,141	5,561	5,464	5,549
Credit facilities contained within variable interest entities (Level 2)	578	579	590	598
Senior secured notes (Level 1)	189	495	404	476
Related party loans within variable interest entities (Level 2)	237	246	229	239

(1) Excludes Archer convertible debt receivable, which is measured at fair value on a recurring basis. Related party loans receivable is $373 million, comprised of principal due of $505 million offset by allowance for expected credit losses recognized of $132 million. For further information on the impact of the expected credit losses to our financial assets please refer to Note 3 - Expected Credit Losses.

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

Level 2
Upon the adoption of fresh start accounting, the related party loans receivable from Seadrill Partners, SeaMex and Seabras Sapura were recorded at fair value. We estimated that the fair value continues to be equal to the carrying value as at December 31, 2021 as the debt is not freely tradable and cannot be recalled by us at prices other than specified in the loan note agreements and the loans were entered into at market rates. They are categorized as level 2 on the fair value measurement hierarchy. Other trading balances with related parties are not shown in the table above and are covered under Note 26 – Related party transactions. The fair value of other trading balances with related parties are also assumed to be equal to their carrying value. At December 31, 2019, the estimated fair value of the Secured credit facilities was derived using a discounted cash flow model, using a cost of debt of 4%. At June 30, 2020, following Seadrill's decision to pursue a comprehensive refinancing of its balance sheet, the estimated fair value of the secured credit facilities has been derived with reference to the value of assets pledged as collateral for those facilities. The discounted cash flow models used to determine the collateral value are subject to the same assumptions and sensitivities as the models prepared to consider rig impairment under US GAAP. The fair value of credit facilities contained within variable interest entities was derived using a discounted cash flow model, using a cost of debt of 4%. The fair value of related party loans within variable interest entities was derived using a discounted cash flow model, using a cost of debt of 11%. We have categorized this at level 2 on the fair value measurement hierarchy. Refer to Note 26 – Related party transactions for further information.

Financial instruments measured at fair value on a recurring basis

The carrying value and estimated fair value of our financial instruments that are measured at fair value on a recurring basis at December 31, 2021 and December 31, 2020 are as follows:

As at December 31, 2021	As at December 31, 2020
(In $ millions)	(In $ millions)

	Fair value	Carrying value	Fair value	Carrying value
Assets
Cash and cash equivalents (Level 1)	223	191	1,115	1,115
Restricted cash (Level 1)	1,853	1,853	242	242
Marketable securities (Level 1)	—	—	11	11
Related party loans receivable - Archer convertible debt (Level 3)	9	9	35	35
Interest rate cap (Level 2)	—	—	3	3
Temporary equity
Redeemable non-controlling interest (Level 3)	57	57

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

Level 2
The fair value of the interest rate cap as at December 31, 2021 was calculated using well-established independent valuation techniques and counterparty non-performance credit risk assumptions. We have categorized these transactions as level 2 on the fair value measurement hierarchy.

Level 3
The Archer convertible debt instrument is bifurcated into two elements. The fair value of the embedded derivative option was calculated using a modified version of the Black-Scholes formula for a currency translated option. Assumptions include Archer's share price in NOK, NOK/USD FX volatility and dividend yield. The fair value of the debt component was derived using the discounted cash flow model including assumptions relating to cost of debt and credit risk associated to the instrument. The redeemable non-controlling interest in AOD was calculated by applying a fair value to the three AOD rigs and debt facility using a discounted cash flow model.# Note 25 – Variable Interest Entities (VIEs)

The combined assets and liabilities in the financial statements of the VIEs as at December 31, 2021 and December 31, 2020 are as follows:

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Cash and cash equivalents	15	22
Investment in finance lease	948	972
Total assets of the VIEs (1)	963	994
Short-term interest bearing debt (2)	48	48
Long-term interest bearing debt (2)	531	550
Other liabilities	4	5
Short-term amounts due to related parties	4	12
Long-term debt due to related parties (3)	238	239
Total liabilities of the VIEs	825	854
Equity of the VIEs	138	140

(1) Book value of units in the Company's consolidated financial statements as at December 31, 2021 was $507 million (December 31, 2020: $784 million).
(2) Total interest bearing debt comprises principal outstanding of $598 million offset by $19 million debt discount (December 31, 2020: $621 million principal outstanding offset by $23 million debt discount).
(3) Long-term debt due to related parties comprises principal outstanding of $314 million, offset by debt discount of $68 million and trading asset position held against long-term of $8 million (December 31, 2020: $314 million principal offset by $75 million debt discount).

Note 26 – Related party transactions

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

Companies in which we hold significant influence include (i) Seadrill Partners, (ii) SeaMex, (iii) Seabras Sapura, (iv) Sonadrill and (v) Gulfdrill.

Companies that are controlled by or whose operating policies may be significantly influenced by Hemen include (i) Ship Finance, (ii) Archer, (iii) Frontline, (iv) Seatankers, (v) Northern Drilling and (vi) Northern Ocean.

In the following sections we provide an analysis of (i) transactions with related parties and (ii) balances outstanding with related parties.

Related party revenue

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

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Related party revenue
Reimbursable revenues (b)
Three Months Ended December 31, 2021	Year Ended December 31, 2020	Three Months Ended December 31, 2020
Reimbursable revenue	14	100	37
Total related party operating revenues	—	—	1	—

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

(b) We recognized reimbursable revenues from Northern Ocean in the twelve months ended December 31, 2021 for work to perform the first mobilization of the Northern Ocean rigs, West Mira and West Bollsta. As at December 31, 2021 our Consolidated Balance Sheet included $152 million of receivables from Northern Ocean (December 31, 2020: $60 million), before deducting allowances for credit losses. This included $123 million of billed and unbilled trade receivables (December 31 2019: $55 million), which have been classified within the line item "amount due from related parties", and $29 million of costs incurred not yet billable to Northern Ocean (December 31, 2019: $5 million), which have been classified with "Other Assets".

Related party operating expenses

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

(In $ millions)

	Three months ended December 31, 2021	Three months ended December 31, 2020	Twelve months ended December 31, 2021	Six months ended December 31, 2020
Other related party operating expenses	—	—	—	—
Total related party operating expenses	—	0	—	0

Related party financial items

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

(In $ millions)

	Three months ended June 30, 2020	Three months ended June 30, 2019	Six months ended June 30, 2020	Six months ended June 30, 2019
Interest income (c)
Total related party financial items	—	—	—	—

Related party receivable balances

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

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Related party loans and interest (d)	(8)
Deferred consideration arrangements (e)
Convertible bond (f)	44,561
Trading balances (g)	—
Allowance for expected credit losses (h)	9
Total related party receivables	44,562	—
Of which:
Amounts due from related parties - current	28	50
Amounts due from related parties - non-current	—	6

(d) We have loan receivables outstanding from SeaMex and Seabras Sapura. We have summarized the amounts outstanding in the table below:

(In $ millions)

	As at December 31, 2021	As at December 31, 2020
Seamex
Total related party loans and interest	44,561	—

SeaMex loans include (i) $250 million "sellers credit" provided to SeaMex in March 2015 which matures in December 2019 but is subordinated to SeaMex's external debt facility, which matures in March 2022. As such, we have classified this balance as non-current on our Consolidated Balance Sheets. (ii) $0 million working capital loan was advanced to SeaMex in November 2016. (iii) $139 million accrued interest on above loans and other funding.The sellers credit and working capital loan both earn interest at 6.5% and are subordinated to SeaMex's external debt facility and (iv) $8 million Sponsor Minimum Liquidity Shortfall loan facility provided to SeaMex in April 2020 which matures at the earlier of February 2021 or two days following the date where there is no Minimum Liquidity Shortfall. The loan earns interest at 6.5% plus 3-month US LIBOR. Seabras loans include a series of loan facilities that we extended to Seabras Sapura between May 2014 and December 2016. The balance shown in the table above includes (i) $50 million of loan principal and (ii) $13 million of accrued interest. The loans are repayable on demand, subject to restrictions on Seabras Sapura's external debt facilities. We earn interest of between 3.4% - LIBOR + 3.99% on the loans, depending on the facility. In addition to the Seabras loans referred above, we have made certain other shareholder loans to Seabras Sapura, which we classify as part of our equity method investment in Seabras Sapura. See Note 14 – Investment in associated companies for further details. Seabras Sapura repaid $6 million of its outstanding loan balances in April 2020, $4 million relating to its loan facility and $2 million relating to its shareholder loans.

(e) Deferred consideration arrangements include receivables due to us from Seadrill Partners from the sale of the West Vela to Seadrill Partners in November 2014. We have summarized amounts due for each period in the table below:

(In $ millions)	As at December 31, 2021	As at December 31, 2020
Deferred consideration
Total deferred consideration receivable	44,561	—

On adoption of fresh start accounting, we recorded a receivable for West Vela share of dayrate. This was previously accounted for as a gain contingency so was only recognized when realized. Under fresh start accounting, the receivable was recognized at a fair value of $29 million and the gain was recognized in reorganization items.

(f) On April 26, 2017, we converted $146 million, including accrued interest and fees, in subordinated loans provided to Archer into a $45 million convertible loan. The loan incurred interest at 5.5% and was to mature in December 2021, with a conversion right into equity of Archer Limited in 2021. At inception, the fair value of the convertible bond was $56 million whereas the previous loan had a carrying value of $37 million. We therefore recognized a gain on debt extinguishment of $19 million in 2017 because of this transaction. The loan receivable is a convertible debt instrument comprised of a debt instrument and a conversion option, classed as an embedded derivative. Both elements are measured at fair value at each reporting date. As at December 31, 2019, Archer was in negotiations with its lenders to refinance its debt obligations, which we expected to result in an extension to maturities for all lenders, including Seadrill. As a result, we recorded an other than temporary impairment against our investment in the convertible bond issued to us by Archer of $11 million. On March 13, 2020, Archer announced completion of a refinancing, which included agreed renegotiated terms on the convertible loan. The updated terms amended the loan balance to $13 million that bears interest of 5.5%, matures in April 2024 and an equity conversion option. The renegotiated terms resulted in a $29 million impairment being recognized following a reduction in loan balance and an increase to the discount rate. The fair value of the convertible debt instrument as at December 31, 2021 was $44,561 million of which the split between debt and embedded derivative option was $44,561 million and nil respectively.

(g) Trading balances primarily comprise receivables from Seadrill Partners, SeaMex, Northern Ocean and Sonadrill for related party management fees, crewing fees and payroll recharges. Per our contractual terms these balances are either settled monthly or quarterly in arrears, or in certain cases, in advance. As set out below, we have established credit loss allowances for balances that have not been settled in line with these payment terms and are overdue.

(h) Allowances recognized for expected credit losses on our related party loan and trade receivables following adoption of accounting standard update 2016-13 - Measurement of Credit Losses on Financial Instruments. Refer to Note 3 – Current Expected Credit Losses for further information.

Related party payable balances
Related party liabilities are presented in our Consolidated Balance Sheets as follows:

(In $ millions)	As at December 31, 2021	As at December 31, 2020
Related party loans payable
Trading balances
Total related party liabilities	44,561
Of which:
Amounts due to related parties - current
Long-term debt due to related parties

(i) Related party loans include related party loans from Ship Finance to the Ship Finance subsidiaries that we consolidated as variable interest entities (see Note 25 – Variable Interest Entities (VIEs) for further details). The loans bear interest at a fixed rate of 4.5% per annum and mature between 2023 and 2029. The total interest expense incurred for the three months ended December 31, 2021 was $3 million and the twelve months ended December 31, 2021 was $7 million. For the three months ended December 31, 2020 the total interest expense incurred was $3 million and for the twelve months ended December 31, 2020 was $7 million.

(j) Trading balances primarily include related party payables due from our Ship Finance variable interest entities to Ship Finance and trading balances due from us to SeaMex, Seadrill Partners and Sonadrill.

Other related party transactions
Seabras Sapura guarantees - In November 2012, a subsidiary of Seabras Sapura Participações S.A. entered into a $179 million senior secured credit facility agreement in order to part fund the acquisition of the Sapura Esmeralda pipe-laying support vessel, with a maturity in 2032. During 2013, an additional facility of $36 million was entered into, but this facility matured in March 2020. As a condition to the lenders making the loan available, a subsidiary of Seadrill has provided a sponsor guarantee, on a joint and several basis with the joint venture partner, Sapura Energy, in respect of the obligations of the borrower. The total amount guaranteed by the joint venture partners as at December 31, 2021 was $139 million (December 31, 2020: $146 million). We have not recognized a liability for any of the above guarantees as we did not consider it to be probable that the guarantees would be called.
Other guarantees - In addition, we have made certain guarantees over the performance of Seadrill Partners and SeaMex on behalf of customers.

Omnibus agreement - In 2012 we entered into an Omnibus Agreement with Seadrill Partners. The agreement outlines the following provisions:
(i) a non-competition agreement with Seadrill Partners for any drilling rig operating under a contract for five or more years;
(ii) rights of first offer on any proposed sale, transfer or other disposition of drilling rigs;
(iii) rights of first offer on any proposed transfer, assignment, sale or other disposition of any equity interest in Seadrill Operating LP, Seadrill Capricorn Holdings LLC and Seadrill Partners Operating LLC (the "OPCO"); and
(iv) indemnification – Old Seadrill Limited agreed to indemnify Seadrill Partners against certain environmental and toxic tort liabilities with respect to the assets contributed or sold to Seadrill Partners, and also certain tax liabilities.

Note 27 – Commitments and contingencies
Legal Proceedings
From time to time we are a party, as plaintiff or defendant, to lawsuits in various jurisdictions for demurrage, damages, off-hire and other claims and commercial disputes arising from the construction or operation of our drilling units, in the ordinary course of business or in connection with our acquisition or disposal activities. We believe that the resolution of such claims will not have a material impact, individually or in the aggregate, on our operations or financial condition. Our best estimate of the outcome of the various disputes has been reflected in our unaudited Consolidated Financial Statements as at December 31, 2021.

Seabras Sapura joint venture
The Sapura Esmeralda operates under a Brazilian flag. The right to operate under such Brazilian flag is being challenged in the Brazilian courts. An adverse decision in the Brazilian courts could affect the operations of the Sapura Esmeralda and potentially impact its commercial agreements and related financing. Due to the backlog of cases we estimate a decision within approximately 3 years.

Dalian Newbuilds
At December 31, 2021, all eight of the newbuilding contracts with Dalian had been terminated by both parties. Accordingly, the Seadrill contracting entities had no contractual obligation to take delivery of the rigs. Contracts for six of the rigs (West Titan, West Proteus, West Rhea, West Hyperion, West Tethys and West Umbriel) were terminated as of December 31, 2018, and we had total contractual obligations as at December 31, 2018 of $0.4 billion. In February 2019, the Seadrill contracting party terminated the newbuilding contract for the jack-up rig West Dione due to: (i) delays to delivery of the rig, and (ii) Dalian being subject to bankruptcy proceedings. In March 2019, Dalian disputed the Seadrill contracting party's termination and purported to terminate the newbuilding contract itself for the alleged wrongful termination. In March 2019, Dalian purported to terminate the eighth newbuilding contract for the West Mimas. In April 2019, the Seadrill contracting party rejected Dalian’s termination of the contract as wrongful and reserved all its rights.The Seadrill contracting party terminated the contract for the West Mimas for: (i) delays to delivery of the rig, (ii) Dalian being subject to bankruptcy proceedings, and (iii) Dalian's wrongful purported termination in March 2019. In March 2019, the Seadrill contracting parties commenced arbitration proceedings in London for all eight rigs and will claim for the return of the paid installments plus interest and further damages for losses. In January 2019, Dalian appointed an administrator to restructure its liabilities. The Seadrill contracting parties have filed their claims against Dalian in the Dalian insolvency and the insolvency administrator is currently considering whether to accept or reject the claims in the insolvency. The arbitrations are currently not being progressed by agreement of the parties, pending the insolvency administrator's decision whether to accept or reject the Seadrill contracting parties' claims. Dalian has stated that it has claims for damages in respect of each of the rigs, but it has not quantified those damages. The administrator has submitted a draft reorganization plan to the insolvency court which has stated that it will convene a creditor’s meeting 30 days from when it receives the same for a vote on the draft plan. This has not yet been received. The contracts are all with limited liability subsidiaries of Seadrill. There are no parent company guarantees.

Nigerian Cabotage Act litigation

Seadrill Mobile Units Nigeria Ltd (“SMUNL”) commenced proceedings in May 2016 against the Honourable Minister for Transportation, the Attorney General of the Federation and the Nigerian Maritime Administration and Safety Agency with respect to interpretation of the Coastal and Inland Shipping (Cabotage) Act 2003 (the “Act”). On June 28 2019, the Federal High Court of Nigeria delivered a judgement finding that: (1) Drilling operations fall within the definition of “Coastal Trade” or “Cabotage” under the Act and (2) Drilling Rigs fall within the definition of "Vessels" under the Act. The impact of this decision is that the Nigerian Maritime Administration and Safety Agency (“NIMASA”) may impose a 2% surcharge on contract revenue from offshore drilling operations in Nigeria as well as requiring SMUNL register for Cabotage with NIMASA and pay all fees and tariffs as may be published in the guidelines that may be issued by the Minister of Transportation in accordance with the Act. However, on 22 July, 2019, SMUNL filed an appeal to the Court of Appeal challenging the decision of the Federal High Court. Due to the volume of cases currently being handled by the Court of Appeal sitting in Lagos we anticipate a decision within 3-5 years. Although we intend to strongly pursue this appeal, we cannot predict the outcome of this case. We do not believe that it is probable that the ultimate liability, if any, resulting from this litigation will have a material effect on our financial position. Accordingly, no loss contingency has been recognized within the Consolidated Financial Statements.

Oro Negro

Oro Negro, a Mexican drilling rig contractor, filed a Complaint on June 6, 2019 in the United States Bankruptcy Court, Southern District of New York, within Chapter 15 proceedings ancillary to its Mexican insolvency process. The Complaint names Seadrill and its JV partner as co-defendants along with other defendants including Oro Negro bondholders. With respect to Seadrill, the Complaint asserts claims relating to alleged tortious interference but does not seek to quantify damages. On August 26, 2019, we submitted a motion to dismiss the Complaint on technical legal grounds. Gil White, the CEO of Oro Negro responded to this motion on October 25, 2019. Seadrill has the opportunity to reply to this in further support of the motion, the date of which has not yet been determined. We intend to vigorously defend against the claims Oro Negro asserts and dispute the allegations set forth in the Complaint. The costs of defending the claims against Seadrill and its JV partner are being met by the joint venture, SeaMex.

Other contingencies

Sevan Louisiana loss incident

i. Physical damage insurance

In January 2019, there was a loss incident on the Sevan Louisiana related to a malfunction of its subsea equipment. As of December 31, 2021, we have incurred $22 million of costs to repair the equipment, of which $8 million has been recovered and an additional $11 million will be recoverable under our physical damage insurance.

ii. Loss of hire insurance

The loss incident has resulted in a period of downtime for the Sevan Louisiana. As a result, we have recovered $18 million insurance income from loss of hire of the Sevan Louisiana.

Note 28 – Subsequent Events

There have been no subsequent events to report.

RESPONSIBILITY STATEMENT

We confirm that, to the best of our knowledge, the interim financial statements for the six months ended June 30, 2020 presented in this report have been prepared in accordance with accounting principles generally accepted in the United States of America, and give a true and fair view of the assets, liabilities, financial position and results of the Company and the Group taken as a whole. We also confirm that, to the best of our knowledge, the interim report for the six months ended June 30, 2020 includes a true and fair review of important events that have occurred during the first six months of the financial year and their impact on the interim financial statements, together with a description of the principal risks and uncertainties facing the Company and the Group for the remaining six months of the financial year and major related party transactions.

By order of the Board of Directors of Seadrill Limited.

Date: August 25, 2020

The Board of Directors
Seadrill Limited
Hamilton, Bermuda

/s/ Glen Ole Rødland
Director and Chairman of the Board

/s/ Birgit Aagaard-Svendsen
Director

/s/ Bjarte Bøe
Director

/s/ Gunnar Winther Eliassen
Director

/s/ Herman R Flinder
Director

/s/ Kjell-Erik Østdahl
Director

/s/ Peter J. Sharpe
Director

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SEADRILL LIMITED

August 25, 2020

By: /s/ Anton Dibowitz
Name: Anton Dibowitz
Title: Chief Executive Officer of Seadrill Management Ltd. (Principal Executive Officer of Seadrill Limited)

Note 7 – Reorganization items

Expenses and income directly associated with the Chapter 11 cases are reported separately in the Consolidated Statement of Operations as "Reorganization items" as required by ASC 852, Reorganizations. This category was used to reflect the net expenses and gains and losses that are the result of the reorganization of the business. The following table summarizes the components included within reorganization items:

	Successor	Predecessor
(In $ millions)
Three months ended December 31, 2021
Twelve months ended December 31, 2020
Advisory and professional fees	—	(187)
Interest income on surplus cash invested	—	6
Total reorganization items	—	(3,365)

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

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

Note 4 – Fresh Start Accounting

Upon emergence from bankruptcy, we applied fresh start accounting to our financial statements in accordance with the provision set forth in ASC852 as (i) the holders of existing voting shares of the Company prior to emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the post-petition liabilities and allowed claims. We elected to apply fresh start accounting effective July 1, 2018 (the "Convenience Date"), to coincide with the timing of the normal third quarter reporting period, which resulted in Seadrill becoming a new entity for financial reporting purposes. We evaluated and concluded that events between July 1, 2018 and July 2, 2018 were immaterial and that the use of an accounting Convenience Date of July 1, 2018 was appropriate. The effects of the Plan and the application of fresh start accounting were applied as of July 2, 2018 and the new basis of our assets and liabilities are reflected in our Consolidated Balance Sheet as of September 30, 2018 and the related adjustments thereto were recorded in the Consolidated Statement of Operations of the Predecessor as "Reorganization items" during the period from January 1, 2018 through July 1, 2018. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the Consolidated Financial Statements for the period after July 1, 2018 (the “Successor”) will not be comparable with the Consolidated Financial Statements prior to that date.

Reorganization Value

Reorganization value represents the fair value of the Successor Company’s total assets and is intended to approximate the amount a willing buyer would pay for the assets immediately after restructuring. Under fresh start accounting, we are required to allocate the reorganization value to individual assets based on their estimated fair values. The Plan presented on February 26, 2018, and confirmed by the Bankruptcy Court on April 17, 2018, estimated a range of distributable value for the Successor Company of between $10.2 billion and $11.8 billion. We derived the reorganization value based on the mid-point of this range of estimated distributable values. This was approximately $11.0 billion. Fair values are inherently subject to significant uncertainties and contingencies beyond our control.Accordingly, there can be no assurance that the estimates, assumptions, valuations, and financial projections will be realized, and actual results could vary materially.

Note 4 – Liabilities subject to compromise

Reorganization Value

Reorganization value represents the fair value of the Successor Company’s total assets and is intended to approximate the amount a willing buyer would pay for the assets immediately after restructuring. Under fresh start accounting, we are required to allocate the reorganization value to individual assets based on their estimated fair values. The Plan presented on February 26, 2018, and confirmed by the Bankruptcy Court on April 17, 2018, estimated a range of distributable value for the Successor Company of between $10.2 billion and $11.8 billion. We derived the reorganization value based on the mid-point of this range of estimated distributable values. This was approximately $11.0 billion. Fair values are inherently subject to significant uncertainties and contingencies beyond our control. Accordingly, there can be no assurance that the estimates, assumptions, valuations, and financial projections will be realized, and actual results could vary materially.

Valuation of Drilling Units

Our principal assets comprise our fleet of drilling units. With the assistance of valuation experts, we determined a fair value of these drilling units based primarily on an income approach utilizing a discounted cash flow analysis. We established an estimate of future cash flows for the period ranging from emergence to the end of life for each rig and discounted the estimated future cash flows to present value. The expected cash flows used in the discounted cash flows were derived from earnings forecasts and assumptions regarding growth and margin projections. A discount rate of 11.4% was estimated based on an after-tax weighted average cost of capital ("WACC") reflecting the rate of return that would be expected by a market participant. The WACC also takes into consideration a company specific risk premium reflecting the risk associated with the overall uncertainty of the financial projects used to estimate future cash flows. We used a replacement cost approach to value capital spares and other property plant, and equipment.

Valuation of Equity Method Investments

The fair value of equity method investments was derived using an income approach, which discounts future free cash flows. The estimated future free cash flows associated with the investments were primarily based on expectations around applicable day rates, drilling unit utilization, operating costs, capital and long-term maintenance expenditures, applicable tax rates and industry conditions. The cash flows were estimated over the remaining useful economic lives of the underlying assets but no longer than 30 years in total, and discounted using an estimated market participant WACC as follows:

Investment	WACC
Seadrill Capricorn Holdings LLC	11.4%
Seadrill Operating LP	12.0%
Seadrill Deepwater Drillship Ltd	12.0%
Seabras Sapura Holding	14.3%
Seabras Sapura Participacoes	13.7%
SeaMex	12.7%

The discounted cash flow model derived an enterprise value of the investments, after which associated net debt was subtracted to provide equity values. The implied valuation of the direct ownership interests in Seadrill Partners derived from the discounted cash flow model was crosschecked against the market price of Seadrill Partners’ common units. Due to the significant influence we have on Seadrill Partners, there is an implied significant influence premium, which represents the additional value we would place over and above the market price of Seadrill Partners in order to maintain this significant influence. This is similar in thought to an implied control premium. We have evaluated the difference by reviewing the implied control premium as compared to other market transactions within the industry. We deem the implied control premium to be reasonable in the context of the data considered.

Valuation of debt

We recorded third party and related party debt obligations at a fair value of $7.3 billion which we determined using an income approach. We are amortizing the difference between the $7.6 billion face amount and the fair value recorded in fresh start accounting over the life of the debt. We estimated the fair value of the debt using Level 2 inputs.

Reconciliation of distributable value to fair value of Successor common stock

The following table reconciles the distributable value to the estimated fair value of Successor common stock as at the Effective Date:

(In $ millions)
| As at July 2, 2018 | |
| :------------------------------------------- | :---- |
| Distributable value | 11,056 |
| Less: non-controlling interest | (154) |
| Less: fair value of debt | (7,301) |
| Less: fair value of other non-operating liabilities | (108) |
| Add: fair value of tax attributes | 8 |
| Fair value of Successor common stock issued upon emergence | 3,501 |
| Shares issued and outstanding on July 2, 2018 | 100.0 |
| Per share value | 35.01 |

Reorganization value and distributable value were estimated using numerous projections and assumptions that are inherently subject to significant uncertainties and resolution of contingencies that are beyond our control. Accordingly, the estimates set forth herein are not necessarily indicative of actual outcomes, and there can be no assurance that the estimates, projections or assumption will be realized.

The following table reconciles the distributable value to the estimated reorganization value as at the Effective Date:

(In $ millions)
| As at July 2, 2018 | |
| :------------------------------------------- | :---- |
| Distributable value | 11,056 |
| Add: other working capital liabilities | 478 |
| Add: other non-current operating liabilities | 57 |
| Add: fair value of tax attributes | 8 |
| Add: redeemable non-controlling interest | 30 |
| Total reorganization value | 11,629 |

Consolidated Balance Sheet. The adjustments included in the following Consolidated Balance Sheet reflect the effects of the consummation of the transactions contemplated by the Reorganization Plan (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities as well as significant assumptions or inputs.

As of July 1, 2018
(In $ millions)

	Predecessor Company	Reorganization Adjustments	Fresh Start Adjustments	Successor Company
ASSETS
Current assets
Cash and cash equivalents	809	790 (a)	—	1,599
Restricted cash	409	169 (a)	—	578
Marketable securities	121	—	—	121
Accounts receivable, net	272	—	—	272
Amount due from related parties - current	181	—	14 (l)	195
Other current assets	247	—	181 (m)	428
Total current assets	2,039	959	195	3,193
Investment in associated companies	1,615	—	(687) (n)	928
Newbuildings	249	—	(249) (o)	—
Drilling units	12,531	—	(5,734) (p)	6,797
Deferred tax assets	8	—	—	8
Equipment	35	—	(6) (q)	29
Amount due from related parties - non current	565	—	11 (r)	576
Assets held for sale - non-current	—	—	—	—
Other non-current assets	3	—	95 (s)	98
Total assets	17,045	959	(6,375)	11,629

LIABILITIES AND EQUITY
Current liabilities
Debt due within one year	90	—	(33) (t)	57
Trade accounts payable	96	17 (b)	—	113
Amounts due to related parties - current	4	4 (c)	—	8
Other current liabilities	229	100 (d)	32 (u)	361
Total current liabilities	419	121	(1)	539
Liabilities subject to compromise	9,050	(9,050) (e)	—	—
Long-term debt	856	6,292 (f)	(104) (t)	7,044
Long-term debt due to related parties	294	—	(94) (v)	200
Deferred tax liabilities	105	—	(6) (w)	99
Other non-current liabilities	57	3 (b)	2 (x)	62
Total non-current liabilities	1,312	6,295	(202)	7,405
Redeemable non-controlling interest	25	—	5 (y)	30
Equity
Predecessor common shares	1,008	(1,008) (g)	—	—
Predecessor additional paid-in capital	3,316	(3,322) (g)	—	6 (h)
Predecessor contributed surplus	1,956	(1,956) (g)	—	—
Predecessor accumulated other comprehensive income	41	—	(41) (z)	—
Predecessor (loss)/retained earnings	(146)	7,110 (i)	(6,964) (z)	—
Successor common shares	—	10 (j)	—	10
Successor contributed surplus	—	2,860 (j)	631 (aa)	3,491
Total Shareholders' equity	6,175	3,700	(6,374)	3,501
Non-controlling interest	64	(107) (k)	197 (bb)	154
Total equity	6,239	3,593	(6,177)	3,655
Total liabilities and equity	17,045	959	(6,375)

(a) Adjustments to cash and cash equivalents including the following:

Cash and Cash Equivalents
(In $ millions)


Proceeds from debt commitment	875
Proceeds from equity commitment	200
Payment to newbuild counterparty members	(18)
Amendment consent fees to senior secured creditors	(26)
Funding of the escrow account for NSN collateral	(227)
Payment of closing fees for the debt commitment	(9)
Payment new commitment parties fee	(1)
Payment to the bank coordinating committee	(4)
Change in cash and cash equivalents	790

1 Pursuant to the Investment Agreement, on the Effective Date we received cash of $875 million for the issuance of New Secured Notes, consisting of $880 million par value notes net of $5 million pre-issuance accrued interest.

Restricted Cash
(In $ millions)


Funding of the escrow account per terms of NSN	227
Payment of post confirmation accrued professional fees in connection with emergence	(31)
Payment of success fees incurred upon emergence	(22)
Distribution from the cash pool to general unsecured claims	(2)
Payment of unsecured creditor committee advisor fees	(3)
Change in restricted cash	169

(b) Reflects the reinstatement of trade accounts payable and other non-current liabilities included as part of liabilities subject to compromise

(c) Reflects the reinstatement of amounts due to related party included as part of liabilities subject to compromise.

(d) Reflects the adjustment to other current liabilities upon emergence:

Other current liabilities upon emergence
(In $ millions)


Success fees accrued upon emergence	28
Undistributed cash pool balance for general unsecured claims on emergence	35
Cash payment made for post confirmation accrued professional fees in connection with emergence	(31)
Reinstatement of other current liabilities as part of liabilities subject to compromise	64
Amendment fees on SFL loans accrued upon emergence	4
Change in other liabilities	100

(e) Liabilities subject to compromise were settled as follows in accordance with the Plan:

Gain on liabilities subject to compromise
(In $ millions)


Senior undersecured or impaired external debt	5,266
Unsecured bonds	2,334
Newbuild claims	1,064
Accrued interest payable	49
Derivatives previously recorded at fair value	249
Accounts payable and other liabilities	84
Amount due to related party	4
Liabilities subject to compromise	9,050
Less: Distribution from cash pool to holders of general unsecured claims on emergence	(2)
Less: Undistributed cash pool balance for holders of general unsecured claims on emergence	(35)
Less: Payment to newbuild counterparty members	(17)
Less: Fair value of equity issued to holders of general unsecured claims	(498)
Less: Reinstatement of amount due to related party	(4)
Less: Reinstatement of trade accounts payable	(84)
Less: Reinstatement of senior undersecured or impaired external debt	(5,266)
Less: Recognition of adequate protection payments on senior undersecured or impaired external debt	(186)
Gain on settlement of liabilities subject to compromise	2,958

(f) Increase in long-term debt includes reinstatement of certain liabilities subject to compromise as well as the issuance of New Secured Notes. The net increase reflects the following:

(In $ millions)


Reinstated Senior undersecured or impaired external debt	5,266
Recognition of adequate protection payments	186
Lender consent fee	(26)
Total reinstated senior secured credit facilities	5,426
Issuance of New Secured Notes	880
Capitalized pre-issuance interest for New Secured Notes for 8% paid-in kind	10
Debt issuance cost in related to the issuance of the New Secured Notes	(9)
Discount on New Secured Notes for the pre-issuance interest paid upon emergence (4% cash interest of $5 million and 8% paid-in kind interest of $10 million)	(15)
Net increase in long-term debt	6,292

(g) Reflects the cancellation of Predecessor Company common stock, contributed surplus, and additional paid in capital to retained earnings

(h) Represents the unamortized stock compensation recognized upon cancellation of the Predecessor Company common stock, contributed surplus, and additional paid in capital.

(i) Reflects the change in predecessor retained (loss)/earnings


Gain on settlement of liabilities subject to compromise	2,958
Cancellation of predecessor common stock, contributed surplus, and additional paid in capital	6,286
Recognition of unamortized stock compensation expense upon cancellation of the Predecessor Company common stock, contributed surplus, and additional paid in capital	(6)
Fair value of Successor Common Shares issued upon emergence	(2,176)
Success fees incurred upon emergence	(51)
New Commitment Parties, bank coordinating committee, and unsecured creditor committee advisor fees	(8)
Elimination of NADL and Sevan non-controlling interest	107
Total change in predecessor retained (loss)/earnings	7,110

(j) Reflects the issuance of 24 million shares of common stock at a per share price of $8.42 in connection with the equity commitment, 55 million shares of common stock with estimated fair value of $35.01 per share issued in connection with the debt commitment, 14 million shares of common stock issued to the holders of general unsecured claims at an estimated fair value of $35.01 per share, 2 million shares of common stock issued to former holders of Predecessor equity at an estimated fair value of $35.01 per share, and 5 million shares of common stock issued for structuring fees to the select commitment parties and Hemen at an estimated fair value of $35.01 per share.

(k) As determined in the Plan, NADL and Sevan became wholly owned subsidiaries and the non-controlling interests of NADL and Sevan were eliminated.

Fresh Start Adjustments

(l) Adjustment to record the current portion of the contingent consideration receivable from Seadrill Partners related to the West Vela with the fair value of $14 million.

(m) Adjustment to write-off $9 million of current deferred mobilization costs to fair value, which is offset by recording the fair value of certain favorable drilling contracts of $190 million. The value was based on the contracted rates compared to the prevailing market rates.

(n) Adjustment to decrease the carrying value of the investments in associated companies to their estimated fair values determined using a discounted cash flow analysis utilizing the assumption noted above the Valuation of Equity Method Investments.

(o) Adjustment to record the newbuildings at fair value based on the value derived from an income approach compared to the current contractual obligations remaining to be paid.

(p) Adjustment to the drilling units to record the fair value of the rigs and capital spares utilizing a combination of income-based and market-based approaches. The discount rate of 11.4% was used for the discounted cash flow analysis under the income-based approach. A cost-based approach was utilized to determine the fair value for the capital spares.

(q) Adjustment to record equipment at fair value based on a cost approach.

(r) Adjustment to record the non-current portion of the contingent consideration receivable from Seadrill Partners related to the West Vela and West Polaris with the fair value of $17 million. This amount is offset with a $3 million reduction on the recoverability of the receivable due from Seabras Participacoes and $2 million adjustment to record the embedded conversion option component of the Archer convertible debt instrument at the emergence date fair value.

(s) Adjustment to write-off $2 million of deferred mobilization cost and $1 million of unamortized favorable contracts to fair value. These are offset by recording the fair value of certain favorable drilling and management service contracts of $98 million. The value was based on the contracted rates compared to the prevailing market rates.

(t) Fair value adjustment to record discount of $188 million on the senior secured credit facilities and Ship Finance loans. This reduction is offset by a $51 million write-off of discounts on the New Secured Notes, unamortized debt issuance cost and lender consent fees.

	As at July 1, 2018 (Successor)	New Secured Notes	Senior Secured Credit Facilities	Total
Carrying value after reorganization adjustments	866	5,636	736	7,238
Adjustments to record debt at fair value:
Write-off of unamortized debt issuance costs	9	26	1	36
Write-off of discounts for pre-issuance accrued interest settled upon issuance of NSNs (4% cash interest of $5 million and 8% paid-in kind interest of $10 million)	15	—	—	15
Fair value adjustment to record discount on the senior secured credit facilities and Ship Finance Loans	—	(155)	(33)	(188)
Estimated fair value of debt at emergence	890	5,507	704	7,101

(u) Adjustment to write-off $27 million, primarily related to deferred mobilization revenue, for which we have determined to have no future performance obligations. These are offset by recording the fair value of certain unfavorable drilling contracts of $59 million. The value was based on the contracted rates compared to the prevailing market rates.

(v) Adjustment to reflect a fair value discount on the loans due to related parties. The value was based on an income approach using level 2 inputs.

(w) Adjustments to the deferred tax liabilities as a result of applying fresh start accounting.

(x) Adjustment to write-off $7 million of deferred mobilization revenue, for which we have determined to have no future performance obligations, offset by the fair value of certain unfavorable drilling contracts of $9 million. The value was based on the contracted rates compared to prevailing market rates.

(y) Adjustment to record redeemable non-controlling interest to the emergence date fair value.

(z) Reflects the fresh start accounting adjustment to reset retained (loss) earnings and accumulated other comprehensive income.(aa) Reflects the increase in fair value of the 24 million shares of common stock issued in connection with the equity commitment from $8.42 to $35.01 per share. (bb) Adjustment to record the non-controlling interest in the Ship Finance VIEs and Seadrill Nigeria Operations Limited to fair value. Liabilities subject to compromise in the Consolidated Balance Sheets include pre-petition liabilities that may be affected by the plan of reorganization at the amounts expected to be allowed, even if they may be settled for lesser amounts. If there is uncertainty about whether a secured claim is under-secured, or will be impaired under the plan of reorganization, the entire amount of the claim is included in liabilities subject to compromise. Differences between liabilities we have estimated and the claims to be filed will be investigated and resolved in connection with the claims resolution process in the Chapter 11 Cases. Liabilities subject to compromise includes amounts the Bankruptcy Court allowed as claim amounts resulting from the Debtors’ rejection of various executory contracts, such as the rejection and termination of the newbuild contracts with Samsung and DSME. We will continue to evaluate these liabilities throughout the Chapter 11 Cases and adjust amounts as necessary. Such adjustments may be material. The Consolidated Balance Sheets include amounts classified as liabilities subject to compromise that we believe the Bankruptcy Court will allow as claim amounts resulting from the Debtors’ rejection of various executory contracts and unexpired leases and defaults under the debt agreements.

(In $ millions)	September 30, 2018	December 31, 2017
Senior undersecured or impaired external debt	—	5,452
Unsecured bonds	—	2,334
Newbuild global settlement agreement	—	—
Derivatives previously recorded at fair value	—	249
Accounts payable and other liabilities	—	299
Accrued interest payable	—	73
Amount due to related party	—	20
Total liabilities subject to compromise	—	8,427

While operating as a Debtor-in-Possession under Chapter 11 of the Bankruptcy Code, the Debtor may sell, otherwise dispose of, or liquidate assets, or settle liabilities, subject to the approval of the Bankruptcy Court or otherwise as permitted in the ordinary course of business, in amounts other than those reflected in the Consolidated Financial Statements. Moreover, the implementation of a plan of reorganization could materially change the amounts and classifications of assets and liabilities in the historical Consolidated Financial Statements.

Note 8 - Loss on disposals and contingent consideration

Successor	Predecessor	Predecessor
(In $ millions)	Period from July 2, through September 30, 2018	Period from January 1, through July 1, 2018
Loss on disposals
Loss on disposal of West Triton to Shelf Drilling	—	—
Loss on disposal of West Resolute to Shelf Drilling	—	—
Loss on disposal of West Mischief to Shelf Drilling	—	—
Derecognition of Sevan Developer	—	—
Total loss on disposals	—	—
Contingent Consideration realized
West Polaris earn out realized	—	—
West Vela earn out realized	—	3
Total contingent consideration recognized	—	3

Disposal of West Triton, West Resolute and West Mischief

On April 29, 2017 we reached agreement with Shelf Drilling to sell the West Triton, West Resolute and West Mischief for total consideration of $225 million. Each rig was delivered in the twelve months ended December 31, 2020. The sale resulted in a loss on disposal of ###, which was recognized within "Loss on disposals" on the Predecessor Consolidated Statement of Operations for the twelve months ended December 31, 2020.

Disposal of Sevan Developer contract

In July 2017, Sevan and Cosco agreed to defer the Sevan Developer delivery period until June 30, 2020. The contract amendment included a contract termination clause for Cosco and therefore it was deemed that Sevan had lost control of the asset. We therefore derecognized the newbuild asset, which was held at $620 million, construction obligation held at $526 million, and accrued interest and other liabilities held at $19 million, resulting in a net loss on disposal of $75 million.

West Polaris contingent consideration

On ###, we sold the entities that owned and operated the West Polaris (the “Polaris business”), to Seadrill Operating LP ("Seadrill Operating"), a consolidated subsidiary of Seadrill Partners LLC and 42% owned by Seadrill Limited. The entities continue to be related parties subsequent to the sale. In relation to the sale, we may be entitled to receive a contingent consideration from Seadrill Partners, consisting of (a) any day rates earned by Seadrill Partners in excess of ### per day, adjusted for daily utilization, tax and agency commission for the remainder of the ExxonMobil contract, which completed in December 2017 and (b) ### of any day rate earned above ### per day, adjusted for daily utilization, tax and agency commission fee after December 2017 until ###.

In our Predecessor Balance Sheet and Statement of Operations, our accounting policy was not to recognize contingent consideration before it is considered realizable, we therefore did not recognize on disposal any amounts receivable relating to the elements of consideration which were contingent on future events. On adoption of Fresh Start Accounting we recorded the contingent consideration receivable from Seadrill Partners related to the West Polaris with the fair value of $0.7 million, with a gain in "Reorganization items" of $0.7 million in our predecessor Statement of Operations for the period from January 1, 2018 through July 1, 2018. Please refer to Note 4 - "Fresh Start Accounting" for further details. From the disposal date of the West Polaris on ### to Emergence Date, we recognized ### in contingent consideration, as it became realized, within "Contingent consideration realized" in our Predecessor Consolidated Statement of Operations. In the period from July 2, 2018 through December 31, 2018 2018 we recognized ### within "Contingent consideration realized" in our Successor Consolidated Statement of Operations.

West Vela contingent consideration

On November 4, 2014, we sold the entities that own and operate the West Vela (the “Vela business”) to Seadrill Capricorn Holdings LLC, a consolidated subsidiary of Seadrill Partners and 49% owned by Seadrill Limited. The entities continue to be related parties subsequent to the sale. As part of the consideration of the sale, we may be entitled to receive a contingent amount of up to $40,000 per day for the remainder of the BP contract, depending on the actual amount of contract revenue received from BP. In our Predecessor Balance Sheet and Statement of Operations, our accounting policy was not to recognize contingent consideration before it is considered realizable, we therefore did not recognize on disposal any amounts receivable relating to the elements of consideration which were contingent on future events. On adoption of Fresh Start Accounting we recorded the contingent consideration receivable from Seadrill Partners related to the West Vela at fair value of $29.3 million, with a gain recognized within "Reorganization items" in our Predecessor Statement of Operations for the period from January 1, 2018 through July 1, 2018. For further information refer to Note 4 - Fresh Start Accounting. From the disposal date of the West Vela on November 4, 2014 to emergence date, we recognized ### in contingent consideration, as it became realized, within "Contingent consideration realized" in our Predecessor Consolidated Statement of Operations. As the contingent consideration receivable was recognized on the Consolidated Balance Sheet on emergence, no further contingent consideration has been recognized through the Successor Consolidated Statement of Operations for the period from July 2, through September 30.

Note 28 – Supplementary cash flow information

The table below summarizes the non-cash investing and financing activities relating to the periods presented:

Successor	Predecessor	Predecessor
(In $ millions)	Period from July 2, through September 30, 2018	Period from January 1, through July 1, 2018
Non-cash investing activities
Sale of rigs and equipment (1)	—	—
Non-cash financing activities
Repayment of debt following sale of rigs and equipment (1)	—	—
Dividend to non-controlling interests in VIEs (2)	—	—

(1) During the nine month period ended September 30, 2018 (Predecessor), we completed the sale of the West Triton and West Resolute to Shelf Drilling, receiving cash consideration of $76 million. This comprised sales value of $150 million, offset by $74 million of principal debt repayments paid on behalf of us by Shelf Drilling.

(2) During the nine month period ended September 30, 2018 (Predecessor) the Ship Finance VIEs that we consolidate declared dividends payable totaling $14 million to Ship Finance. Refer to "Variable Interest Entities" for more details.

(1) Existing debt of the Company was directly settled as consideration for the disposal of certain drilling rigs to the SeaMex joint venture - see Note 8 "Loss on disposals and contingent consideration" for more details.

(2) During the period ended December 31, 2020, the Company settled share repurchase agreements related to shares in Sevan Drilling using cash balances already classified as restricted.

(5) As a result of two share-for-debt exchanges during the period, the Company converted $105 million of bonds into 15,684,340 shares. Refer to ### "Debt" for more details.

Note 29 – Assets held for sale

West Rigel

On December 2, 2015, NADL signed an amendment with Jurong Shipyard (“Jurong”) for the deferral of the delivery of the semi-submersible drilling unit, the West Rigel (the “Unit”). The deferral period originally lasted until June 2, 2016, however this was subsequently extended to July 6, 2018.In the event no employment was secured for the Unit, no alternative action is completed and following completion of the deferral period, we agreed with Jurong that we would form a Joint Asset Holding Company for joint ownership of the Unit, of which 23% was to be owned by us and 77% by Jurong. On December 26, 2017, Jurong announced that a sale agreement, subject to conditions had been signed for West Rigel. As the agreement is pursuant to conditions being met, we continued to hold the asset within "Non-current assets held for sale" in the year ended December 31, 2017 (Predecessor). On April 5, 2018, we entered into a settlement and release agreement, subject to Bankruptcy Court approval, with Jurong whereby we agreed that our share of the sale proceeds from the sale of the West Rigel by Jurong would be ###. To reflect this as the asset held for sale value at December 31, 2017, a further ### loss on disposal was recognized in the Predecessor Consolidated Statement of Operations for the year ended December 31, 2017. On May 9, 2018 the West Rigel was sold by Jurong and we received a share of proceeds totaling ###.

STATEMENT BY THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER

We confirm, to the best of our knowledge, that the condensed financial statements for the period January 1 to December 31, 2021 has been prepared in accordance with US GAAP – Interim Financial Reporting, and gives a true and fair view of the Group’s assets, liabilities, financial position and profit as a whole. We also confirm, to the best of our knowledge, that the interim report includes a fair review of important events that have occurred during the first twelve months of the financial year and their impact on the condensed financial statements, a description of the principal risks and uncertainties for the remaining twelve months of the financial year, and major related transactions.

March 21, 2022

The Board of Directors
Per Wullf
Seadrill Limited
CEO and President
Seadrill Management Ltd
Hamilton, Bermuda
London, United Kingdom

Note xx – Goodwill

The goodwill balance and changes in the carrying amount of goodwill are as follows:

(In $ millions)

Year ended December 31, 2021	Year ended December 31, 2020
Opening balance
Goodwill	795
Accumulated impairment losses	(795)
Total opening goodwill	—
Disposals and deconsolidations (see Note 4)	—
Impairment of goodwill	—
Closing balance
Goodwill	795
Accumulated impairment losses	(795)
Total closing goodwill	—

As at September 30, 2015, after a 43% decline in the Seadrill closing spot price over a three month period, a goodwill impairment test was conducted. This resulted in the Company recognizing an impairment loss of $563 million relating to the floaters reporting unit which represented all of the goodwill attributable to that reporting unit. Following the impairment the Company no longer retains any goodwill balance. The impairment is a result of deteriorating market conditions and the Company’s outlook on expected conditions through the current down-cycle. The impairment charge was allocated between the parent and non-controlling interests based upon the non- controlling interests' share in each drilling unit within the floater segment. The overall charge to the reporting unit was first allocated to each drilling unit based upon the relative fair values of those drilling units. The percentage non-controlling interest in each drilling unit was then applied to the allocated charge in order to determine the portion attributable to non-controlling interests. The total impairment allocated to the non-controlling interest was $95 million. The estimated fair value of the reporting unit was derived using an income approach, using discounted future free cash flows (DCF model). The Company’s estimated future free cash flows are primarily based on its expectations around day rates, drilling unit utilization, operating costs, capital and long term maintenance expenditures and applicable tax rates. The cash flows are estimated over the remaining useful economic lives of the assets but no longer than 30 years in total, and discounted using an estimated market participant weighted average cost of capital of 10%. The assumptions used in the Company’s estimated cash flows were derived from unobservable inputs, and are therefore categorized at level three on the fair value hierarchy and based on management’s judgments and assumptions available at the time of performing the impairment test.

Figures in USD million, unless otherwise indicated

Seadrill Limited	As Reported Q3 2015	Q3 2014	% change
Backlog	6,680	18,300	—%
Revenue	292	249	17.3%
EBITDA	73	46	58.7%
Margin (%)	25%	18%	6.5%
EBIT	(69)	(106)	(34.9)%
Net Income / (Loss)	(360)	(1,341)	86.0%
Net Debt	5,594	12,640	10,454.7%
Underlying EBIT	354	TBU
Net Income / (Loss)	328	TBU

NON-CONSOLIDATED ENTITIES:

Continuing operations:

In addition to owning and operating offshore drilling units, the Company has two investments that are not consolidated. These investments are recognized as Investments in Associated Companies. The Company's investments contributed a $2 million gain to the Company's 2H21 results (1H21: $1 million).

Operational updates for material investments held by continuing operations

Sonadrill

The Libongos rig is currently in operation in Angola with economic utilization of 99%. The Libongos had exercised contract options and extension on its contracts adding $96 million to backlog in 2H21.

Gulfdrill

Three Seadrill-owned rigs are leased to the Gulfdrill joint venture, the West Tucana, West Castor and West Telesto.

Financial metrics for material investments as at December 31, 2021

(In US$ million)

	Backlog	Revenue(1)	EBITDA(1)	Cash	External Debt	Amounts due to Seadrill
Gulfdrill	322	142	2	—	—	28
Sonadrill	202	22	(4)	31	—	4

(1) Revenue and EBITDA for the six months ended December 31, 2021.

Discontinued Operations

On November 2, 2021, NSNCo acquired the remaining 50% interest in SeaMex through an restructuring arrangement after which SeaMex is consolidated. On this date the full NSNCo group was classified as a discontinued operation a disposal arrangement also led to Seadrill retaining only a 35% interest in NSNCo from January 20, 2022, the date on which the NSNCo group emerged from its Chapter 11 proceedings. During 2H21 NSNCo held material investments in Seabras Sapura and SeaMex which were accounted for as investment in associated companies. These investments contributed $13 million to the discontinued operations' results (1H21: $1 million) In addition to the above investments NSNCo also holds a non-material equity stake in Archer which is accounted for as a marketable security. This contributed an aggregated $3 million loss in the 2H21 results (1H21: nil).

Operational updates for material investments held by discontinued operations

SeaMex

All five jack-up drilling units remain on contract with Pemex in Mexico, with economic utilization of 98% for the second half of the year. As at December 31, 2021 SeaMex had $381 million in accounts receivable for billed and unbilled amounts due from Pemex before allowance for expected credit losses. During the period 2H21 and January 2022, SeaMex received payments of $135 million from Pemex. SeaMex commenced restructuring proceedings in June 2021, which were concluded on November 2, 2021, whereby SeaMex became a fully owned subsidiary of Seadrill, through its indirect holding via NSNCo.

Seabras Sapura

As part of Seadrill’s joint venture with Sapura Energy, four units are on contract with Petrobras, and will conclude between 2022 to 2025. There are two vessels working in the spot market for other customers. Seabras posted strong utilization in the second half of the year with uptime of 94%.

Financial metrics for material investments as at December 31, 2021

(In US$ million)

	Backlog	Revenue(1)	EBITDA(1)	Cash	External Debt	Amounts due to Seadrill
SeaMex Limited (2)	828	116	70	53	233	12
Seabras Sapura	938	180	21	111	354	54

(1) Revenue and EBITDA for the six months ended December 31, 2021.
(2) Results show for the complete six months period including November 2, 2021 up to December 31, 2022, while entity was consolidated and disclosed as a discontinued operation.

F-16

AI assistant

Seadrill Limited — Earnings Release 2021

9186_rns_2022-02-22_65d06412-c0e2-4153-b4cd-918bdedfa72e.xhtml

Seadrill Press Release 2021 Q4 Seadrill Limited (SDRL) - Second Half 2021 Results

2H 2021 Highlights

Financial Highlights

Restructuring Update

Forward-Looking Statements

SECOND HALF 2021 OPERATING REVIEW

Rig Activity

FINANCIAL REVIEW

Abbreviated Income Statement

Abbreviated Cash Flow Statement - Continuing operations

Abbreviated Balance Sheet

Liquidity

COMMERCIAL REVIEW

Order Backlog¹

Trading Outlook

EMERGENCE FROM BANKRUPTCY

BOARD CHANGES

Appendix I - Reconciliation of Operating Income to Adjusted EBITDA

Seadrill Limited (Debtor-in-Possession)

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Seadrill Limited (Debtor-in-Possession)

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Seadrill Limited (Debtor-in-Possesion)

UNAUDITED CONSOLIDATED BALANCE SHEETS

Seadrill Limited (Debtor-in-Possesion)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUING OPERATIONS

Seadrill Limited (Debtor-in-Possession) UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Seadrill Limited (Debtor-in-Possession) UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS - DISCONTINUED OPERATIONS

Seadrill Limited UNAUDITED CONSOLIDATED BALANCE SHEETS - DISCONTINUED OPERATIONS

Seadrill Limited

EXPLANATORY NOTE

INDEX

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

Overview

Significant Developments for the period from January 1, 2020 through and including June 30, 2020

Impairment of assets

Archer convertible note

New York Stock Exchange delisting

Bank negotiations and lender consent

Contract Backlog

Market Overview and Trends

Floater segment

Results of Operations

1) Operating revenues

a) Contract revenues

i. Average number of rigs on contract

iii. Depreciation

iv. Amortization of intangibles

v. Selling, general and administrative expenses

3) Other operating items

i. Impairment of long-lived assets

ii. Other operating income

4) Interest expense

Cash and payment-in-kind interest on debt facilities

Cash and payment-in-kind interest

Unwind of discount on debt

5) Loss on impairment of equity method investment

6) Other income and expense

i) Interest Income

ii) Share in results from associated companies

iii) Loss on derivative financial instruments

iv) Foreign exchange (loss)/gain

v) Gain/(loss) on marketable securities

vi) Impairment of convertible bond from related party

vii) Other financial items

7) Income taxes

Operating Results

Three Months Ended December 31, 2021 Compared to Three Months Ended December 31, 2020

Total operating revenues

Interest expense

Other financial items

Income taxes

###, net

Liquidity and Capital Resources

1) Introduction

2) Liquidity

Seadrill Limited Earnings Release 2021