Seadrill Limited — Interim / Quarterly Report 2014

Nov 26, 2014

SEVAN DRILLING ASA

INTERIM FINANCIAL REPORT THIRD QUARTER 2014

Third Quarter 2014 - Highlights

• EBITDA of USD 19.7 million (Q3 2013 USD 16.6 million).
• Operating revenue USD 69.8 million (Q3 2013 USD 64.3 million).
• Sevan Driller achieved 76.5 percent technical utilisation (Q3 2013 95.4 percent) and 73.9 percent economic utilisation (Q3 2013 – 90.2 percent).
• Sevan Brasil achieved 83.7 percent technical utilisation (Q3 2013 90.6 percent) and 80.7 percent economic utilisation (Q3 2013 – 90.7 percent).
• Sevan Louisiana achieved 30.6 percent technical utilisation and 31.0 percent economic utilisation.

Subsequent Events

• Q3 downtime events concluded and all three rigs are operating.
• Sevan Developer delivery deferred for up to three years.
• Sevan Louisiana avoided termination and extended backlog on revised terms into 2018.
• Fully financed through 2016 with debt financing supported by Seadrill.

Unaudited figures in USD million, except where noted	Q3 2014	Q2 2014	Q3 2013
Operating revenue	69.8	88.6	64.3
EBITDA (1)	19.7	40.8	16.6
Operating profit (loss)	-0.8	24.3	-2.2
Net financial items	-19.2	-14.4	-13.5
Net profit (loss)	-21.1	9.2	-68.6
EPS – basic and diluted (USD)	-0.04	0.02	-0.12
Company performance:
Available days (2)	276	215	184
Technical Utilisation (3)	63.6%	95.4%	93.0%
Economic Utilisation (4)	56.4%	95.7%	88.0%
Average daily revenue (5)	\$388,000	\$423,000	\$376,000
Average daily operating expense (6)	\$173,000	\$197,000	\$203,000

(1) EBITDA equals net profit/loss adding back net financial items, tax income/expense, depreciation and amortisation expense

(2) Available days are the total number of operating rig calendar days in the period. A rig is operating when accepted by the customer.

(3) Technical utilisation is actual number of revenue earning days divided by available days. A revenue earning day is defined as a day for which a rig earns dayrate after commencement of operations.

(4) Economic utilisation is operating revenue divided by total potential charter revenue for the period.

(5) Average daily revenue is operating revenue divided by revenue earning days. Average daily revenue will differ from contract dayrate due to billing adjustments for any non-productive time, bonus, amortised mobilisation and demobilisation fees.

(6) Average daily operating expense is total operating expense less general and administrative expenses, restructuring costs, depreciation, and foreign exchange (loss)/gain related to operations divided by available days in the period.

Financial performance summary

For the three months ended 30 September 2014

Operating revenue

Operating revenue was USD 69.8 million compared to USD 64.2 million in Q3 2013. The revenue increase is explained by the revenue from Sevan Louisiana which began operations in Q2 2014. This was partially offset by reduced revenue from Sevan Driller and Sevan Brasil compared to Q3 2013.

Operating expenses

Total operating expenses were USD 70.6 million compared to USD 66.4 million in Q3 2013.

The increase is a consequence of additional expenses incurred in rectifying the causes for the downtime for Sevan Louisiana. This was partly offset by cost reductions as a consequence of continued improved efficiencies in supply chain and inventory management and lower repair and maintenance costs.

General and administrative expenses decreased by USD 2.6 million compared to Q3 2013.

No restructuring expenses were recognized in Q3 2014.

Net financial items

Net financial items amounted to USD 19.2 million compared to USD 13.5 million in Q3 2013. The increase was caused by a higher debt level and a reduction in the capitalised borrowing costs partially offset by lower financing and foreign exchange costs.

Amortisation of deferred finance costs was USD 1.8 million (nil in Q3 2013) due to all unamortized finance fees having been written off in Q2 2013. Interest expense was USD 2.4 million higher than in Q3 2013 due to higher total debt offset by a lower interest rate.

For the nine months ended 30 September 2014

Operating revenue

Operating revenue was USD 218.5 million compared to USD 184.0 million for year-todate Q3 2013.

Operating expenses

Total operating expenses were USD 194.2 million compared to USD 186.9 million for year-to-date Q3 2013.

General and administrative expenses were reduced by USD 4.7 million compared to year-to-date Q3 2013 due to workforce reductions offset by one-time costs of USD 1.5 million in connection with the Company's integration in Seadrill's management systems and USD 1.1 million of costs associated with a non-recurring consulting project for a possible newbuilding designed for use in the Arctic.

Restructuring expenses of USD 2.3 million relate to employee severance costs.

Net financial items

Net financial items amounted to USD 45.1 million compared to USD 72.4 million for year-to-date Q3 2013.

Amortisation of deferred finance cost was USD 41.6 million less than the year-to-date Q3 2013 due to the one-time fees associated with the debt restructuring in 2013. Interest expense was USD 2.6 million less than in 2013 due to lower interest rates and a larger amount of interest capitalised offset by a higher amount of debt. The net financial items for year-to-date Q3 2013 furthermore included a non-recurring gain of USD 12.5 million on interest rate swaps. No swaps have been held in 2014.

Balance sheet

Cash and cash equivalents amounted to USD 32.9 million as of 30 September 2014 (USD 128.7 million as of 31 December 2013). Sevan paid interest and principal under its bank facility and the revolving credit facility provided by Seadrill of USD 10.1 million and USD 35.0 million, respectively, in Q3 2014 and USD 41.1 million and USD 140.0 million, respectively, year-to-date. USD 30.0 million was drawn under the revolving credit facility in Q3 2014 bringing the outstanding balance to USD 75.0 million at 30 September 2014.

Financing

The revenue loss caused by the downtime on all rigs in Q3 2014 significantly weakened the Company's liquidity position and balance sheet.

Discussions were therefore initiated with Seadrill in Q3 2014 to explore ways the Company's financial situation could be strengthened and will resolve in Q4, as outlined in the Outlook.

Sevan has prepared the accounts under the basis the company is a going concern. Liquidity is sensitive to the performance of the rigs under their contracts and the ability to close potential debt financing required to fund shortfalls, which includes obtaining consents from the current bank syndicate as necessary.

Operational Performance Summary

Sevan Driller

Sevan Driller continued its contract with Petrobras in Brazil and had a technical utilisation of 76.5 percent in Q3 2014. This compared to 95.4 percent in Q3 2013. Downtime of 21.2 days mainly related to repairs on subsea equipment and slip joint replacement on the riser caused by running tools.

Sevan Brasil

Sevan Brasil continued its contract with Petrobras in Brazil and had a technical utilisation of 83.7 percent in Q3 2014 compared to 90.6 percent in Q3 2013. Downtime of 15.0 days mainly related to repairs resulting from a pressure drop in the riser system and an incorrect riser tally on board which has now been corrected.

Sevan Louisiana

Sevan Louisiana continued its contract with LLOG in the US Gulf but incurred substantial downtime during the quarter.

The downtime commenced on 30 July and was initially caused by a need to pull and repair the blow out preventer. During this operation it was revealed that the central equipment in the rig's tension system had been damaged and that it, in addition, had material quality deficiencies. The direct acting tensioners ("DATs") installed at the yard had to be replaced to rectify this. New DATs were sourced from Seadrill's spare parts pool and installed in parallel with the other repairs.

Sevan Louisiana recommenced operations on 7 October 2014 following a total of 71.9 days downtime due to these events.

General

The operational performance during Q3 2014 was highly disappointing with all three rigs in operation suffering problems. While the complexity of the Company's equipment and the challenges of their operational environment makes it difficult to achieve an uninterrupted operation, the Company's ambition is to maintain a much higher utilisation rate than that achieved in Q3 2014. The Company believes that while technical problems affecting operating performance will occur, the level of such during this quarter far exceeds what can be expected going forward.

The Company's access to the Seadrill spare parts pool represented an essential contribution to the response of the problems related to Sevan Louisiana's tensioner system.

Sevan Developer

The construction of Sevan Developer continued at Cosco (Qidong) Offshore Co. Limited ("Cosco") throughout Q3 2014.

The delivery date under the construction contract was 30 April 2014.

The construction of Sevan Developer was, save for final commissioning and completion of sea trials, completed in Q4 2014.

The delays that prevented an on-time delivery of Sevan Developer were caused by subcontractors stretched to the limits in their manufacturing processes.

The Company commenced, in view of the delay in delivery, discussion with Cosco on revised terms for the delivery of the rig in Q3 2014.

Arctic Study

The Company has, together with Seadrill, worked on a study for a possible newbuilding designated for use in the Arctic. While being a promising prospect, further work on the study has now been halted due to the uncertain market conditions.

Outlook

Sevan Developer

Sevan Drilling is very satisfied with completing the negotiations with Cosco to delay delivery of Sevan Developer.

The parties have agreed to defer delivery of Sevan Developer for up to 12 months with mutually agreed options, exercisable at six month intervals after such initial period, to extend the delivery date up to 36 months in total from 15 October 2014.

Cosco will maintain the rig at its yard while the Company provides management support through the deferral period.

Sevan will continue to market Sevan Developer as part of its fleet and will take delivery if a satisfactory drilling contract is secured. In order for a contract to meet these criteria, it will need to support secured financing for the USD 425.0 million remaining liability under the construction contract, which is due at delivery.

Sevan can, under the agreement, terminate the contract on the dates agreed, and has security through the deferral period for the USD 105.2 million investment made in the construction of Sevan Developer.

Sevan Louisiana

The extent of the third quarter downtime on Sevan Louisiana provided LLOG a right to terminate the drilling contract.

Based on this, the Company commenced negotiations with LLOG. These negotiations have now been completed with the result that the operating rate under the Sevan Louisiana drilling contract has been revised to USD 350,000 per day. This concession was necessary to avoid a termination of the contract.

While the rate reduction is unfortunate, the Company was, at the same time, able to agree other terms with LLOG that, inter alia, provide an extension of the contract for 12 months cancellable with a 365 day notice prior to May 2016 and Sevan has the ability to market and contract the rig through May 2016.

The extended contract term increases the Company's revenue backlog by USD 127.7 million and contract coverage into 2018. As of 30 September 2014, the fleet's backlog revenue is USD 1.2 billion.

Financing

The consequence of the downtime in Q3 and the reduced revenue under the contract for Sevan Louisiana was a need for an additional USD 180 to 200 million in capital.

Following discussions with Seadrill it has been agreed that they will support the Company with debt financing in the amount of up to USD 200 million to meet this requirement.

USD 100 million of this will be added to the revolving credit facility while the remainder will be financed by a third party on commercial terms with the instalments paid under the Sevan Developer contract as security. Seadrill will, if this cannot be arranged, provide the same as a further increase in the revolving credit facility.

Terms for this financing are under negotiation.

The cash position at the end of the third quarter, the flexibility of the revolving credit facility and the proposed additional financing, will provide adequate support of the Company's existing operations through 2016. Liquidity will, however, remain sensitive to the performance of the rigs under their contracts.

The consequence of the revised terms for the delivery of Sevan Developer, the revised and extended terms for Sevan Louisiana and the additional financing to be provided by and with Seadrill's support is that the Company is fully financed through 2016. The Company's debt at such time will need to be restructured but this is expected to be manageable provided some additional contract coverages can be secured prior to such time.

The agreement with Cosco furthermore provides the Company with an option to take delivery and employ Sevan Developer as and when the ultra deepwater market recovers.

Market Outlook

The current market conditions are very challenging for the ultra deepwater market, primarily evidenced by a sharp fall in demand and rates during Q3.

In light of the challenging market conditions and poor operational performance in Q3, the board is pleased to have a plan for secured debt financing that will carry the company through 2016. In addition, the agreements recently entered into with Cosco and LLOG provide some flexibility in the current market.

In the fourth quarter, Sevan expects to continue progress on the implementation of the corporate migration plan previously announced and will notify the shareholders when ready to call the general assembly for approval. It is expected that this will contribute further to reduce administrative costs.

Oslo, 25 November 2014 The Board of Directors Sevan Drilling ASA

Interim financial statements

Condensed Consolidated Income Statement
		Three months ended	Nine months ended	Three months ended	Nine months ended
Unaudited figures in USD million	Note	30 Sep 2014	30 Sep 2014	30 Sep 2013	30 Sep 2013
Operating revenue	10	69.8	218.5	64.2	184.0
Operating expense		-47.8	-124.1	-37.2	-114.0
General & administrative expense		-4.7	-16.2	-7.3	-20.9
Restructuring expense		-	-2.3	-1.7	-1.7
Depreciation, amortisation and impairment		-20.5	-51.9	-18.8	-48.8
Foreign exchange gain/(loss) related to operations		2.4	0.3	-1.4	-1.5
Total operating expense		-70.6	-194.2	-66.4	-186.9
Operating profit/(loss)		-0.8	24.3	-2.2	-2.9
Financial expense	5	-19.2	-45.1	-12.6	-68.9
Foreign exchange loss related to financing		-	-	-0.9	-3.5
Net financial items		-19.2	-45.1	-13.5	-72.4
Profit/(loss) before tax		-20.0	-20.8	-15.7	-75.3
Tax expense	10	-1.1	-1.5	-52.9	-52.9
Net profit/(loss)		-21.1	-22.3	-68.6	-128.2
Attributable to:
Equity holders of the Group		-21.1	-22.3	-68.6	-128.2
Earnings per share for profit/(loss) attributable to the equity holders of the Group during the period (USD per share):
- Basic and diluted		-0.04	-0.04	-0.12	-0.23

Condensed Consolidated Statement of Comprehensive Income
		Three months ended	Nine months ended	Three months ended	Nine months ended
Unaudited figures in USD million	Note	30 Sep 2014	30 Sep 2014	30 Sep 2013	30 Sep 2013
Net profit/(loss)		-21.1	-22.3	-68.6	-128.2
Foreign currency translation		-1.4	-1.0	-0.5	-1.5
Comprehensive income/(loss)		-22.5	-23.3	-69.1	-129.7
Attributable to:
Equity holders of the Group		-22.5	-23.3	-69.1	-129.7

Interim financial statements (continued)

		As at	As at
Unaudited figures in USD million	Note	30 Sep 2014	31 Dec 2013
ASSETS
Non-current assets
Drilling rigs	4	1,949.3	1,916.6
Other fixed assets	4	1.1	19.2
Other non-current assets	6	27.9	40.4
Total non-current assets		1,978.3	1,976.2
Current assets
Inventories		46.1	26.9
Trade and other receivables	7	19.7	32.4
Cash and cash equivalents		32.9	128.7
Total current assets		98.7	188.0
Total assets		2,077.0	2,164.2
Capital and reserves attributable to equity holders of the Group Share capital (594,623,436 shares authorised, issued, and outstanding as at 30 September 2014 and 31 December 2013, par value of NOK 1 per share) Share premium Other equity		108.6 666.0 -114.2	108.6 666.0 -90.9
Total equity		660.4	683.7
LIABILITIES
Non-current liabilities Non-current portion of bank borrowings	5	1,100.9	1,196.1
Non-current loan from related party	5	75.0	-
Other non-current liabilities		0.1	0.1
Total non-current liabilities		1,176.0	1,196.2
Current liabilities
Trade and other payables		46.9	74.5
Current portion of bank borrowings	5	131.7	173.1
Other current liabilities	8	62.0	36.7
Total current liabilities		240.6	284.3
Total liabilities		1,416.6	1,480.5
Total equity and liabilities		2,077.0	2,164.2

Interim financial statements (continued)

Unaudited figures in USD million	Share Capital	Share Premium	General Reserve	Equity Settled Employee Benefits Reserve	Foreign Currency Translation Reserve	Retained Earnings	Total Equity
Equity as at 1 Jan 2013	61.9	533.9	280.0	1.4	-0.8	-213.9	662.5
Capital increase	46.7	138.0	-	-	-	-	184.7
Transaction cost equity raise	-	-5.9	-	-	-	-	-5.9
Net profit/(loss)	-	-	-	-	-	-128.2	-128.2
Fair value of share options	-	-	-	1.1	-	-	1.1
Translation differences	-	-	-	-	-1.9	-	-1.9
Equity as at 30 Sep 2013	108.6	666.0	280.0	2.5	-2.7	-342.1	712.3
Equity as at 1 Jan 2014	108.6	666.0	280.0	2.4	-2.8	-370.5	683.7
Net profit/(loss)	-	-	-	-	-	-22.3	-22.3
Translation differences	-	-	-	-	-1.0	-	-1.0
Equity as at 30 Sep2014	108.6	666.0	280.0	2.4	-3.8	-392.8	660.4

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Cash Flow Statement
Unaudited figures in USD million	Note	Nine months ended 30 Sep 2014	Nine months ended 30 Sep 2013
Cash flows from operation activities
Cash from operations		37.5	20.6
Interest paid	5	-41.1	-35.3
Net cash (used in)/generated from operating activities		-3.6	-14.7
Cash flows from investment activities Purchases of property, plant and equipment and other non
current assets		-27.2	-52.3
Net cash flow used in investment activities		-27.2	-52.3
Cash flows from financing activities
Net proceeds from capital increase		-	178.5
Proceeds from interest-bearing debt	5	75.0	-
Repayment of interest-bearing debt	5	-140.0	-96.8
Net cash flow generated from/(used in) financing activities		-65.0	81.7
Net cash flow for the period		-95.8	14.7
Cash balance at beginning of period		128.7	76.8
Cash balance at end of period *		32.9	91.5

* 2014 Cash balance contains restricted cash of USD 0.1 million for employees' tax deduction fund. 2013 cash balance contains restricted cash of USD 0.3 million for employees' tax deduction fund and USD 60.0 million for debt service repayments.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organisation and basis of preparation

General information

Sevan Drilling ASA and its subsidiaries (the "Group") is an international offshore drilling contractor specialising in the ultra-deepwater segment. The Group has three ultra-deepwater drilling rigs (Sevan Driller, Sevan Brasil, and Sevan Louisiana) in operation and a fourth (Sevan Developer) on order. Sevan Driller and Sevan Brasil are operating under six-year fixed term contracts with Petrobras in Brazil expiring in June 2016 and July 2018, respectively. Sevan Louisiana is contracted under a 4 year fixed term contract with LLOG in the US Gulf of Mexico expiring in April 2018. Delivery of Sevan Developer is deferred until a contract is in place.

Sevan Drilling ASA is a public limited liability company, incorporated and domiciled in Norway. Its shares are listed on the Oslo Stock Exchange.

Basis of preparation

These condensed consolidated financial statements as at and for the three months and nine months, ended 30 September 2014 (the "Interim Financial Statements") have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting. They do not include all disclosures that would be required in a complete set of financial statements and should be read in conjunction with the 2013 annual report.

The Interim Financial Statements have been prepared on a historical cost basis. The Group's financial instruments consist of cash, trade receivables, trade payables, and bank borrowings measured at amortised cost with variable interest rates. Management believes that the carrying value approximates fair value for all the Group's financial instruments.

The accounting policies adopted in the preparation of the Interim Financial Statements are consistent with those followed in the preparation of the 2013 annual report, with one exception related to the classification of gross revenue tax. Gross revenue tax was previously classified as tax expense and is now classified as a reduction of revenue; this change was applied retrospectively to prior periods presented. See further discussion in Note 10. The new standards, interpretations, and amendments effective for the first time from 1 January 2014 have not had a material effect on the Interim Financial Statements.

There have been no material revisions to the nature or amount of significant management estimates from amounts reported in the 2013 annual report.

The Interim Financial Statements are unaudited and were approved by the Board of Directors on 25 November 2014.

Note 2 – Results of the interim period

During the three months ending on 30 September 2014, the Group earned USD 69.8 million of revenue (YTD - USD 218.5 million) from the operation of Sevan Driller and Sevan Brasil in Brazil and Sevan Louisiana in the US. Sevan Louisiana experienced significant downtime in Q3 2014 due to damages of subsea equipment.

Total operating expenses for Q3 2014 were USD 70.6 million (YTD – USD 194.2 million). Operating expenses in Q3 2014 amounted to USD 47.8 million (YTD – USD 124.1 million) and covers rigs in operation and non-capital expenses related to pre-commencement and construction of the rig under construction. The Group continued to realise cost savings through operating efficiencies and were partially offset by costs associated with Sevan Louisiana downtime.

As the Group's revenue and operating expenses are based on contractual day rates, the Group is not exposed to significant fluctuations in revenue and expense as a result of seasonality or cyclicality.

General and administrative expenses were USD 4.7 million in Q3 2014 (YTD – USD 16.2 million). Depreciation in Q3 2014 was USD 20.5 million (YTD – USD 51.9 million), which includes depreciation of Sevan Louisiana.

Net financial items in Q3 2014 amounted to USD 19.2 million (YTD – USD 45.1 million), including amortization of deferred financing costs, interest expense, and commitment and guarantee fees.

Tax expense in Q3 2014 was USD 1.1 million (YTD – USD 1.5 million) compared to USD 52.9 million in Q3 2013 and YTD, which included a write off of deferred tax assets in 2013.

The Group drew USD 30.0 million under the revolving credit facility with Seadrill in Q3 2014 (YTD – USD 75.0 million) to support lost revenues in the quarter. Sevan also repaid USD 35.0 million of principal on the current bank facility during Q3 (YTD – USD 140.0 million).

Note 3 – Segment information

Basis of segmentation

The Board of Directors, which is identified as the chief operating decision maker ("CODM") in Sevan Drilling ASA, along with management has reassessed the operating segments in 2014. Since the first quarter of 2014, the Group has aggregated the rigs into a single reporting unit representing the fleet as a whole. Sevan Louisiana began operations in the second quarter of 2014, and the construction of Sevan Developer completed in November 2014, except for sea trials and final commissioning.

The CODM evaluates the operating results of each rig but is primarily focused on the results of the overall fleet with a focus on several key metrics at the Group level, including revenue, operating profit, EBITDA and utilisation rates.

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

Note 4 – Property, plant and equipment

		Property, Plant and Equipment
Unaudited figures in USD million	Construction in process (CIP)	Units in operation (UIO)	Drilling rigs	Other fixed assets	Total fixed assets
As at 31 Dec 2013
Cost	639.3	1,401.4	2,040.7	27.4	2,068.1
Accumulated depreciation	-	-124.1	-124.1	-8.2	-132.3
Net book value	639.3	1,277.3	1,916.6	19.2	1,935.8
As at 30 Sep 2014
Cost	125.0	1,999.9	2,124.9	9.7	2,134.6
Accumulated depreciation	-	-175.6	-175.6	-8.6	-184.2
Net book value	125.0	1,824.3	1,949.3	1.1	1,950.4
Three months ended 30 Sep 2014
Beginning net book value	131.0	1,839.1	1,970.1	4.3	1,974.4
Additions	0.2	5.6	5.8	-	5.8
Disposals	-6.2	-	-6.2	-3.1	-9.3
Transfers	-	-	-	-	-
Depreciation charge	-	-20.4	-20.4	-0.1	-20.5
Ending net book value	125.0	1,824.3	1,949.3	1.1	1,950.4
Nine months ended 30 Sep 2014
Beginning net book value	639.3	1,277.3	1,916.6	19.2	1,935.8
Additions	60.3	15.2	75.5	0.3	75.8
Disposals	-6.2	-	-6.2	-3.1	-9.3
Transfers	-568.4	583.3	14.9	-14.9	-
Depreciation charge	-	-51.5	-51.5	-0.4	-51.9
Ending net book value	125.0	1,824.3	1,949.3	1.1	1,950.4

	As at	As at
Unaudited figures in USD million	30 Sep 2014	31 Dec 2013
Rig net book value
Sevan Driller	617.5	622.5
Sevan Brasil	645.7	654.8
Sevan Louisiana	561.1	563.5
Sevan Developer	125.0	75.8
Total	1,949.3	1,916.6

Additions to CIP include capitalisation of borrowing costs of USD 0.2 million during the third quarter of 2014 (YTD – USD 5.5 million).

Note 4 – Property, plant and equipment (continued)

The CIP amounts above consist of Sevan Developer. Sevan Louisiana was transfered to UIO in the second quarter. The contract with Cosco for the construction of Sevan Developer is payable in instalments as construction milestones are completed. No payments were made during the Q3 2014 (YTD – USD nil).

As at 30 September 2014, we have a remaining commitment of USD 425.0 million payable upon delivery of Sevan Developer. The Group and Cosco reached an agreement in October 2014 to defer delivery for up to twelve months with mutually agreed options, exercisable at six month intervals, to extend the delivery date up to a total of 36 months from 15 October 2014. Cosco completed construction in Q4 2014 and will retain ownership and responsibility of the rig at its shipyard while Sevan will provide management support through the deferral period. Sevan will continue to market the rig as part of its fleet and will take delivery if a satisfactory drilling contract is secured. Payment of the final instalment will be delayed until delivery.

At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets may be impaired. The net asset value of the Group exceeded its market capitalisation as at 30 September 2014, which the Group identified as an indicator of impairment for the current interim period. As a result, each rig was identified as a cash-generating unit and was tested for impairment at the reporting date. Management concluded that the carrying amount of the rigs did not exceed their value-in-use; therefore, no impairment loss was recognised.

The key assumptions applied for the purpose of impairment testing of rigs in operation include a discount rate and expected future cash flows. To discount the future cash flows, management used a pre-tax weighted average cost of capital (WACC) of 8.0%. Estimated future cash flows are based on the Group's five-year forecast and utilise several assumptions including forecasted operational expense, utilisation and day rates. Day rates are based on current contract amounts for the remaining contract term and expected market rates in the rigs' re-contract years for forecasts beyond the contracted periods. Management has assumed no growth above these expected market rates for the remainder of the rig lives beyond the five-year forecast. Based on sensitivity analyses performed, Management believes that reasonable movements in the key assumptions could result in an impairment loss to be recognised. Thus there is a possibility the Group may recognise impairment in the fourth quarter if the facts underlying the key assumptions change during the fourth quarter. An increase in the WACC of 100 basis points would result in impairment of approximately USD 10.4 million, and a reduction of expected market rates in the re-contract years of 10% would result in impairment of approximately USD 69.9 million.

Note 5 – Financing activities

In October 2013, the Group entered into a USD 1,750 million bank facility with ING as agent for a syndicate of lenders. The facility is composed of two tranches: a USD 350.0 million export credit facility provided by GIEK and a USD 1,400 million commercial facility provided by a syndicate of several commercial banks. The USD 350 million tranche available for Sevan Developer will be cancelled in the fourth quarter 2014, due to the deferral agreement that was executed with Cosco on 30 September 2014.

The GIEK tranche matures in September 2023 and incurs interest on drawn amounts at a rate of LIBOR + 2.5%, payable quarterly in arrears. There is a commitment fee of 1.0% per annum on the undrawn balance of the GIEK tranche.

Note 5 – Financing activities (continued)

The commercial tranche matures in September 2018 and incurs interest on drawn amounts at a rate of LIBOR + 2.9%, payable quarterly in arrears. There is a commitment fee of 1.4% per annum on the undrawn balance of the commercial tranche.

The total facility is guaranteed by Seadrill at a cost of 1.0% per annum on amounts drawn.

The Group also entered into a USD 100 million revolving credit facility ("RCF") with its majority shareholder, Seadrill Limited, in October 2013. The RCF matures in December 2015 and incurs interest on drawn amounts at a rate of LIBOR + 5.5%, payable quarterly in arrears. There is a commitment fee of 2.2% per annum on the undrawn balance of the RCF.

Financing Activities
Unaudited figures in USD million	GIEK Tranche	Commercial Tranche	Total bank facility	RCF with Seadrill	Total
As at 31 Dec 2013
Principal outstanding	200.0	1,200.0	1,400.0	-	1,400.0
Unamortised deferred financing costs1	-	-	-30.8	-	-30.8
Total borrowings	200.0	1,200.0	1,369.2	0.0	1,369.2
Current portion	27.1	147.9	173.1	-	173.1
Noncurrent portion	172.9	1,052.1	1,196.1	-	1,196.1
Undrawn facility (available for utilisation)	150.0	200.0	350.0	100.0	450.0
Three months ended 30 Sep 2014
Additional drawdowns	-	-	-	30.0	30.0
Additional deferred financing costs1	-	-	-	-	-
Amortisation of deferred financing costs1&2	-	-	2.0	-	2.0
Principal repayments	5.4	29.6	35.0	-	35.0
Interest payments	1.3	8.8	10.1	-	10.1
Nine months ended 30 Sep 2014
Additional drawdowns	-	-	-	75.0	75.0
Additional deferred financing costs1	-	-	2.4	-	2.4
Amortisation of deferred financing costs1,2	-	-	5.9	-	5.9
Principal repayments	21.7	118.3	140.0	-	140.0
Interest payments	5.3	35.8	41.1	-	41.1
As at 30 Sep 2014
Principal outstanding	178.3	1,081.7	1,260.0	75.0	1,335.0
Unamortised deferred financing costs1	-	-	-27.4	-	-27.4
Total borrowings	178.3	1,081.7	1,232.6	75.0	1,307.6
Current portion	21.7	118.3	131.7	-	131.7
Noncurrent portion	156.6	963.4	1,100.9	75.0	1,175.9
Undrawn facility (available for utilisation)	150.0	200.0	350.0	25.0	375.0

¹Deferred financing costs were recognised on the bank facility as a whole and not allocated to the individual tranches ²USD 0.2 million of amortisation of deferred finance costs related to Sevan Developer were capitalised in the third quarter of 2014 (YTD USD 1.5 million relating to deferred finance costs for Sevan Louisiana and Sevan Developer)

Note 5 – Financing activities (continued)

	Three months ended	Nine months ended	Three months ended	Nine months ended
Unaudited figures in USD million	30 Sep 2014	30 Sep 2014	30 Sep 2013	30 Sep 2013
Financial expense
Interest expense	13.1	29.3	10.7	31.9
Amortisation of finance fees	1.8	4.4	-	46.0
Unrealised hedging loss	-	-	0.4	-12.1
Interest on RCF and commitment and
guarantee fees to Seadrill	4.3	11.4	-	-
Guarantee fees to Sevan Marine ASA	-	-	1.0	2.9
Other finance expense	-	-	0.5	0.2
Total	19.2	45.1	12.6	68.9

Note 6 – Other non-current assets

Unaudited figures in USD million	As at 30 Sep 2014	As at 31 Dec 2013
Other non-current assets
Net late delivery penalties	3.1	4.2
Net mobilisation expense	24.3	35.1
Other non-current assets	0.5	1.1
Total	27.9	40.4

Note 7 – Trade and other receivables

Unaudited figures in USD million	As at 30 Sep 2014	As at 31 Dec 2013
Trade and other receivables
Trade receivables	13.4	14.7
Prepayments	0.4	7.1
Other receivables	5.9	10.6
Total	19.7	32.4

Note 8 – Other current liabilities

Unaudited figures in USD million	As at 30 Sep 2014	As at 31 Dec 2013
Other current liabilities
Income and gross revenue tax payable	3.4	2.6
Other taxes payable	2.6	2.5
Related party payable (Note 9)	41.6	6.8
Other current liabilities	14.4	24.8
Total	62.0	36.7

Note 9 – Related party activities

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

Seadrill has guaranteed the bank facility referred to in Note 5. Seadrill is also providing the RCF (in the amount of USD 100 million), of which USD 75.0 million was drawn as at 30 September 2014. Seadrill charged the Group interest on the RCF and guarantee and commitment fees in a total amount of USD 4.3 million during the third quarter (YTD – USD 11.4 million).

Seadrill also provides management support and administrative services to the Group for which a fee of USD 5.8 million was charged during the third quarter (YTD – USD 17.4 million).

As a part of the integration into Seadrill, Seadrill entities incur direct costs on behalf of Sevan. Sevan has a total current liability (including the commitment, guarantee and management fees mentioned above) of USD 41.6 million to Seadrill as at 30 September 2014 (compared to USD 6.8 million as at 31 December 2013).

Note 10 – Changes in Accounting Judgment

Up to 31 December 2013, the Group classified gross revenue taxes in Brazil as tax expense. In Q1 2014, Management reassessed the nature of these taxes and determined that they are better classified as a reduction of revenue, as the starting point for determining the amount of tax paid is more dependent on the amount of gross sales than on a concept of taxable profit. This is a reclassification of items on the Income Statement with no impact on net income. There is no impact on the Statement of Comprehensive Income, the Balance Sheet, the Statement of Changes in Equity, or the Cash Flow Statement. This change has been made retrospectively and is included in all other prior period information presented in these interim financial statements.

The impact on the Income Statement is as follows:

	Three months ended	Three months ended	Three months ended	Three months ended	Year ended
Unaudited figures in USD million	31 Mar 2013	30 Jun 2013	30 Sep 2013	31 Dec 2013	31 Dec 2013
Decrease in Operating revenue	-1.9	-2.2	-1.9	-2.0	-8.0
Decrease in Tax expense	-1.9	-2.2	-1.9	-2.0	-8.0
Change in Net loss	-	-	-	-	-

Note 11 – Events after balance sheet date

The Group has evaluated its subsequent events from the balance sheet date through the date the accompanying condensed consolidated financial statements became available to be issued. There have been no significant subsequent events not described herein.

Oslo, 25 November 2014 The Board of Directors of Sevan Drilling ASA

Erling Lind Birgitte Ringstad Vartdal Ragnhild M. Wiborg Chairman Board Member Board Member

Board Member Board Member

Per Wullf Kristian Johansen

Scott McReaken Chief Executive Officer