Seadrill Limited — Interim / Quarterly Report 2014

Aug 27, 2014

SEVAN DRILLING ASA

INTERIM FINANCIAL REPORT SECOND QUARTER 2014

Highlights – Second Quarter 2014

• Sevan Drilling reports record EBITDA of USD 40.8 million, mainly due to Sevan Louisiana having commenced operations and improved operating performance by Sevan Driller and Sevan Brasil.
• Operating revenue reached USD 88.6 million in Q2 2014 (Q2 2013 USD 63.9 million).
• Sevan Driller achieved 94.7 percent technical utilisation (Q2 2013 84.7 percent) and 96.3 percent economic utilisation (Q2 2013 - 83.7 percent).
• Sevan Brasil achieved 98.2 percent technical utilisation (Q2 2013 95.8 percent) and 103.1 percent economic utilisation (Q2 2013 - 95.8 percent).
• Sevan Louisiana commenced operations in the US Gulf of Mexico on 28 May, and achieved 89.9 percent technical utilisation and 93.5 percent economic utilisation

Unaudited figures in USD million, except earnings per share	Q2 2014	Q1 2014	Q2 2013
Operating revenue	88.6	60.1	63.9
EBITDA (1)	40.8	15.7	20.1
Operating Profit	24.3	0.8	5.1
Net financial items	-14.4	-11.5	-40.6
Net profit (loss)	9.2	-10.4	-35.5
Earnings per share	0.02	-0.02	-0.06
Company performance:
Available days (2)	215	180	182
Technical Utilisation (3)	95.4%	91.9%	90.2%
Economic Utilisation (4)	95.7%	86.8%	86.6%
Average daily revenue (5)	423,000	363,000	389,000
Average daily operating expense (6)	197,000	188,000	201,000

(1) Earnings before interest, tax, depreciation, and amortisation equals operating profit adding back depreciation expense

(2) Available days are the total number of rig operating 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. A higher utilisation than 100% reflects the earning of performance bonus.

(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, restructuring and depreciation expenses and foreign exchange (loss)/gain related to operations divided by available days in the period.

Financial performance summary

For the three months ended 30 June 2014

Operating revenue

Sevan Drilling reports operating revenue of USD 88.6 million compared to USD 63.9 million in Q2 2013. Operating revenue consisted of earnings from Sevan Driller, Sevan Brasil and Sevan Louisiana. The revenue increase is due to improved operational performance of Sevan Driller and Sevan Brasil, and earnings from Sevan Louisiana which began operations on 28 May.

Operating expenses

Total operating expenses was USD 64.3 million compared to USD 58.8 million in Q2 2013.

The increase is a result of the commencement of Sevan Louisiana's operations offset by improved overall efficiencies. Operating expense reductions were achieved through reducing rental equipment expenses, adopting continuous repair and maintenance routines, eliminating end of well services and improving supply chain efficiencies.

General and administrative expenses decreased by USD 1.2 million compared to Q2 2013. The reduction is mainly due to workforce reductions offset by one-time costs of USD 1.1 million associated with a non-recurring FEED project with corresponding revenue of USD 1.6 million.

The foreign exchange gain of USD 0.3 million is a consequence of a change in the exchange rate between USD and Brazilian Real.

Net financial items

Net financial items amounted to USD 14.4 million compared to USD 40.6 million in Q2 2013, reflecting lower financing and foreign exchange costs.

Amortisation of deferred finance cost was USD 35.2 million less than in Q2 2013 mainly due to the write off of deferred financing costs as a consequence of the debt restructuring in Q2 2013.

Interest expense was USD 2.0 million less than in Q2 2013 due to a lower interest rate on the current debt facility and additional amount of interest capitalised, offset by an increased debt. The net financial items in Q2 2013 furthermore included an unrealised gain of USD 8.1 million from interest rate swaps. No swaps were held in Q2 2014.

For the six months ended 30 June 2014

Operating revenue

Sevan Drilling reports operating revenue of USD 148.7 million for the six months ended 30 June 2014 compared to USD 119.8 million for the comparative period in 2013.

Operating expenses

Total operating expenses was USD 123.6 million for the six months ended 30 June 2014 compared to USD 120.5 million for the same period in 2013.

General and administrative expenses were reduced by USD 2.1 million compared to the six months ended 30 June 2013.

Restructuring expenses of USD 2.3 million relate to employee severance costs. Workforce reductions concluded in May 2014.

Net financial items

Net financial items amounted to USD 25.9 million for the six months ended 30 June 2014 compared to USD 59.0 million for the same period in 2013, reflecting lower financing and foreign exchange costs.

Amortisation of deferred finance cost was USD 42.7 million less than for the six

months ended 30 June 2013, mainly due to the write off of deferred financing costs as a consequence of the debt restructuring in Q2 2013. Interest expense was USD 4.8 million less than for the comparable period in 2013.

Balance sheet

Cash and cash equivalents amounted to USD 30.2 million as of 30 June 2014 (USD 128.7 million as of 31 December 2013). The Company completed payments of interest under its bank facility with USD 10.3 million in Q2 2014. USD 30.9 million has been paid in interest during the first 6 months of 2014.

Principal repayments have been made in an amount of USD 35.0 million (USD 105.0 million year to date). Construction and mobilisation costs were funded with available cash. USD 30.0 million was drawn under the revolving credit facility provided by Seadrill Limited ("Seadrill") during Q2 2014, bringing the outstanding balance to USD 45.0 million at 30 June 2014.

Sevan confirmed with Cosco that an amount equal to 20% of the contract price for Sevan Developer has been paid to date through a settlement of a deferred liability. The Sevan Developer construction cost as of 30 June 2014 is USD 131.0 million, which includes the milestone payments, interest on the deferred payment, capitalized interest and variation orders.

Financing

The cash position at the end of Q2 2014, the revolving credit facility provided by Seadrill, and the additional revenue generated by Sevan Louisiana will provide adequate support for the Sevan Drilling Group operations going forward. Liquidity will, however, remain sensitive to the performance of the rigs under contract.

The current bank facility allows a further drawing of USD 350 million against the final instalment for Sevan Developer. Such drawing is, however, subject to a satisfactory contract having been secured for Sevan Developer following delivery.

Operational Performance Summary

Sevan Driller

Sevan Driller continued its contract with Petrobras in Brazil and had a technical utilisation of 94.7 percent during the quarter. This compared to 84.7 percent in Q2 2013. No major maintenance took place in Q2 2014.

Sevan Brasil

Sevan Brasil continued its contract with Petrobras in Brazil and had a technical utilisation of 98.2 percent compared to 95.8 percent in Q2 2013. No major maintenance took place in Q2 2014.

Sevan Louisiana

Sevan Louisiana commenced operations on a three year contract for LLOG in the US Gulf of Mexico on 28 May 2014. Technical utilisation was 89.9 percent in Q2 2014.

Sevan Developer

The contract delivery date for Sevan Developer was 30 April 2014. The yard's ("Cosco") latest indicated date of delivery is October 2014. The main reason for the delay is significant delays in the delivery of critical equipment from Cosco's sub-contractors to the yard.

Subject to the delays in the delivery of equipment, construction continues to progress well. The Company is following up on pre-operational planning for Sevan Developer in accordance with its usual procedures.

Corporate

The Company completed a reorganisation of its asset owning structure in early May 2014. As a consequence, ownership of Sevan Brasil

and Sevan Driller has been transferred from Singapore to new subsidiaries in Bermuda. Ownership of Sevan Louisiana was, at the same time, transferred to a subsidiary in Hungary. All of the rigs in operation are now flagged in Panama. The new structure allows for a more flexible and efficient operating structure for the fleet.

Outlook

Sevan Drilling is now fully integrated in Seadrill's management systems. The effects of this are several.

First, the utilisation rates for Sevan Brasil and Sevan Driller have improved, securing additional revenue to the Sevan Group.

Second, operational risk has been reduced.

Third, operating costs have been reduced, both on the rig and general level.

Most of the short term economic benefits of being integrated in Seadrill's management systems have now been realised. The Company nevertheless believes that there is some potential for further cost reductions.

The most important benefit from the Company becoming integrated in Seadrill's operating system is the reduction in overall operating risk.

Sevan Louisiana commenced its three year contract in the US Gulf on 28 May. The rig performed well in June 2014.

A leak in the control system for the blow-out preventer ("BOP") in August will, however, lead to a lower utilisation rate in Q3 2014. The leak required a shut-down of the well in progress in order to pull the BOP to the surface for repairs. The Company has made the required repairs and expects to be back on rate 30 August 2014.

Marketing Sevan Developer continues to be a short term challenge for the Company. The soft ultra-deep water market resulting from the pause in spending and subsequent lack of awards from oil companies continues to delay obtaining an operating contract for the rig. The Company believes the long-term fundamentals of the ultra-deep water market remain robust, but the short-term will continue to be challenging well into 2015.

The significant delay in the delivery of Sevan Developer means that the Company may be able to cancel the order under the construction contract.

A cancellation will give the Company the right to a refund of instalments paid under the construction contract. Such amount would, likely, be in the area of USD 105 million.

The Company may also negotiate a later date of delivery with Cosco in anticipation of an improvement in the market. Given the current market it is, however, doubtful whether a sufficiently long delay in the delivery date can be agreed on satisfactory terms.

Taking delivery with no employment secured will require the rig to be warm stacked until a contract is concluded. This will, necessarily, have a negative impact of the Company's liquidity position.

The Company expects to take a decision as to which option(s) to pursue in respect of Sevan Developer in the short to medium term.

The Company intends to present a proposal to effectively migrate the parent of the Group from Norway to Bermuda during Q3. The reasons for this are several.

First, the Group has no operations in Norway and does not expect any to be established. Its

fleet is currently active in the Americas and will in the foreseeable future remain here.

Second, recent changes in the Norwegian tax rules will significantly reduce the tax deductible amount of interest paid by the Company on its loans as a consequence of these either being guaranteed or provided by its parent, Seadrill.

Third, Norwegian tax law applies withholding tax on dividends to, inter alia, Bermuda, the home jurisdiction of the Company's majority shareholder.

A migration to Bermuda is expected to reduce costs and improve the tax position of the parent and its shareholders outside the European Economic Area.

The current plan is to effect the migration by a liquidation of the Company, the dividend to be distributed to the shareholders being shares in the new Bermuda parent entity on a one for one basis.

The new parent will apply for a listing on the Oslo Stock Exchange, such listing to become effective on the date of distribution of the liquidation dividend.

An extraordinary general meeting of the shareholders will be called in Q3 2014 to consider and approve the plan.

Oslo, 26 August 2014 The Board of Directors Sevan Drilling ASA

Interim financial statements

		Condensed Consolidated Income Statement
Unaudited figures in USD million, except per share amounts	Note	Three months ended 30 June 2014	Six months ended 30 June 2014	Three months ended 30 June 2013	Six months ended 30 June 2013
Operating revenue	10	88.6	148.7	63.9	119.8
Operating expense		-42.4	-76.3	-36.6	-76.8
General & administrative expense		-5.6	-11.5	-6.8	-13.6
Restructuring expense		-0.1	-2.3	-	-
Depreciation, amortisation and impairment		-16.5	-31.4	-15.0	-30.0
Foreign exchange gain/(loss) related to operations		0.3	-2.1	-0.4	-0.1
Total operating expense		-64.3	-123.6	-58.8	-120.5
Operating profit/(loss)		24.3	25.1	5.1	-0.7
Financial expense	5	-14.4	-25.9	-40.4	-56.3
Foreign exchange loss related to financing		-	-	-0.2	-2.7
Net financial items		-14.4	-25.9	-40.6	-59.0
Profit/(loss) before tax		9.9	-0.8	-35.5	-59.7
Tax expense	10	-0.7	-0.4	-	-
Net profit/(loss)		9.2	-1.2	-35.5	-59.7
Attributable to:
Equity holders of the Group		9.2	-1.2	-35.5	-59.7
Earnings per share for profit/(loss) attributable to the equity holders of the Group during the period (per share):
- Basic and diluted		0.02	0.00	-0.06	-0.11

Condensed Consolidated Statement of Comprehensive Income
		Three months ended	Six months ended	Three months ended	Six months ended
Unaudited figures in USD million	Note	30 June 2014	30 June 2014	30 June 2013	30 June 2013
Net profit/(loss)		9.2	-1.2	-35.5	-59.7
Foreign currency translation		0.1	0.3	-0.9	-0.9
Comprehensive income/(loss)		9.3	-0.9	-36.4	-60.6
Attributable to: Equity holders of the Group		9.3	-0.9	-36.4	-60.6

Interim financial statements (continued)

Unaudited figures in USD million	Note	As at 30 June 2014	As at 31 December 2013
ASSETS
Non-current assets
Drilling rigs	4	1,970.1	1,916.6
Other fixed assets	4	4.3	19.2
Other non-current assets	6	31.6	40.4
Total non-current assets		2,006.0	1,976.2
Current assets
Inventories		41.1	26.9
Trade and other receivables	7	48.9	32.4
Cash and cash equivalents		30.2	128.7
Total current assets		120.2	188.0
Total assets		2,126.2	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 June 2014 and 31 December 2013, par value of NOK 1 per share) Share premium Other equity Total equity		108.6 666.0 -91.8 682.8	108.6 666.0 -90.9 683.7
LIABILITIES
Non-current liabilities
Non-current portion of bank borrowings	5	1,129.1	1,196.1
Non-current loan from related party	5	45.0	-
Other non-current liabilities		0.1	0.1
Total non-current liabilities		1,174.2	1,196.2
Current liabilities
Trade and other payables		56.8	74.5
Current portion of bank borrowings	5	136.2	173.1
Other current liabilities	8	76.2	36.7
Total current liabilities		269.2	284.3
Total liabilities		1,443.4	1,480.5
Total equity and liabilities		2,126.2	2,164.2

Condensed Consolidated Balance Sheet

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 January 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)	-	-	-	-	-	-59.7	-59.7
Fair value of share options	-	-	-	0.3	-	-	0.3
Translation differences	-	-	-	-	-0.9	-	-0.9
Equity as at 30 June 2013	108.6	666.0	280.0	1.7	-1.7	-273.6	781.0
Equity as at 1 January 2014	108.6	666.0	280.0	2.4	-2.8	-370.5	683.7
Net profit/(loss)	-	-	-	-	-	-1.2	-1.2
Translation differences	-	-	-	-	0.3	-	0.3
Equity as at 30 June 2014	108.6	666.0	280.0	2.4	-2.5	-371.7	682.8

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Cash Flow Statement Six months ended	Six months ended
Unaudited figures in USD million Note 30 June 2014	30 June 2013
Cash flows from operation activities
Cash from operations 15.7	9.3
Interest paid 5 -30.9	-19.8
Net cash (used in)/generated from operating activities -15.2	-10.5
Cash flows from investment activities Purchases of property, plant and equipment and other non current assets -23.3 Net cash flow used in investment activities -23.3	-51.3 -51.3
Cash flows from financing activities
Net proceeds from capital increase -	178.5
Proceeds from interest-bearing debt 5 45.0	-
Repayment of interest-bearing debt 5 -105.0	-76.8
Net cash flow generated (used in)/from financing activities -60.0	101.7
Net cash flow for the period -98.5	39.9
Cash balance at beginning of period 128.7	76.8
Cash balance at end of period * 30.2	116.7

* 2014 Cash balance contains restricted cash of USD 0.9 million for employees' tax deduction fund. 2013 cash balance contains restricted cash of USD 0.5 million for employees' tax deduction fund and USD 62.6 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 3 year fixed term contract with LLOG in the US Gulf of Mexico expiring in May 2017. Sevan Developer is currently expected to be delivered in October 2014.

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 at, and for the three months and six months ended, as of 30 June 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. For a further discussion, see 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 26 August 2014.

Note 2 – Results of the interim period

During the three months ending on 30 June 2014, the Group earned USD 88.6 million of revenue (YTD - USD 148.7 million) from the operation of Sevan Driller and Sevan Brasil in Brasil and Sevan Louisiana in the US.

Total operating expenses for Q2 2014 were USD 64.3 million (YTD – USD 123.6 million). Operating expenses in Q2 2014 amounted to USD 42.4 million (YTD – USD 76.3 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 resulting from the transfer of the majority of its management functions to Seadrill during Q2 2014. These savings were offset by increases in costs from Sevan Louisiana commencing operations in May 2014.

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 5.6 million in Q2 2014 (YTD – USD 11.5 million), which is impacted by workforce reductions offset by one-time costs related to integration in Q1 2014 and a front end engineering design study in Q2 2014. Restructuring expenses in Q2 2014 were USD 0.3 million (YTD – USD 2.3 million), as planned severances were paid in May. Depreciation in Q2 2014 was USD 16.5 million (YTD – USD 31.4 million).

Net financial items in Q2 2014 amounted to USD 14.4 million (YTD – USD 25.9 million), including amortization of deferred financing costs, interest expense and commitment and guarantee fees.

As Sevan Louisiana was in transit during Q2, the Group capitalised USD 6.8 million of mobilisation expense (YTD – USD 43.9 million). The Group received the mobilisation fee of USD 39.0 million for Sevan Louisiana in Q2. The net mobilisation fee began amortising when Sevan Louisiana was placed in service and accepted by LLOG. An additional USD 13.6 million in inventory associated with Sevan Louisiana was recorded as at 30 June 2014.

The Group drew USD 30.0 million under the revolving credit facility with Seadrill in Q2 2014 (YTD – USD 45.0 million) to fund the mobilisation of Sevan Louisiana and for general purposes. Sevan also repaid USD 35.0 million of principal on the current bank facility during Q2 (YTD – USD 105.0 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 Q1 2014, the Group has aggregated the rigs into a single reporting unit representing the fleet as a whole. Sevan Louisiana began operations in Q2 2014. The construction of Sevan Developer is expected to be completed in October 2014. These two events will negate the need for a separate Construction in Progress ("CIP") segment in the 2014 financial year.

Note 3 – Segment information (continued)

The CODM evaluates the operating results of each rig, but is concentrated 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.

	Property, Plant and Equipment (PPE)
Unaudited figures in USD million	Construction in process (CIP)	Units in operation (UIO)	Drilling rigs	Other fixed assets	Total PPE
As at 31 December 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 June 2014
Cost	131.0	1,994.3	2,125.3	12.8	2,138.1
Accumulated depreciation	-	-155.2	-155.2	-8.5	-163.7
Net book value	131.0	1,839.1	1,970.1	4.3	1,974.4
Three months ended 30 June 2014
Beginning net book value	645.4	1,284.8	1,930.2	4.1	1,934.3
Additions	54.0	2.3	56.3	0.3	56.6
Transfers	-568.4	568.4	-	-	-
Depreciation charge	-	-16.4	-16.4	-0.1	-16.5
Ending net book value	131.0	1,839.1	1,970.1	4.3	1,974.4
Six months ended 30 June 2014
Beginning net book value	639.3	1,277.3	1,916.6	19.2	1,935.8
Additions	60.1	9.6	69.7	0.3	70.0
Transfers	-568.4	583.3	14.9	-14.9	-
Depreciation charge	-	-31.1	-31.1	-0.3	-31.4
Ending net book value	131.0	1,839.1	1,970.1	4.3	1,974.4

Note 4 – Property, plant and equipment

Unaudited figures in USD million	As at 30 June 2014	As at 31 December 2013
Rig net book value
Sevan Driller	622.5	622.5
Sevan Brasil	651.9	654.8
Sevan Louisiana	564.7	563.5
Sevan Developer	131.0	75.8
Total	1,970.1	1,916.6

Note 4 – Property, plant and equipment (continued)

Additions to CIP include capitalisation of borrowing costs of USD 1.5 million during Q2 2014 (YTD – USD 5.3 million).

The CIP amounts above consist of Sevan Developer. Sevan Louisiana was transfered to Units in Operation ("UIO") in Q2 2014. The consideration due to Cosco for the construction of Sevan Developer is payable in instalments as milestones are completed. No payments were made during Q2 2014 (YTD – nil). The Group and Cosco mutually agreed during Q2 2014 that 20% of the total consideration for Sevan Developer is paid.

As at 30 June 2014, the remaining payment commitment under the construction contract for Sevan Developer is USD 424.3 million. This is payable upon delivery.

The payment obligation is on the subsidiary party to the construction contract. No parent guarantee or other security from other Group entities have been provided other than a guarantee from another subsidiary, Sevan Drilling AS.

At the end of each reporting period, the CODM reviews the carrying amounts of the Group's 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 June 2014, which the CODM 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. It was thereafter 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, a pre-tax weighted average cost of capital ("WACC") of 7.2% was used. 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 rates for the remaining contract term and current market rates for forecasts beyond the contracted periods. The CODM has assumed no growth above current market rates for the remainder of the rig lives beyond the five-year forecast. Based on sensitivity analyses performed, the CODM believes that reasonable movements in the key assumptions would not result in an impairment loss to be recognised. Neither an increase in the WACC of 100 basis points nor a reduction of 20% of future cash flows would result in impairment of a rig.

Note 5 – Financing activities

The Group's current bank loan is drawn under 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 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.

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 and further secured by first priority mortgages over Sevan Driller, Sevan Brasil and Sevan Louisiana.

As of 30 June 2014, USD 1,400 million had been drawn under the facility (of which USD 105.0 million has been repaid). A final amount of USD 350 million is available for drawing upon delivery of Sevan Developer subject to various conditions, the most material being that employment at a rate above a certain minimum has been secured for the rig.

The Group also has a USD 100 million revolving credit facility ("RCF") with Seadrill. 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.

Seadrill made, in Q4 2013, a commitment to the Group's lenders to provide additional funding in an amount of up to USD 120 million in order to cover a possible liquidity shortfall if the Group takes delivery of Sevan Developer.

Unaudited figures in USD million	Three months ended 30 June 2014	Six months ended 30 June 2014	Three months ended 30 June 2013	Six months ended 30 June 2013
Financial expense
Interest expense	9.1	16.4	11.1	21.2
Amortisation of finance fees	1.5	2.6	36.7	45.3
Unrealised hedging loss (gain)	-	-	-8.1	-12.5
Commitment and guarantee fees to Seadrill	3.8	6.9	-	-
Guarantee fees to Sevan Marine ASA	-	-	1.0	2.0
Other finance expense	-	-	-0.3	0.3
Total	14.4	25.9	40.4	56.3

Note 5 – Financing activities (continued)

	Financing Activities
Unaudited figures in USD million	GIEK Tranche	Commercial Tranche	Total bank facility	RCF with Seadrill	Total
As at 31 December 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 June 2014
Additional drawdowns	-	-	-	30.0	30.0
Additional deferred financing costs1	-	-	2.6	-	2.6
Amortisation of deferred financing costs1,2	-	-	2.2	-	2.2
Principal repayments	5.4	29.6	35.0	-	35.0
Interest payments	1.3	9.0	10.3	-	10.3
Six months ended 30 June 2014
Additional drawdowns	-	-	-	45.0	45.0
Additional deferred financing costs1	-	-	2.8	-	2.8
Amortisation of deferred financing costs1,2	-	-	3.9	-	3.9
Principal repayments	16.3	88.7	105.0	-	105.0
Interest payments	4.0	26.9	30.9	-	30.9
As at 30 June 2014
Principal outstanding	183.8	1,111.3	1,295.0	45.0	1,340.0
Unamortised deferred financing costs1	-	-	-29.7	-	-29.7
Total borrowings	183.8	1,111.3	1,265.3	45.0	1,310.3
Current portion	21.7	118.3	136.2	-	136.2
Noncurrent portion	162.1	992.9	1,129.1	45.0	1,174.1
Undrawn facility (available for utilisation)	150.0	200.0	350.0	55.0	405.0

¹Deferred financing costs were recognised on the bank facility as a whole and not allocated to the individual tranches ²USD 0.8 million of amortisation of deferred finance costs related to Sevan Louisiana and Sevan Developer were capitalised in the second quarter of 2014 (YTD USD 1.2 million)

Note 6 – Other non-current assets

Unaudited figures in USD million	As at 30 June 2014	As at 31 December 2013
Other non-current assets
Net late delivery penalties	3.6	4.2
Net mobilisation expense	26.6	35.1
Other non-current assets	1.4	1.1
Total	31.6	40.4

Note 7 – Trade and other receivables

Unaudited figures in USD million	As at 30 June 2014	As at 31 December 2013
Trade and other receivables
Trade receivables	41.3	14.7
Prepayments	2.6	7.1
Other receivables	5.0	10.6
Total	48.9	32.4

Note 8 – Other current liabilities

	As at	As at
Unaudited figures in USD million	30 June 2014	31 December 2013
Other current liabilities
Income and gross revenue tax payable	3.0	2.6
Other taxes payable	2.0	2.5
Related party payable (Note 9)	47.1	6.8
Other current liabilities	24.1	24.8
Total	76.2	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, of which USD 45.0 million was drawn as at 30 June 2014. Seadrill charged the Group guarantee and commitment fees in a total amount of USD 3.8 million during Q2 2014 (YTD – USD 6.9 million).

Seadrill also provides management support and administrative services to the Group for which a fee of USD 5.3 million was charged during Q2 2014 (YTD – USD 11.6 million).

As part of Seadrill's day to day management services, Seadrill entities incur direct costs on behalf of Sevan. Sevan had a total current liability (including the commitment, guarantee and management fees mentioned above) of USD 47.1 million to Seadrill as at 30 June 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, the CODM 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

Note 10 – Changes in Accounting Judgment (continued)

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:

Unaudited figures in USD million	Three months ended 31 Mar 2013	Three months ended 30 June 2013	Three months ended 30 Sep 2013	Three months ended 31 Dec 2013	Year ended 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.

Responsibility Statement

We confirm, to the best of our knowledge, that these interim consolidated financial statements for the period 1 January to 30 June 2014, have been prepared in accordance with IAS 34 – Interim Financial Reporting, and give a true and fair view of the Group's assets, liabilities, financial position and profit or loss as a whole. We also confirm, to the best of our knowledge, that the Interim Financial Reporting includes a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, a description of the principal risks and uncertainties for the remaining six months of the financial year, and major related parties transactions

Oslo, 26 August 2014 The Board of Directors of Sevan Drilling ASA

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

Per Wulff Kristian Johansen Board Member Board Member

Scott McReaken CEO