Seadrill Limited — Interim / Quarterly Report 2017

Aug 24, 2017

SEVAN DRILLING LIMITED

INTERIM FINANCIAL REPORT SECOND QUARTER AND HALF YEAR 2017

Highlights Second Quarter 2017

• Operating revenue of USD 45.9 million
• EBITDA of USD 20.6 million
• Net loss of USD 12.7 million

Subsequent Events

• On July 4, 2017 the Sevan Developer deferral period was extended to June 30, 2020 and Cosco refunded USD 25.3 million of the yard installment plus interest, leaving USD 1.0 million invested in the rig.
• On July 17, 2017 Ms. Ragnhild Wiborg resigned from the board of directors and Mr. Douglas Smith was appointed to fill the vacancy as director and audit committee chair.

Unaudited figures in USD million, except where noted	Q2 2017	Q1 2017	Q2 2016	YTD 2017	YTD 2016
Operating revenue	45.9	55.1	61.5	101.0	114.3
(1) EBITDA	20.6	25.4	29.1	46.0	41.8
Operating profit	4.9	10.3	12.5	15.2	7.8
Net financial items	(17.4)	(17.6)	(18.5)	(35.0)	(35.3)
Net loss	(12.7)	(7.5)	(7.4)	(20.2)	(27.8)
EPS - basic and diluted (USD)	(0.43)	(0.25)	(0.25)	(0.68)	(0.94)
Company performance:
Available days (2)	162	180	182	342	458
Technical Utilization (3)	98.1%	97.7%	98.6%	98.0%	97.1%
Economic Utilization (4)	95.9%	97.0%	98.6%	96.4%	93.5%

Financial Highlights

(1) EBITDA equals net profit/loss adding back net financial items, tax income/expense, depreciation and amortization expense and impairment 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 Utilization is the actual number of revenue earning days divided by Available Days. A revenue earning day is defined as a day on which a rig earns its day rate after commencement of operations.

(4) Economic Utilization is total operating revenue, excluding bonuses, divided by total potential charter revenue for the period.

Financial performance summary

For the Three months ended June 30, 2017

Operating revenue

Operating revenue was USD 45.9 million (Q2 2016: USD 61.5 million). The decrease in revenue primarily relates to the conclusion of the Sevan Louisiana contract, on June 10, 2017, and the Sevan Driller being idle for a full quarter in 2017. In Q2 2017, the Sevan Brasil achieved technical utilization of 96.5% (Q2 2016: 99.5%) and the Sevan Louisiana achieved 99.7% (Q2 2016: 96.9%). The Sevan Driller was idle during the quarter (Q2 2016: 99.4%).

Total operating expenses

Total operating expenses were USD 41.0 million (Q2 2016: USD 49.0 million). Vessel operating expenses were USD 21.3 million (Q2 2016: USD 27.8 million). The decrease is mainly due to the Sevan Driller being idle during the current quarter. General and administrative costs were USD 4.0 million (Q2 2016: USD 3.8 million). Depreciation and amortization was USD 15.7 million (Q2 2016: USD 16.6 million).

Net financial items

Net financial items amounted to USD 17.4 million (Q2 2016: USD 18.5 million). Commitment and guarantee fees to Seadrill decreased by USD 1.1 million is mainly due to an amendment to the interest on the RCF.

Net loss for Q2 2017 was USD 12.7 million (Q2 2016: USD 7.4 million).

For the Six months ended June 30, 2017

Operating revenue

Operating revenue was USD 101.0 million (Q2 2016: USD 114.3 million). The decrease in revenue is primarily due to the Sevan Driller, which was idle for the first six months of 2017 as compared to four months in 2016. In addition, the Sevan Brasil operated at a reduced day rate from February 2016. In Q2 2017, the Sevan Brasil achieved technical utilization of 98.2% (Q2 2016: 90.8%) and the Sevan Louisiana achieved 97.7% (Q2 2016: 96.9%). The Sevan Driller was idle during this period (Q2 2016: 100.0%).

Total operating expenses

Total operating expenses were USD 85.8 million (Q2 2016: USD 106.5 million). Vessel operating expenses were USD 46.9 million (Q2 2016: USD 61.5 million). The decrease is primarily due to the Sevan Driller being idle in 2017. General and administrative costs were USD 8.0 million (Q2 2016: USD 9.4 million), the decrease is driven by lower overhead as a result of the reduction in operational activities. Depreciation and amortization was USD 30.8 million (Q2 2016: USD 34.0 million).

Net financial items

Net financial items amounted to USD 35.0 million in Q2 2017 (Q2 2016: USD 35.3 million).

Net loss for Q2 2017 was USD 20.2 million (Q2 2016: USD 27.8 million).

Balance sheet

Cash and cash equivalents amounted to USD 49.5 million as of June 30, 2017 (December 31, 2016: USD 26.0 million). For the six months ended June 30, 2017, interest and principal payments under the debt facility were USD 88.4 million and interest under the RCF of USD 7.2 million was charged. As of June 30, 2017, USD 245.0 million was drawn on the RCF. The facility was drawn down by USD 60.0 million and no repayments were made in the six months ended June 30, 2017.

Change to Reporting Cycle

Following revised guidance from the Oslo Bors in respect of reporting periods, effective from January 1, 2017, the Company has elected to change its reporting cycle to half-yearly. The next results report will therefore be issued for the six month period ended December 31, 2017, and the expected date of the earnings release and call is February 22, 2018.

Operations performance summary

In Q2 2017, the Sevan Drilling operating rigs achieved technical utilization of 98.1% and economic utilization of 95.9%.

The Sevan Brasil achieved technical utilization of 96.5% working for Petroleo Brasileiro S.A. ("Petrobras") in Brazil. The Sevan Louisiana achieved 99.7% working in the US Gulf of Mexico through completion of its contract to June 10.

The Sevan Driller remained idle in the quarter. The rig was relocated to Malaysia in July where it will continue to be actively marketed.

The Sevan Developer remained ready for delivery at the Cosco shipyard in China.

At August 24, 2017 the fleet's contracted backlog revenue is USD 88.7 million, excluding options.

Outlook

The offshore drilling market remains challenging and we expect this dynamic to continue in the short to medium term. The majority of customers remain focused on conserving cash and are still reluctant to commit to significant new capital projects offshore until an increased consistency and upward trend in oil prices is demonstrated. The significant rig supply overhang remains and a faster return to a balanced market will require drilling contractors to be more disciplined in retiring older units.

Tendering activity has continued at increased levels, albeit from a low base, over the past few months, especially in the North Sea floater and South-East Asia and Middle-East jack-up segments. An increasing number of recent tenders released by oil companies seek to contract at current bottom of cycle dayrates for increased durations and / or with multiple fixed price options periods.

We still believe in the long term fundamentals of the offshore drilling industry, driven by years of under-investment in new fields and the competitiveness of offshore resources on a full cycle basis. Our enduring focus on our customers, safe and efficient operations and a disciplined approach to contracting, will ensure that Sevan Drilling is well placed to capitalize when the market recovers.

Refinancing Update

In July, Seadrill and the Company reached an agreement with its bank group to extend the comprehensive restructuring plan negotiating period until September 12, 2017.

Seadrill and the Company are in advanced discussions with certain third party and related party investors, an ad hoc group of its bondholders and its secured lenders on the terms of a comprehensive recapitalization, which remains subject to further negotiation, final due diligence, final documentation, and requisite approvals. As previously disclosed, we continue to believe that implementation of a comprehensive restructuring plan will likely involve chapter 11 proceedings, and we are preparing accordingly. The extension provides additional time to finalize negotiations and prepare for the necessary potential implementation filings.

It is likely that the comprehensive restructuring plan may require a substantial impairment and losses for stakeholders. As a result, the Company currently expects that shareholders are likely to receive minimal or no recovery for their existing shares.

The Company's business operations remain unaffected by these restructuring efforts and the Company expects to continue to meet its ongoing customer and business counterparty obligations.

August 24, 2017 The Board of Directors Sevan Drilling Limited Hamilton, Bermuda

Questions should be directed to Sevan Drilling Management AS represented by: Scott McReaken, Chief Executive Officer

Interim and Preliminary 2017 Financial Statements

Consolidated Statement of Profit or Loss

		Three months ended June 30,		Six months ended June 30,
Unaudited figures in USD million	Note	2017	2016	2017	2016
Operating revenue		45.9	61.5	101.0	114.3
Operating expense		(21.3)	(27.8)	(46.9)	(61.5)
General and administrative expense		(4.0)	(3.8)	(8.0)	(9.4)
Depreciation and amortization	3	(15.7)	(16.6)	(30.8)	(34.0)
Foreign exchange (loss)/gain		—	(0.8)	(0.1)	(1.6)
Total operating expense		(41.0)	(49.0)	(85.8)	(106.5)
Operating profit		4.9	12.5	15.2	7.8
Financial expense	4	(17.4)	(18.5)	(35.0)	(35.3)
Net financial items		(17.4)	(18.5)	(35.0)	(35.3)
Loss before tax		(12.5)	(6.0)	(19.8)	(27.5)
Tax expense		(0.2)	(1.4)	(0.4)	(0.3)
Net loss		(12.7)	(7.4)	(20.2)	(27.8)
Attributable to:
Equity holders of the Company		(12.7)	(7.4)	(20.2)	(27.8)

Earnings per share for loss attributable to the equity holders of the Company during the period (USD per share):

Basic loss per share	(0.43)	(0.25)	(0.68)	(0.94)
Diluted loss per share	(0.43)	(0.25)	(0.68)	(0.94)

Consolidated Statement of Comprehensive Income

	Three months ended June 30,		Six months ended June 30,
Unaudited figures in USD million	2017	2016	2017	2016
Net loss	(12.7)	(7.4)	(20.2)	(27.8)
Items that may be reclassified to profit or
loss Foreign currency translation	—	—	—	—
Total comprehensive loss	(12.7)	(7.4)	(20.2)	(27.8)
Attributable to:
Equity holders of the Company	(12.7)	(7.4)	(20.2)	(27.8)

Interim and Preliminary 2017 Financial Statements (Continued)

Consolidated Balance Sheet

Unaudited figures in USD million	Note	As at June 30, 2017	As at December 31, 2016
ASSETS
Drilling rigs	3	1,390.9	1,411.1
Deferred tax asset		0.5	0.5
Other non-current assets		0.2	0.9
Total non-current assets		1,391.6	1,412.5
Inventories		52.6	51.4
Trade and other receivables	5	47.6	65.2
Cash and cash equivalents		49.5	26.0
Total current assets		149.7	142.6
Total assets		1,541.3	1,555.1
EQUITY
Share capital		3.0	3.0
Share premium		713.5	713.5
Other equity		(423.8)	(403.6)
Total equity		292.7	312.9
LIABILITIES
Interest bearing debt	4	—	801.2
Total non-current liabilities		—	801.2
Trade and other payables		21.5	25.0
Interest bearing debt	4	1,113.1	319.0
Other current liabilities	6	114.0	97.0
Total current liabilities		1,248.6	441.0
Total liabilities		1,248.6	1,242.2
Total equity and liabilities		1,541.3	1,555.1

Interim and Preliminary 2017 Financial Statements (Continued)

Consolidated Statement of Changes in Equity

Unaudited figures in USD million	Share capital	Share premium	Equity settled employee benefits reserve	Retained earnings	Total equity
Equity as at January 1, 2016	3.0	713.5	2.4	(313.0)	405.9
Net loss	—	—	—	(27.8)	(27.8)
Equity as at June 30, 2016	3.0	713.5	2.4	(340.8)	378.1
Equity as at January 1, 2017	3.0	713.5	—	(403.6)	312.9
Net loss	—	—	—	(20.2)	(20.2)
Equity as at June 30, 2017	3.0	713.5	—	(423.8)	292.7

Interim and Preliminary 2017 Financial Statements (Continued)

Unaudited figures in USD million	Six months ended June 30, 2017	Six months ended June 30, 2016
Operating activities
Net loss	(20.2)	(27.8)
Adjustment to reconcile profit before tax to net cash flows provided by operating activities:
Depreciation, amortization and impairment	32.0	38.3
Net financial items	35.0	35.3
Payment for long-term maintenance	(10.4)	(1.7)
Other non-cash items	(2.5)	1.3
Changes in operating assets and liabilities:
Inventory	(1.2)	0.9
Trade and Other receivables	14.3	16.7
Other non-current assets	0.4	7.3
Related party balances	18.6	13.6
Trade and Other payables	(3.5)	(7.2)
Other current liabilities	(0.7)	2.6
Other non-current liabilities	—	(0.8)
	61.8	78.5
Tax paid	(3.9)	(0.7)
Interest, commitment and guarantee fees paid	(25.6)	(33.0)
Net cash flow generated from operating activities	32.3	44.8
Investing activities
Purchases of property, plant and equipment and other non current assets	(0.2)	(2.4)
Insurance refund	1.2	—
Refund of yard instalment	—	29.0
Net cash flow generated from investing activities	1.0	26.6
Financing activities
Proceeds from interest-bearing debt	60.0	60.0
Repayment of interest-bearing debt	(70.0)	(140.0)
Debt fees paid	—	(2.8)
Net cash flow used in financing activities	(10.0)	(82.8)
	23.3	(11.4)
Foreign exchange differences	0.2	0.6
Cash balance at the beginning of period	26.0	42.4
Cash balance at the end of period	49.5	31.6

Notes to the Interim and Preliminary 2017 financial statements

Note 1 - Organization and basis of preparation

General information - Sevan Drilling Limited

Sevan Drilling Limited (the "Company") and its subsidiaries (the Company and the subsidiaries collectively referred to as the "Group") is an international offshore drilling contractor specializing in the ultra-deepwater segment.

Sevan Drilling Limited was incorporated in Bermuda under the Companies Act on December 20, 2013 as an exempted company limited by shares. Its shares of common stock have been listed under the symbol "SEVDR" on the Oslo Stock Exchange (Oslo Børs).

The Group owns three ultra-deepwater drilling rigs, the Sevan Driller, Sevan Brasil, and Sevan Louisiana, and is contracted for a fourth rig, the Sevan Developer, which is awaiting delivery. Sevan Brasil is operating under a contract with Petrobras in Brazil expiring in July 2018. Sevan Louisiana concluded a contract in the US Gulf of Mexico on June 10, 2017. The Sevan Driller remains idle in Malaysia while being marketed for acceptable employment.

Basis of preparation

The consolidated financial statements include the assets and liabilities of the Company, its majority owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated on consolidation. Effective June 30, 2016 Sevan Drilling ASA was recapitalized as a wholly owned subsidiary of the group and continues to be consolidated.

These consolidated financial statements as at and for the three and six months ended June 30, 2017 (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 2016 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 loans and borrowings. Management believes that the carrying value, excluding financing fees, approximates fair value for all the Group's financial instruments excluding bank borrowings. Please see Note 4 "Financing activities" for further details.

The Interim Financial Statements are prepared on a going concern basis. The Group's going concern assumption is based on management's expectation that a comprehensive restructuring plan will be completed successfully, however the timing and outcome of this process is inherently uncertain. These conditions indicate the existence of material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern.

The Group's liquidity requirements relate to servicing debt amortizations, interest payments, and funding working capital requirements. Sources of liquidity include existing cash balances, revenues and availability of the RCF. The Company has historically relied on the cash generated from operations to meet working capital needs, and on funding provided by its majority shareholder Seadrill Limited. The Company's bank facility is guaranteed by Seadrill, and cross default clauses exist between this facility and Seadrill's other credit facilities.

During the period ended June 30, 2017, the external debt was reclassified to current due to the timing of the covenant amendments expiring and forecast covenant positions within the next 12 months. As at June 30, 2017 Seadrill is in compliance with its debt covenants. The outstanding balance of the bank facility as at June 30, 2017 is USD 874.9 million which is classified as current liabilities.

As a result of the downturn in the offshore drilling industry, Seadrill will be required to secure additional liquidity to fully meet its short term liquidity requirements over the next twelve months. Seadrill and the Company are engaged in ongoing negotiations with Seadrill and Sevan lending banks and potential new money investors regarding the terms of a comprehensive restructuring plan, which may include the infusion of new capital.

The Company expects the implementation of a comprehensive restructuring plan will likely involve chapter 11 proceedings. We are preparing accordingly and have engaged financial advisors and legal counsel. The Company's business operations remain unaffected by these restructuring efforts and the Company expects to continue to meet its ongoing customer and business counterparty obligations.

The financial information in this report has been prepared on the basis that the Company will continue as a going concern, which presumes that it will be able to realize its assets and discharge its liabilities in the normal course of business as they come due. 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 the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.

The accounting policies adopted in the preparation of the Interim Financial Statements are consistent with those followed in the preparation of the 2016 Annual Report. The Interim Financial Statements are unaudited and were approved by the Board of Directors on August 24, 2017.

Note 2 - Segment information

Basis of segmentation

The Board of Directors of the Company, which is identified as the chief operating decision maker in the Group ("CODM"), aggregates the rigs into a single reporting unit representing the fleet as a whole.

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, EBITDAand utilization rates.

Note 3 - Property, plant and equipment

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.

Unaudited figures in USD million	Construction in process (CIP)*	Units in operation (UIO)	Drilling rigs	Other fixed assets	Total fixed assets
Book value as at January 1, 2017	37.5	1,373.4	1,410.9	0.2	1,411.1
Additions	—	10.5	10.5	0.1	10.6
Depreciation charge	—	(30.6)	(30.6)	(0.2)	(30.8)
Book value as at June 30, 2017	37.5	1,353.3	1,390.8	0.1	1,390.9
Cost	37.5	2,058.2	2,095.7	9.8	2,105.5
Accumulated impairment	—	(335.6)	(335.6)	—	(335.6)
Accumulated depreciation	—	(369.3)	(369.3)	(9.7)	(379.0)
Net book value as at June 30, 2017	37.5	1,353.3	1,390.8	0.1	1,390.9

* USD 26.3 million secured by guarantees from the shipyard, of which USD 25.3 million was refunded in July 2017 .

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

* USD 26.3 million secured by guarantees from the shipyard.

The closing net book values of the Company's drilling units were as follows:

Unaudited figures in USD million	As at June 30, 2017	As at December 31, 2016
Rig net book value
Sevan Driller	372.9	381.3
Sevan Brasil	492.4	494.0
Sevan Louisiana	488.0	498.1
Sevan Developer	37.5	37.5
Total drilling units	1,390.8	1,410.9

Sevan Developer - construction in progress

In October 2014, the Group entered an agreement with Cosco to defer the delivery period for 12 months with four options to extend for subsequent periods of 6 months. Since the end of the initial deferral period, it has been extended three times to April 15, 2017. At this anniversary a standstill agreement was entered to allow time to evaluate alternatives. In July 2017 the Sevan Developer deferral period was extended to June 30, 2020 and Cosco refunded USD 25.3 million plus interest to Sevan. Sevan has an investment of USD 1 million remaining and the ability to continue marketing the rig. Delivery will occur if and when a contract that can support financing of the final delivery installment is secured.

Cosco has the option to cancel the construction contract on July 1, 2018 or July 1, 2019. Cosco will, in such case, refund the remaining installment of USD 1 million. The Sevan Developer remains in China at the Cosco Shipyard.

Impairment Analysis

The Company reviews the carrying amounts of its tangible assets at the end of each reporting period to determine whether there is any indication that those assets may be impaired. The net asset value of the Group exceeded its market capitalization as at June 30, 2017. This is identified as an indicator of impairment of assets. As a result, each of the Group's rigs was, as of June 30, 2017 identified as a cash-generating unit and tested for impairment.

The recoverable values of the rigs were calculated using an income method discounted cash flow. The key assumptions applied for the purpose of impairment testing of rigs in operation include discount rate and expected future cash flows. To discount the future cash flows, management used a post-tax weighted average cost of capital (WACC) of 11%. Estimated future cash flows are based on the Group's five-year forecast and utilize several assumptions including forecasted operational expense, operational taxes, utilization (94%) and dayrates adjusted for contract probability (mid USD 100k's per day with recovery to low USD 400k's per day by 2021 based on readily available market data). The Company makes no assertions that we can obtain contracts at these rates or with other acceptable commercial terms.

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

No impairment has been recognized in the three and six months ending June 30, 2017.

Based on sensitivity analyses performed, the Company believes that reasonable movements in the key assumptions could result in a further impairment loss to be recognized. Thus there is a possibility the Group may recognize an impairment in the following year if the facts underlying the key assumptions change over the coming year. An increase in the WACC of 100 basis points to 12% would result in an impairment of approximately USD 0.3 million and a reduction of expected market rates in the re-contract years of 10% would result in an impairment of approximately USD 77.1 million over the whole fleet.

Note 4 - Financing activities

Unaudited figures in USD million	June 30, 2017	December 31, 2016
Interest bearing debt	—	801.2
Non-current	—	801.2
Interest bearing debt	868.1	134.0
RCF with Seadrill	245.0	185.0
Current	1,113.1	319.0
Total	1,113.1	1,120.2

During the period ended June 30, 2017, the external debt was reclassified to current due to the timing of the covenant amendments expiring and forecast covenant positions within the next 12 months. As at June 30, 2017 Seadrill is in compliance with its debt covenants.

The tables below show the debt issuance costs that are netted against the current and non-current debt for each of the periods presented:

Unaudited figures in USD million	Principal outstanding	Debt Issuance Costs	Total Debt
Outstanding debt as at June 30, 2017
Non-current portion of debt	—	—	—
Current portion of long-term debt	874.9	(6.8)	868.1
Total external debt	874.9	(6.8)	868.1
Outstanding debt as at December 31, 2016
Non-current portion of debt	804.9	(3.7)	801.2
Current portion of long-term debt	140.0	(6.0)	134.0
Total external debt	944.9	(9.7)	935.2

The bank credit facility is a USD 1,750 million secured bank loan facility composed of a USD 350 million export credit facility and a USD 1,400 million commercial facility.

Tranche A, totaling USD 1,400 million, was drawn down in October 2013. The undrawn Tranche B, USD 350 million, was cancelled in December 2014 as a consequence of the arrangement made with Cosco to defer the delivery date of the Sevan Developer. Upon delivery, new financing will have to be secured to cover the final installment. The availability of such financing is expected to depend on a satisfactory drilling contract having been secured for the Sevan Developer and lending capacity at the time. Basic term is divided between LIBOR +2.5% for GIEK tranche and LIBOR +2.9% for Commercial tranche.

The GIEK tranche is extended to September 2023 and the commercial tranche matures in September 2018. If the commercial tranche is not refinanced satisfactorily after 5 years, then the GIEK tranche also becomes due.

The Company's bank credit facility is guaranteed by Seadrill, in exchange for the financial covenants being measured at the Seadrill consolidated level. Seadrill charges a guarantee fee of 1.0% per annum on amounts drawn.

For further details of the main financial covenants measured at a Seadrill consolidated level contained in the bank credit facility and details of amendments to these please see Note 15 "Interest Bearing Debt" to the 2016 Annual Report.

Effective December 29, 2014 the Revolving Credit Facility ("RCF") with Seadrill was increased to USD 300 million and on April 28, 2016 it was extended to December 31, 2017. The RCF is classified as a current liability in the consolidated balance sheet. The RCF is secured with second priority in the Group's assets and incurs interest on drawn amounts at a rate of LIBOR + 6.0%, payable quarterly in arrears. There is a commitment fee of 2.4% per annum on the undrawn balance of the RCF.

As at June 30, 2017 and December 31, 2016 the fair value of interest bearing debt has been determined using the discounted cash flow method using a discount rate that reflects the non-performance risk.

		June 30, 2017		December 31, 2016
	Carrying amount	Fair value	Carrying amount	Fair value
Interest bearing debt	1,113.1	989.0	1,120.2	1,039.7

The financial expense consisted of:

	Three months ended June 30,		Six months ended June 30,
Unaudited figures in USD million	2017	2016	2017	2016
Financial expense
Interest expense	9.6	9.5	18.8	19.1
Amortization of finance fees	1.4	1.5	2.9	3.0
Interest on RCF, commitment and guarantee fees to Seadrill	6.4	7.5	13.3	13.2
Total financial expense	17.4	18.5	35.0	35.3

Note 5 - Trade and other receivables

Unaudited figures in USD million	As at June 30, 2017	As at December 31, 2016
Trade receivables	24.7	46.1
Prepayments	12.6	0.5
Other receivables	10.3	18.6
Total trade and other receivables	47.6	65.2

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

Note 6 - Other current liabilities

Unaudited figures in USD million	As at June 30, 2017	As at December 31, 2016
Income and gross revenue tax payable	1.6	5.4
Other taxes payable	7.0	7.4
Related party payable	87.1	67.7
Other payables	18.3	16.5
Total other current liabilities	114.0	97.0

Note 7 - 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.

	Three months ended June 30,		Six months ended June 30,
Unaudited figures in USD million	2017	2016	2017	2016
Net expenses/(income)
Seadrill - operating expense (a)	5.5	4.7	11.0	11.4
Seadrill - finance expense (a)	6.4	7.5	13.3	13.2
North Atlantic Drilling - operating expense/ (revenue) (b)	—	0.1	(0.1)	0.3
Seadrill Partners - operating expense (c)	—	—	0.2	—
	11.9	12.3	24.4	24.9

Unaudited figures in USD million	June 30, 2017	December 31, 2016
Related party receivables
Seadrill	1.2	0.2
North Atlantic Drilling	—	0.3
Seadrill Partners	0.1	—
Total related party receivables	1.3	0.5
Related party payables
Seadrill	86.0	67.5
North Atlantic Drilling	0.2	0.2
Seadrill Partners	0.9	—
Total related party payables	87.1	67.7

(a) Seadrill - As a consequence of being contracted for the day-to-day operations of the Group's rigs, Seadrill entities incur direct costs on behalf of the Group. These are charged at cost plus management fee to the Group. Seadrill also provides executive services, management support and administrative services to the Group.

Seadrill has guaranteed the bank facility referred to in Note 4 "Financing activities". In addition, Seadrill is providing the RCF (in the amount of USD 300 million) of which USD 245 million was outstanding as of June 30, 2017 (December 31, 2016: USD 185 million). Seadrill charged the Group interest on the RCF and guarantee and commitment fees.

During the six months ended June 30, 2017, Seadrill recharged certain costs totaling USD 11.3 million that related to the refinancing of the Group's secured credit facilities. These costs were capitalized in the period.

(b) North Atlantic Drilling - Sevan provided executive services to North Atlantic up to August 2016. The Group participates in a pooling of inventory consumables with North Atlantic.

(c) Seadrill Partners - The Group participates in a pooling of inventory consumables with Seadrill Partners.

Note 8 - Commitments & Contingencies

The Sevan Developer

At June 30, 2017, the Group had a capital commitment for USD 499.7 million (December 31, 2016: USD 499.7 million) for the delivery installment when the Sevan Developer is delivered. In October 2014, the Group entered an agreement with Cosco to defer the delivery period for 12 months with four options to extend for subsequent periods of 6 months. Since the end of the initial deferral period, it has been extended three times to April 15, 2017. At this anniversary a standstill agreement was entered to allow time to evaluate alternatives. In July 2017 the Sevan Developer deferral period was extended to June 30, 2020 and Cosco refunded USD 25.3 million plus interest to Sevan. Sevan has an investment of USD 1 million remaining and the ability to continue marketing the rig. Delivery will occur if and when a contract that can support financing of the final delivery installment is secured.

Cosco has the option to cancel the construction contract on July 1, 2018 or July 1, 2019. Cosco will, in such case, refund the remaining installment of USD 1 million. The Sevan Developer remains in China at the Cosco Shipyard.

Legal Matters

In 2011, the Company was separated out from the 100% ownership of Sevan Marine ASA and listed separately on the Oslo Stock Exchange. On October 16, 2015, Sevan Marine ASA issued an Oslo Stock Exchange notice advising that its Board had received a report from external counsel it had engaged to investigate allegations of improper conduct related to historical contracts with Petrobras. Sevan Marine handed over the report to the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime ("ØKOKRIM"). The report concluded that it was more likely than not that illegal conduct had occurred, in the form of improper payments to obtain business, when Petrobras awarded contracts to subsidiaries of Sevan Marine ASA between 2005-2008.

Against this background, the Company reports that Sevan Drilling ASAhas been accused of breaches of Sections 276 a and 276 b of the Norwegian Criminal Code in respect of payments made in connection with the performance during 2012 to 2015 of drilling contracts originally awarded by Petrobras to Sevan Marine ASA in the period between 2005-2008. In connection with the accusation, ØKOKRIM has performed a search and seizure exercise in the Company's offices. The Company is co-operating with the authorities in identifying and making available all documents, which the authorities consider relevant.

The Company has also voluntarily approached the Brazilian authorities with regard to these matters. The Company's own investigation into these matters has uncovered no evidence of improper conduct by the Company.

We cannot predict the scope or ultimate outcome of the ØKOKRIM investigation. We also cannot predict whether any other governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. As a result, no loss contingency has been recognized in the Company's Consolidated Financial Statements.

Note 9 - Events after balance sheet date

The Group has evaluated subsequent events after the balance sheet date through the date the accompanying Consolidated Financial Statements became available to be issued.

On July 5, 2017 the Sevan Developer deferral period was extended to June 30, 2020. Cosco refunded USD 25.3 million of the yard installment plus interest, leaving USD 1.0 million invested in the rig.

On July 17, 2017 Ms.Ragnhild Wiborg resigned from the board of directors and Mr. Douglas Smith was appointed to fill the vacancy as director and audit committee chair.