UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549


FORM 20-F


[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934


OR


[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2018

2020
OR


[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934


For the transition period from ____ to ____


OR


[_] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


Date of event requiring this shell company report:


Commission file number: 333-224459

SEADRILL LIMITED
SEADRILL LIMITED
(Exact name of Registrant as specified in its charter)
Bermuda
(Jurisdiction of incorporation or organization)
Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda
(Address of principal executive offices)
Colleen Simmons
Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda
Tel: +1 (441) 295-9500, Fax: +1 (441) 295-3494
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of classTrading SymbolName of exchange on which registered
Common stock, $0.10 par valueNew York Stock Exchange
NoneNone
Title of classNoneName of exchange on which registered


Securities registered or to be registered pursuant to Section 12(g) of the Act:  None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NoneCommon shares $0.10 par value


Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:



As ofat December 31, 2018,2020, there were 100,000,000100,384,435 common shares, par value $0.10 per share, of the Registrant’s common stockshares issued and outstanding.
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ Yes☒ No
[_] Yes[X] No



If this report is an annual report or transition report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
[_] Yes[X] No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes[_] No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit the files).
[X] Yes[_] No


Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  [_]Accelerated filer  [X]
Non-accelerated filer   [_]Emerging growth company  [_]
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [_]


Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:
[X]  U.S. GAAP
[_]  International Financial Reporting Standards as issued by the International Accounting Standards Board
[_]  Other
If ”Other”"Other” has been checked in response to the previous question, indicate by check mark which

financial statement item the Registrant has elected to follow.
[_]  Item 17
[_]  Item 18


If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐  Yes☒  No





TABLE OF CONTENTS
Page
[_]  Yes[X]  No



TABLE OF CONTENTS
Page
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
PART 1I
ITEM 1.
ITEM 2.
ITEM 3
ITEM 4.
ITEM 4A4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
PART II
ITEM 13.
ITEM 14.
ITEM 1515.
ITEM 16.
ITEM 16A.
ITEM 16B.
ITEM 16C.
ITEM 16D.
ITEM 16E.
ITEM 16F.
ITEM 16G.
ITEM 16H.
PART III
ITEM 17.
ITEM 18.
ITEM 19.



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS


We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, or the PSLRA, and are including this cautionary statement in connection therewith. The PSLRA provides safe harbor protections for forward-looking statements to encourage companies to provide prospective information about their business.


Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical or present facts or conditions.


This annual report and any other written or oral statements made by us or on our behalf may include forward-looking statements which reflect our current views with respect to future events and financial performance. The words “believe,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,” “may,” “should,” “expect” and similar expressions identify forward-looking statements.


The forward-looking statements in this document are based upon various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies that are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.
 
In addition to these important factors and matters discussed elsewhere in this annual report, and in the documents incorporated by reference to this report, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include:


the impact of active negotiations, contingency planning efforts, rulings and outcomes with respect to a comprehensive restructuring of our debt under Chapter 11 Proceedings with the U.S. Bankruptcy Court for Southern District of Texas, the outcome of which is uncertain.
our ability to maintain relationships with suppliers, customers, employees and other third parties followingas a result of our emergence from Chapter 11 proceedings;filing and the related increased performance and credit risks associated with our constrained liquidity position and capital structure;
our ability to maintain and obtain adequate financing to support our business plans following our emergencepost-emergence from Chapter 11;
the length of time that we will operate under Chapter 11 protection;
risks associated with third-party motions in the Chapter 11 Proceedings that may interfere with the solicitation and ability to confirm and consummate a plan of reorganization;
factors related to the offshore drilling market, including volatility and changes in oil and gas prices and the state of the global economy on market outlook for our various geographical operating sectors and classes of rigs;
the COVID-19 global pandemic, the related public health measures implemented by governments worldwide and the decline in oil prices during 2020, including the duration and severity of the outbreak, the duration of the price and demand decline and the extent of disruptions to our operations.
the impact of global economic conditions, including potential trade wars;
supply and demand for drilling units, changes in new technology and competitive pressure on utilization rates and dayrates;
the dispute over production levels among members of the Organization of Petroleum Exporting Countries and other oil and gas producing nations;
customer contracts, including contract backlog, contract commencements, contract terminations, contract option exercises, contract revenues, contract awards and rig mobilizations;
the repudiation, nullification, modification or renegotiation of drilling contracts;
delays in payments by, or disputes with, our customers under our drilling contracts;contracts or the outcome of litigation, legal proceedings, investigations or other claims or contract disputes;
fluctuations in the market value of our drilling units and the amount of debt we can incur under certain covenants in our debt financing agreements;
thepotential additional asset impairments;
our liquidity and the adequacy of cash flowflows for our obligations;
ourdowntime and other risks associated with offshore rig operations and ability to successfully employ our drilling units;
our ability to procure or have access to financing;
our expected debt levels;
the impact of the operating and financial restrictions imposed by covenants in our debt agreements;
our ability to satisfy our obligations, including certain covenants, under our debt financing agreements and, if needed, to raise new capital or refinance our existing indebtedness;
the ability of our affiliated or related companies to service their debt requirements and comply with the provisions contained in their loan agreements;
credit risks of our key customers;


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political and other uncertainties, including political unrest, risks of terrorist acts, war and civil disturbances, public health threats, piracy, corruption, significant governmental influence over many aspects of local economies, or the seizure, nationalization or expropriation of property or equipment;
the concentration of our revenues in certain geographical jurisdictions;
limitations on insurance coverage, such as war risk coverage, in certain regions;
any inability to repatriate income or capital;
the operation and maintenance of our drilling units, including complications associated with repairing and replacing equipment in remote locations and maintenance costs incurred while idle;
newbuildings, upgrades, shipyard and other capital projects, including the completion, delivery and commencement of operation dates;
import-export quotas;
wage and price controls and the imposition of trade barriers;
our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization, or otherwise, or to retain employees, customers or suppliers as a result of our financial condition generally or as a result of the recruitment and retention of personnel;Chapter 11 Proceedings;
internal control risk due to significant employee reductions;
regulatory or financial requirements to comply with foreign bureaucratic actions, including potential limitations on drilling activity, changing taxation policies and other forms of government regulation and economic conditions that are beyond our control;
the level of expected capital expenditures, our expected financing of such capital expenditures, and the timing and cost of completion of capital projects;

fluctuations in interest rates or exchange rates and currency devaluations relating to foreign or US monetary policy;
future losses generated from investments in associated companies or receivable balances held with associated companies;
tax matters, changes in tax laws, treaties and regulations, tax assessments and liabilities for tax issues, including those associated with our activities in Bermuda, Brazil, Norway, the United Kingdom, Nigeria, Mexico and the United States;
legal and regulatory matters, including the results and effects of legal proceedings, and the outcome and effects of internal and governmental investigations;
hazards inherent in the drilling industry and marine operations causing personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, claims by governmental authorities, third parties or customers and the suspension of operations;
customs and environmental matters;matters and potential impacts on our business resulting from climate-change or greenhouse gas legislation or regulations, and the impact on our business from climate-change related physical changes or changes in weather pattern;
the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems, including our rig operating systems;
our decision to voluntarily withdraw our common shares from listing on the New York Stock Exchange; and
other important factors described from time to time in the reports filed or furnished by us with the SEC.


We caution readers of this report on Form 20-F not to place undue reliance on these forward-looking statements, which speak to circumstances only as at their dates. We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.



We qualify all of our forward-looking statements by these cautionary statements. See Item 3.D. - "Risk Factors". You should read this report and the documents that we have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from our expectations.


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PART 1.I.
 
ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3.KEY INFORMATION

ITEM 3. KEY INFORMATION

Except where the context otherwise requires or where otherwise indicated, the terms “Seadrill”, “the Group”, “we”, “us”, “our”, “the Company” and “our Business” refer to either Seadrill Limited, any one or more of its consolidated subsidiaries, or to all such entities, and, for periods before emergence from the Previous Chapter 11 Proceedings on July 2, 2018, to Old Seadrill Limited, any one or more of its consolidated subsidiaries, or to all such entities.
References to the term “Successor” refers to the financial position and results of operations of Seadrill after July 2, 2018. This is also applicable to terms “Seadrill”, “the Group”, “we”, “us”, “our”, “the Company” or “our Business” in context of events after emergence from the Previous Chapter 11 Proceedings on July 2, 2018. References to the term "the 2018 Successor period" refers to the period from July 2, 2018 to December 31, 2018. References to the term "the year ended 2019" refers to the year ended December 31, 2019. References to the term "the year ended 2020" refers to the year ended December 31, 2020.
References to the term “Predecessor” refers to the financial position and results of operations of Seadrill prior to, and including, July 1, 2018. This is also applicable to terms “Seadrill”, “the Group”, “we”, “us”, “our”, “the Company” or “our Business” in context of events before emergence from the Previous Chapter 11 Proceedings on July 2, 2018. References to the term "the 2018 Predecessor period" refers to the period from January 1, 2018 to July 1, 2018.2018 .
Unless otherwise indicated or the context otherwise requires, references in this report to the terms below have the following meanings:
“AOD” means Asia Offshore Drilling Limited, aan exempted company limited by shares incorporated under the Lawslaws of Bermuda with registration number 44712.
"Archer" means Archer Limited, a global oilfield service company that specializes in drilling and well services. We have a 15.7% ownership interest in the company.
“Bankruptcy Court” means the United States Bankruptcy Court for the District of South Texas Victoria Division;
“Centerbridge” means Centerbridge Credit Partners L.P. and certain of its affiliates;
“Chapter 11 Proceedings” means reorganization proceedings under Chapter 11 of Title 11 of the United States Code.
“Commitment Parties” means each commitment party to the Investment Agreement;
“Companies Act” means the Companies Act 1981 of Bermuda, as amended from time to time;
“Debtors” means Seadrill Limited and certain of its subsidiaries which filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the Bankruptcy Court on September 12, 2017;Court;
“Effective Date” means the date of the Debtors’ emergence from bankruptcy proceedings in accordance with the terms and conditions of the Plan;
“Employee Incentive Plan” means the employee incentive plan that was implemented by Seadrill pursuant to the terms of the Plan which, will, among other things, reservereserves an aggregate of 10 percent of the Common Shares, on a fully diluted, fully distributed basis, for grants made from time to time to employees of Seadrill and its subsidiaries and otherwise contain terms and conditions (including with respect to participants, allocation, structure, and timing of issuance) generally consistent with those prevailing in the market at the discretion of the board of directors of Seadrill;
“Exchange Act” means the Securities Exchange Act of 1934, as amended;
"Fintech" means Fintech Investment Limited, our joint venture partner for SeaMex;
“Global Settlement” refers to the settlement announced by the Debtors on February 26, 2018 with an ad-hoc group of unsecured bond holders, the official committee of unsecured creditors and other major creditors. This is described under the heading “The Reorganization—Introduction”;“Previous Chapter 11 Reorganization" in Item 5;
"Gulf Drilling International" or "GDI" refers to our joint venture partner for Gulfdrill;
"Gulfdrill" means Gulfdrill LLC, a limited liability company formed under the companies regulations of Qatar with QFC number 00770;
"Heirs Holdings" refers to HH Global Alliance Investments Limited, a company registered in Nigeria that owns a non-controlling interest in one of our subsidiaries, Seadrill Nigeria Offshore Limited.
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“Hemen” means Hemen Holding Limited, a Cyprus holding company with registration number HE87804 and Hemen Investments Limited, a Cyprus holding company with registration number HE371665;
“IHCo” means Seadrill Investment Holding Company Limited, an exempted company limited by shares incorporated under the laws of Bermuda with registration number 53437;
“Investment Agreement” means the investment agreement described under the heading “The Reorganization—Introduction”;“Previous Chapter 11 Reorganization" in Item 5
“New Secured Notes”"Mermaid" means Mermaid International Ventures, who used to have a 33.76% ownership interest in AOD;
"NODL" means: Northern Drilling Ltd, listed on the $880.0 million aggregate principal amount of 12.0% Senior Secured Notes due 2025 issued by NSNCo in connection withOslo Stock Exchange under the Reorganization;trading symbol "NODL";
"NOL" means Northern Ocean Ltd, listed on the Norwegian Over The Counter under the trading symbol "NOL";
"Northern Drilling" means both NODL and NOL;
“NSNCo” means Seadrill New Finance Limited, aan exempted company limited by shares incorporated under the Lawslaws of Bermuda with registration number 53541, formed in connection with the Reorganization and the issuer of the NewSenior Secured Notes;
“NYSE” means the New York Stock Exchange;
“Old Seadrill Limited” or the “Predecessor Company” means Seadrill Limited, aan exempted company limited by shares incorporated under the Lawslaws of Bermuda with registration number 36832. Old Seadrill Limited was the parent company of Seadrill prior to its emergence from bankruptcy;bankruptcy in 2018;
“OSE” means the Oslo Stock Exchange;

“Plan” means the Second Amended Joint Chapter 11 Plan (as modified) of Reorganization, what was filed with the Bankruptcy Court on February 26, 2018 and confirmed by the Bankruptcy Court on April 17, 2018;
“Previous Chapter 11 Proceedings” mean the Chapter 11 cases commenced on September 12, 2017 in the United States Bankruptcy Court of the Southern District of Texas;
“Reorganization” means the transactions described under the heading “The“Chapter 11 Reorganization” in Item 4A and those transactions contemplated by the Plan;
“RigCo” means Seadrill Rig Holding Company Limited, an exempted company limited by shares incorporated under the laws of Bermuda with registration number 53436;
“RSA” means the restructuring support and lock-up agreement that the Debtors entered with a group of bank lenders, bondholders, certain other stakeholders and new investors on September 12, 2017. This is described under the heading “The Reorganization—Introduction”;"Previous Chapter 11 Reorganization" in Item 5;
“Sapura Energy” means Sapura Energy Berhad. We previously held an investment in Sapura Energy. Sapura Energy is also our joint venture partner for Seabras Sapura;
“Seabras Sapura” refers to our joint venture with Sapura Energy. We refer to our investments in Seabras Sapura Participacoes SA and Seabras Sapura Holding GmbH together as “Seabras Sapura”;
“Seadrill Limited” or the “Successor Company” means Seadrill Limited (formerly known as “New SDRL Limited”), aan exempted company limited by shares incorporated under the Lawslaws of Bermuda with registration number 53439. Seadrill Limited has been the parent company of Seadrillthe Group since its emergence from bankruptcy;bankruptcy in 2018;
“Seadrill Common Shares” or the "Shares” means common shares, par value $0.10 per share, of Seadrill Limited;
“Seadrill Partners” means Seadrill Partners, LLC, a limited liability company formed under the Laws of the Republic of The Marshall Islands with registration number 962166;
“SeaMex” means SeaMex Limited, a limited liability company formed under the Laws of Bermuda with registration number 48115.48115;

“Senior Secured Notes” means the Senior Secured Notes issued by NSNCo in connection with the Reorganization;
"Shares" means common shares, par value $0.10 per share, of Seadrill Limited;
"Ship Finance" means SFL Corporation Ltd, formerly Ship Finance International Limited;
"Ship Finance SPVs" refer to the legal subsidiaries of SFL Corporation Ltd that own the semi-submersible rigs West Taurus and West Hercules and the jack-up rig West Linus. These companies were consolidated by Seadrill until December 15, 2020;
"Sonadrill" refers to Sonadrill Holding Ltd, a limited liability company registered in England with registration number 11922814; and
"Sonangol" refers to Sonangol EP, our joint venture partner for Sonadrill.

Throughout the report we refer to customers, suppliers and other key partners by the names they are commonly known by instead of their full legal names.


References in this annual report to “Total,” “Petrobras,” “ExxonMobil,” “LLOG,”“Total”, “Petrobras”, “ExxonMobil”, “LLOG”, “Saudi Aramco,”Aramco”, “ConocoPhillips” and “Equinor” refer to our key customers Total S.A., Petroleo Brasileiro S.A., Exxon Mobil Corporation, LLOG Exploration Company LLC, Saudi Arabian Oil Company, ConocoPhillips and Equinor ASA, respectively.

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References in this annual report to “Cosco,” “Samsung,” “DSME,” “Dalian,” “Jurong,” and “HSHI” refer“Dalian” refers to the shipyards Cosco (Qidong) Offshore Co. Limited, Samsung Heavy Industries, Daewoo Shipbuilding & Marine Engineering, Dalianshipyard "Dalian Shipbuilding Industry Offshore Co., Ltd., Jurong Shipyard Pte Ltd., and Hyundai Samho Heavy Industries Co. Ltd., respectively."


Unless otherwise indicated, all references to “US$” and “$” in this annual report are to, and amounts are presented in, US dollars. All references to “€” are to euros, all references to “£” or “GBP” are to pounds sterling, all references to “NOK” are to Norwegian krone and all references to “SEK” are to Swedish krona.


A.SELECTED FINANCIAL DATA
A.SELECTED FINANCIAL DATA
Our selected statementStatement of operationsOperations and other financial data with respect to the 2018 Successor period, the 2018 Predecessor period and the fiscal years ended December 31, 20172020 and 20162019, the 2018 Successor period, and the 2018 Predecessor period and our selected balance sheet data as ofat December 31, 20182020 and 20172019 have been derived from our Consolidated Financial Statements included in Item 18 of this annual report, or the Consolidated Financial Statements, which have been prepared in accordance U.S. GAAP.
Our selected Statement of Operations and other financial data forwith respect to the fiscal years ended December 31, 20152017 and 20142016 and our selected balance sheet data as of December 31, 2016, 20152018, 2017 and 20142016 have been derived from the Consolidated Financial Statements that are not included herein.

We deconsolidated our investments in Seadrill Partners on January 2, 2014, and deconsolidated our investments in SeaMex, on March 10, 2015. Please see “ITEM 4. Information on the Company—A. History and Development of the Company” for further information.
The following table should be read in conjunction with “ITEM 5. OperatingItem 5 - "Operating and Financial Review and Prospects” and ourthe Consolidated Financial Statements and notes thereto, which are included herein. Our Consolidated Financial Statements are maintained in U.S. dollars. We refer you to the notes to ourthe Consolidated Financial Statements for a discussion of the basis on which ourthe Consolidated Financial Statements are prepared, and we draw your attention to the statement regarding the application of Fresh Startfresh start accounting as described in Note 1 - "General information" of ourto the Consolidated Financial Statements included herein.

The below table summarizes certain line items from the Consolidated Statements of Operations for the last five fiscal years.

SuccessorPredecessor
(In $ millions except common share and per share data)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018Year ended December 31, 2017Year ended December 31, 2016
Statement of Operations Data:     
Total operating revenues1,059 1,388 541 712 2,088 3,169 
Net operating (loss)/ income(4,482)(295)(175)(613)(728)1,026 
Net loss(4,663)(1,222)(605)(3,885)(3,102)(155)
Loss per share, basic and diluted(46.43)(12.18)(6.02)(7.71)(5.89)(0.36)

The below table summarizes certain line items from the consolidated balance sheets for the last five fiscal years.

SuccessorPredecessor
(In $ millions except common share and per share data)December 31,December 31,
20202019201820172016
Balance Sheet Data (at end of period):     
Cash and cash equivalents, including restricted cash723 1,357 1,542 1,255 1,368 
Drilling units2,120 6,401 6,659 13,216 14,276 
Newbuildings— — — 248 1,531 
Investment in associated companies248 389 800 1,473 2,168 
Total assets3,961 9,279 10,848 17,982 21,666 
Long-term debt (including current portion) (1)
6,177 6,623 6,914 8,699 9,514 
Common share capital10 10 10 1,008 1,008 
Total (deficit)/equity(3,140)1,793 3,035 6,959 10,063 
Common shares outstanding (in millions)100 100 100 505 504 
Weighted average common shares outstanding (in millions)100 100 100 505 501 
(1)Includes $7,705 million of debt classified as liabilities subject to compromise in 2017.

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 Successor Predecessor
 Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

 Year ended December 31,
2015

 Year ended December 31,
2014

            
   
(In millions of U.S. dollars except common
share and per share data)
  
Statement of Operations Data:           
Total operating revenues541
 712
 2,088
 3,169
 4,335
 4,997
Net operating (loss)/ income(175) (613) (728) 1,026
 1,019
 2,279
Net (loss)/income(605) (3,885) (3,102) (155) (635) 4,087
(Loss)/earnings per share, basic(6.02) (7.71) (5.89) (0.36) (1.29) 8.32
(Loss)/earnings per share, diluted(6.02) (7.71) (5.89) (0.36) (1.29) 8.30
The below table summarizes certain line items from the consolidated cashflow statements for the last five fiscal years.

SuccessorPredecessor
(In $ millions except common share and per share data)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018Year ended December 31, 2017Year ended December 31, 2016
Statement of Cash Flows data:     
Operating cash flows(420)(256)(26)(213)399 1,184 
Investing cash flows(32)(26)61 149 358 354 
Financing cash flows(163)(367)(208)887 (846)(1,405)
Capital expenditure (1)
(148)(162)(98)(127)(150)(231)


 Successor Predecessor
 As of December 31, As of December 31,
 2018
 2017
 2016
 2015
 2014
          
   (In millions of U.S. dollars except common share and per share data)  
Balance Sheet Data (at end of period):         
Cash and cash equivalents1,542
 1,255
 1,368
 1,044
 831
Drilling units6,659
 13,216
 14,276
 14,930
 15,145
Newbuildings
 248
 1,531
 1,479
 2,030
Investment in associated companies800
 1,473
 2,168
 2,592
 2,898
Goodwill
 
 
 
 604
Total assets10,848
 17,982
 21,666
 23,439
 26,297
Long-term debt (including current portion) (1)
6,914
 8,699
 9,514
 10,543
 12,475
Common share capital10
 1,008
 1,008
 985
 985
Total equity3,035
 6,959
 10,063
 10,068
 10,390
Common shares outstanding (in millions)100.0
 504.5
 504.4
 492.8
 492.8
Weighted average common shares outstanding (in millions)100.0
 504.5
 501.0
 492.8
 478.0
(1)
Includes $7,705 million of debt classified as liabilities subject to compromise in 2017.

 Successor Predecessor
 Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

 Year ended December 31,
2015

 Year ended December 31,
2014

            
   
(In millions of U.S. dollars except common
share and per share data)
  
Statement of Cash Flows data:           
Operating cash flows(26) (213) 399
 1,184
 1,788
 1,574
Investing cash flows61
 149
 358
 354
 (165) 197
Financing cash flows(208) 887
 (846) (1,405) (1,370) (1,521)
Capital expenditure (2)
(98) (127) (150) (231) (1,041) (3,168)

(2) (1) Capital expenditures include additions to drilling units and equipment, additions to newbuildings, as well as payments for long-term maintenance.


B.CAPITALIZATION AND INDEBTEDNESS
B.CAPITALIZATION AND INDEBTEDNESS
 
Not applicable.


C.REASONS FOR THE OFFER AND USE OF PROCEEDS

C.REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D. RISK FACTORS


Our assets are primarily engaged in offshore contract drilling for the oil and gas industry in benign and harsh environments worldwide, including ultra-deepwater environments. The following risks principally relate to our emergence from bankruptcy, the industry in which we operate and our business in general. Other risks relate principally to the market for and ownership of our securities.securities and our emergence from bankruptcy. The occurrence of any of the events described in this section could materially and negatively affect our business, financial condition, operating results, cash available for the payment of dividends or the trading price of our common shares.Shares. Unless otherwise indicated, all information concerning our business and our assets is as of December 31, 2018.2020. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.


SUMMARY OF RISK FACTORS

Risks Relating to Our Emergence from BankruptcyChapter 11 Proceedings
Our actual financial results may vary significantly from the projections
We and a substantial number of our consolidated subsidiaries filed withvoluntary petitions for relief under Chapter 11 of the Bankruptcy Court.
In connection with the Plan process, the Debtors were required to prepare projected financial information to demonstrateCode, and we are subject to the Bankruptcy Court the feasibility of the restructuring planrisks and the ability of the Debtors to continue operations upon emergence from bankruptcy. At the time they were last fileduncertainties associated with the Bankruptcy Court on February 26, 2018, the projections reflected numerous assumptions concerning anticipated future performance and prevailing and anticipated market and economic conditions that were and continue to be beyond our control and thatsuch bankruptcy proceedings.
We may not materialize. Further, to the extent we issue new guidance in 2019 and beyond, such projections will supersede any prior guidance. Projections, in any event, are inherently subject to uncertainties and to a wide variety of significant business, economic and competitive risks. Our actual results will vary from those contemplated by our projections and the variations may be material.
Because our Consolidated Financial Statements will reflect fresh start accounting adjustments made upon emergence from bankruptcy, financial information in our future financial statements will not be comparable to Seadrill’s financial information from prior periods.
Upon emergence from Chapter 11 Proceedings, on July 2, 2018, we adopted fresh start accounting in accordance with the provisions set forth in ASC 852, Reorganizations. Adopting fresh start accounting results in a new financial reporting entity with no retained earnings or deficits brought forward. Upon the adoption of fresh start accounting, our assets and liabilities were recorded at their fair values which differ materially from the recorded values of our assets and liabilities as reflected in the Predecessor historical Consolidated Balance Sheets. Thus, our future Consolidated Balance Sheets and Statements of Operations will not be comparable in many respects to Consolidated Balance Sheets and Statements of Operations data for periods prior to adoption of fresh start accounting. You will not be able to compare information reflecting our post-emergence Consolidated Financial Statementsobtain Bankruptcy Court confirmation of the plan of reorganization or may have to information for periods prior to emergence from bankruptcy, without adjusting for fresh start accounting. The lackmodify the terms of comparable historical information may discourage investors from purchasing our common shares. Additionally, the financial information contained in this annual report on Form 20-F may not be indicativeplan of future financial information.reorganization
We cannot be certain that the bankruptcy proceeding will not adversely affect our operations going forward.
We operated in bankruptcy from September 12, 2017 to July 1, 2018. Whilst we have now emerged from Chapter 11, we cannot assure you that our previous use of Chapter 11 Proceedings will not adversely impact our ongoing operations.
We may be subject to claims that were not discharged in the bankruptcy proceedings, which could have a material adverse effect oninsufficient liquidity for our results ofbusiness operations and profitability.
Substantially all the material claims against the Debtors that arose prior to the date of the bankruptcy filing were addressed during the Chapter 11 Proceedings or were resolvedProceedings.
Any plan of reorganization that we may implement will be based in connection with the Planlarge part upon assumptions and the orderanalyses developed by us. If these assumptions and analyses prove to be incorrect, our plan may not be successful in its execution.
In certain instances, a chapter 11 case may be converted to a case under chapter 7 of the Bankruptcy Court confirmingCode.
Trading in our securities during the Plan. However, we may be subject to claims that were not discharged interm of the Chapter 11 Proceedings. Circumstances in which claimsProceedings is highly speculative and other obligations that arose prior to the bankruptcy filing that were not discharged primarily relate to certain actions by governmental units under police power authority, where we have agreed to preserve a claimant’s claims, as well as, potentially, instances where a claimant had inadequate notice of the bankruptcy filing. In addition, except in limited circumstances, claims against non-debtor subsidiaries, are generally not subject to discharge under the Bankruptcy Code. To the extent any pre-filing liability remains, the ultimate resolution of such claims and other obligations may have a material adverse effect on our results of operations, profitability and financial condition.poses substantial risks.

Risks Relating to Our Company and Industry


The success and growth of our business depend on the level of activity in the offshore oil and gas industry generally, and the drilling industry specifically, which are both highly competitive and cyclical, with intense price competition.
Our customers may seek to cancel or renegotiate their contracts to include unfavorable terms such as unprofitable rates, particularly in the circumstance that operations are suspended or interrupted.
Our contract backlog for our fleet of drilling units may not be realized.
We may not be able to renew or obtain new and favorable contracts for our drilling units whose contracts have expired or have been terminated.
The market value of our drilling units may decrease.
Our business and operations involve numerous operating hazards, and in the current market we are increasingly required to take additional contractual risk in our customer contracts and we may not be able to procure insurance to adequately cover potential losses.
We rely on a small number of customers and our results of operations could be materially adversely affected if any of our major customers fail to compensate us for our services or if we lose a significant customer contract.
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Our drilling contracts contain fixed terms and day-rates, and consequently we may not fully recoup our costs in the event of a rise in expenses, including reactivation, operating and maintenance costs.
We may be unable to obtain, maintain, and/or renew permits necessary for our operations or experience delays in obtaining such permits including the class certifications of rigs.
The international nature of our operations involves additional risks including foreign government intervention in relevant markets, for example in Brazil.
Compliance with, and breach of, the complex laws and regulations governing international trade could be costly, expose us to liability and adversely affect our operations.
We are subject to complex environmental laws and regulations that can adversely affect the cost, manner or feasibility of doing business.
Failure to comply with international anti-corruption legislation, including the U.S. Foreign Corrupt Practices Act 1977 or the U.K. Bribery Act 2010, could result in fines, criminal penalties, damage to our reputation and drilling contract terminations.
If our drilling units are located in countries that are subject to, or targeted by, economic sanctions, export restrictions, or other operating restrictions imposed by the United States, the United Kingdom, European Union or other governments, our reputation and the market for our debt and common shares could be adversely affected.
We have suffered, and may continue to suffer, losses through our investments in other companies in the offshore drilling and oilfield services industry, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our ability to operate our drilling units in the U.S. Gulf of Mexico could be impaired by governmental regulation, particularly in the aftermath of the moratorium on offshore drilling in the U.S. Gulf of Mexico, and regulations adopted as a result of the investigation into the Macondo well blowout.
Failure to obtain or retain highly skilled personnel, and to ensure they have the correct visas and permits to work in the locations in which they are required, could adversely affect our operations.
Labor costs and our operating restrictions that apply could increase following collective bargaining negotiations and changes in labor laws and regulations.
Climate change and the regulation of greenhouse gases could have a negative impact on our business.
Our drilling contracts with national oil companies may expose us to greater risks than we normally assume in drilling contracts with non-governmental customers.
The COVID-19 pandemic and recent developments in the oil and gas industry could adversely impact our financial condition and results of operations.

Risks Relating to Our Shareholders

The price of the Shares may be volatile or may decline regardless of our operating performance, and investors may not be able to resell the Shares at or above their initial purchase price.
The market price of our Shares has fluctuated widely and may fluctuate widely in the future.
We voluntarily delisted our Shares from the NYSE which could reduce the liquidity and market price of our shares.
Substantial sales of or trading in the Shares could occur, which could cause the share price to be adversely affected.
We may pay little or no dividends on the Shares.
U.S. tax authorities may treat us as a “passive foreign investment company” for U.S. federal income tax purposes, which may have adverse tax consequences for U.S. shareholders.
Because we are a foreign corporation, you may not have the same rights that a shareholder in a U.S. corporation may have.
Trading on the OTCQX may be volatile and sporadic, which could depress the market price of our Shares and make it difficult for our shareholders to resell their Shares.
Certain shareholders have the right to appoint directors to the Board of Directors and their interests may not coincide with other investors’ interests.
Our Bye-Laws limit shareholders’ ability to bring legal action against its officers and directors.
Investors with Shares registered in a nominee account will need to exercise voting rights through their nominee.

General Risk Factors

The economic effects of “Brexit” may affect relationships with existing and future customers and could have an adverse impact on our business and results of operations.
We may recognize impairments on long-lived assets, including goodwill and other intangible assets, or recognize impairments on our equity method investments.
Interest rate fluctuations could affect our earnings and cash flows.
Fluctuations in exchange rates and the non-convertibility of currencies could result in losses to us.
A change in tax laws in any country in which we operate could result in higher tax expense.
A loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries could result in a higher taxes on our worldwide earnings, which could result in a significant negative impact on our earnings and cash flows from operations.
A change in laws and regulations in any country in which we operate could have a negative impact on our business.
We may be subject to litigation, arbitration, other proceedings and regulatory investigations that could have an adverse effect on us.
If we fail to comply with requirements relating to internal control over financial reporting our business could be harmed and our common share price could decline.
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Data protection and regulations related to privacy, data protection and information security could increase our costs, and our failure to comply could result in fines, sanctions or other penalties, which could materially and adversely affect our results of operations, as well as have an impact on our reputation.
Risks Relating to Our Chapter 11 Proceedings
We and a substantial number of our consolidated subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, and we are subject to the risks and uncertainties associated with such bankruptcy proceedings.
On February 7, 2021, Asia Offshore Drilling Limited and four affiliated entities each filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas. On February 10, 2021 (the “Petition Dates”), Seadrill Limited and additional subsidiaries each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. Seadrill Limited has also commenced parallel liquidation proceedings in Bermuda and on February 12, 2021, the Bermuda Supreme Court ordered the appointment of Joint Provisional Liquidators under Bermuda law to oversee the Chapter 11 Proceedings together with the Board of Directors of the Company.
We are subject to a number of risks and uncertainties associated with the Chapter 11 Proceedings, which may lead to potential adverse effects on our liquidity, results of operations or business prospects. We cannot assure you of the outcome of the Chapter 11 Proceedings. Risks associated with the Chapter 11 Proceedings include the following:
our ability to continue as a going concern;
our ability to obtain bankruptcy court approval with respect to motions in the Chapter 11 Proceedings and the outcomes of bankruptcy court rulings of the proceedings in general;
our ability to comply with and to operate under the cash collateral order and any cash management orders entered by the Bankruptcy Court;
the length of time we will operate under the Chapter 11 Proceedings and our ability to successfully emerge, including with respect to obtaining any necessary regulatory approvals and to complete certain corporate reorganizations;
our ability to negotiate, confirm and consummate a plan of reorganization with respect to the Chapter 11 Proceedings;
risks associated with the actions and decisions of our creditors, third party motions, proceedings and litigation in the Chapter 11 Proceedings;
the ability to maintain sufficient liquidity throughout the Chapter 11 Proceedings;
increased costs related to the bankruptcy filing, operating in Chapter 11 and other litigation;
the ability of third parties to seek and obtain Bankruptcy Court approval to convert the Chapter 11 Proceedings to Chapter 7 Proceedings;
our ability to manage contracts that are critical to our operation, and to obtain and maintain appropriate credit and other terms with customers, suppliers and service providers;
our ability to attract, retain and motivate key employees;
our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence;
our ability to obtain the necessary debt and equity financing as described in our investment agreement;
the disposition or resolution of all pre-petition claims against us; and
our ability to maintain our relationships with our suppliers, service providers, customers, employees, and other third parties.
The Chapter 11 Proceedings limit the flexibility of our management team in running the Debtors’ business and hasconsumed and will continue to consume a substantial portion of the time and attention of our management team.
While we operate our business as debtors-in-possession under supervision by the Bankruptcy Court, we are required to obtain the approval of the Bankruptcy Court with respect to our business, including activities and transactions that are outside the ordinary course of business. Bankruptcy Court approval of non-ordinary course activities entails preparation and filing of appropriate motions with the Bankruptcy Court, negotiation with various parties-in-interest, including any statutory committees appointed in our Chapter 11 Proceedings, and one or more hearings. Such committees and parties-in-interest may be heard at any Bankruptcy Court hearing and may raise objections with respect to these motions. This process could delay major transactions and limit our ability to respond quickly to opportunities and events in the marketplace. Furthermore, in the event the Bankruptcy Court does not approve a proposed activity or transaction, we could be prevented from engaging in activities and transactions that we believe are beneficial to us.
Additionally, the terms of the cash collateral order entered by the Bankruptcy Court will limit our ability to undertake certain business initiatives. These limitations may include, among other things, our ability to:
sell assets outside the normal course of business;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
grant liens;
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incur debt for borrowed money outside the ordinary course of business; and
finance our operations, investments or other capital needs or to engage in other business activities that would be in our interests.
Additionally, while the Chapter 11 Proceedings continue, our management will be required to spend a significant amount of time and effort focusing on the Chapter 11 Proceedings instead of focusing exclusively on our business operations. This diversion of attention may have a material adverse effect on the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the Chapter 11 Proceedings are protracted.
The Chapter 11 Proceedings and operating under Bankruptcy Court protection for a long period may disrupt our business and may materially and adversely affect our operations.
We have attempted to minimize the adverse effect of the Chapter 11 Proceedings on our relationships with our employees, suppliers, customers and other parties. Nonetheless, our relationships with our customers, suppliers and employees may be adversely impacted by negative publicity and our operations could be materially and adversely affected.In addition, the Chapter 11 Proceedings could negatively affect our ability to attract new employees and retain existing high performing employees or executives, which could materially and adversely affect our operations.
We may be subject to claims that will not be discharged in the Chapter 11 Proceedings.
The Bankruptcy Code provides that the confirmation of a plan of reorganization may discharge a debtor from debts arising prior to the Petition Date. All claims that arose before the Petition Date are subject to compromise and/or treatment under a plan of reorganization. The Bankruptcy Code excepts certain pre-petition claims from discharge for corporate debtors, including certain debts owed to governmental entities obtained by, among other things, false representations or actual fraud. Any claims not ultimately discharged through a plan of reorganization could be asserted against the reorganized entities and may have an adverse effect on their financial condition and results of operations on a post-reorganization basis.
We may not be able to obtain Bankruptcy Court confirmation of the plan of reorganization or may have to modify the terms of the plan of reorganization
We may not receive the accepting votes necessary to confirm the plan of reorganization. As previously noted, we do not have a restructuring support agreement and therefore the outcome of creditor support for a Chapter 11 plan is unknown. Even if approved by each class of holders of claims and interests entitled to vote (a “Voting Class”), the Bankruptcy Court may, as a court of equity, exercise substantial discretion and could choose not to confirm the plan. Bankruptcy Code Section 1129 requires, among other things, a showing that confirmation of the plan will not be followed by liquidation or the need for further financial reorganization for the Debtors, and that the value of distributions to dissenting holders of claims and interests will not be less than the value such holders would receive if the Debtors liquidated under Chapter 7 of the Bankruptcy Code. Although we believe that the plan will satisfy such tests, there can be no assurance that the Bankruptcy Court will reach the same conclusion.
We may have insufficient liquidity for our business operations during the Chapter 11 Proceedings.
Although we believe that we will have sufficient liquidity to operate our businesses during the pendency of the Chapter 11 Proceedings, there can be no assurance that the revenue generated by our business operations and cash made available to us under the cash collateral order or otherwise in our restructuring process will be sufficient to fund our operations, especially as we expect to incur substantial professional and other fees related to our restructuring. We have not made arrangements for financing in the form of a debtor-in-possession credit facility, or DIP facility. In the event that revenue flows and other available cash are not sufficient to meet our liquidity requirements, we may be required to seek additional financing. There can be no assurance that such additional financing would be available or, if available, offered on terms that are acceptable. If, for one or more reasons, we are unable to obtain such additional financing, we could be required to seek a sale of the company or certain of its material assets or our businesses and assets may be subject to liquidation under Chapter 7 of the Bankruptcy Code, and we may cease to continue as a going concern.
Any plan of reorganization that we may implement will be based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, our plan may not be successful in its execution.
Any plan of reorganization that we may implement could affect both our capital structure and the ownership, structure and operation of our businesses and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to (i) our ability to substantially change our capital structure, (ii) our ability to restructure our corporate organization, (iii) our ability to obtain adequate liquidity and financing sources, (iv) our ability to maintain customers’ confidence in our viability as a continuing entity and to attract and retain sufficient business from them, (v) our ability to retain key employees and (vi) the overall strength and stability of general economic conditions in the global markets. The failure of any of these factors could materially adversely affect the successful reorganization of our businesses.
In addition, any plan of reorganization will rely upon financial projections, including with respect to revenues, EBITDA, net income, debt service and cash flows. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. In our case, the forecasts will be even more speculative than normal, because they may involve fundamental changes in the nature of our capital structure and our corporate structure. Accordingly, we expect that our
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actual financial condition and results of operations will differ, perhaps materially, from what we have anticipated. Consequently, there can be no assurance that the results or developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our businesses or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of any plan of reorganization.
As a result of the Chapter 11 Proceedings, realization of assets and liquidation of liabilities are subject to uncertainty.
While operating under the protection of the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as permitted in the normal course of business, we may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts other than those reflected in our consolidated financial statements.
As a result of the Chapter 11 Proceedings, our historical financial information may not be indicative of our future financial performance.
Our capital structure and our corporate structure will likely be altered under any plan of reorganization ultimately confirmed by the Bankruptcy Court. Under fresh-start reporting rules that may apply to us upon the effective date of a plan of reorganization, our assets and liabilities would be adjusted to fair values and our accumulated deficit would be restated to nil. Accordingly, if fresh-start reporting rules apply, our financial condition and results of operations following our emergence from Chapter 11 Proceedings would not be comparable to the financial condition and results of operations reflected in our historical financial statements. In connection with the Chapter 11 Proceedings and the development of a plan of reorganization, it is also possible that additional restructuring and related charges may be identified and recorded in future periods. Such charges could be material to the consolidated financial position and results of operations in any given period.
In certain instances, a Chapter 11 case may be converted to a case under Chapter 7 of the Bankruptcy Code.
Upon a showing of cause, the Bankruptcy Court may convert the Chapter 11 Proceedings to cases under Chapter 7 of the Bankruptcy Code. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets and the assets of our subsidiaries for distribution in accordance with the priorities established by the Bankruptcy Code. We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our creditors than those provided for in a plan of reorganization because of (1) the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern, (2) additional administrative expenses involved in the appointment of a Chapter 7 trustee, and (3) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation in connection with a cessation of operations.
Trading in our securities during the term of the Chapter 11 Proceedings is highly speculative and poses substantial risks.
Trading in securities of an issuer in bankruptcy is extremely speculative, and there is a very significant risk that investors will lose all or a substantial portion of their investment. We can provide no assurances of recovery for holders of equity or that a plan will be confirmed and consummated, whether such certain circumstances will arise and the amount of any recoveries.Therefore it is impossible to predict at this time whether holders of our debt securities or our equity securities will receive any distribution with respect to, or be able to recover any portion of, their investments. Trading prices for our securities may bear little or no relationship to actual recovery, if any, by holders thereof during the term of the Chapter 11 Proceedings.
We caution and urge existing and future investors to carefully consider the significant risks with respect to investments in our securities.
Risks Relating to Our Company and Industry

The success and growth of our business depend on the level of activity in the offshore oil and gas industry generally, and the drilling industry specifically, which are both highly competitive and cyclical, with intense price competition.
Our business depends on the level of oil and gas exploration, development and production in offshore areas worldwide that is influenced by oil and gas prices and market expectations of potential changes in these prices.
Oil and gas prices are extremely volatile and are affected by numerous factors beyond our control, including, but not limited to, the following:

worldwide production of, and demand for, oil and gas and geographical dislocations in supply and demand;
the cost of exploring for, developing, producing and delivering oil and gas;
expectations regarding future energy prices and production;
advances in exploration, development and production technology;
the ability or willingness of the Organization of the Petroleum Exporting Countries, or OPEC, and other non-member nations, including Russia, to set and maintain levels of production and pricing;
the decision of OPEC or other non-member nations to abandon production quotas and/or member-country quota compliance within OPEC agreements;
the level of production in non-OPEC countries;
international sanctions on oil-producing countries, or the lifting of such sanctions;
government regulations, including restrictions on offshore transportation of oil and natural gas;
local and international political, economic and weather conditions;
domestic and foreign tax policies;
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the development and exploitation of alternative fuels and unconventional hydrocarbon production, including shale;
worldwide economic and financial problems and the corresponding decline in the demand for oil and gas and, consequently, our services;
the policies of various governments regarding exploration and development of their oil and gas reserves, accidents, severe weather, natural disasters and other similar incidents relating to the oil and gas industry; and
the worldwide political and military environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in the Middle East, Eastern Europe or other geographic areas or further acts of terrorism in the United States, Europe or elsewhere.

Decreases in oil and gas prices for an extended period of time, or market expectations of potential decreases in these prices, have negatively affected and could continue to negatively affect our future performance. Brent bottomed out at $9 a barrel in April 2020 before a recovery in oil and gas prices towards the end of 2020 with Brent reaching $52 a barrel at December 31, 2020. However, there is no guarantee the price recovery will be sustained going forward and prices can fluctuate significantly in the future. While the outlook has improved substantially as a result of the development of effective vaccines and agreed production cuts between OPEC members and Russia, demand has recovered at a slower pace than initially expected, and demand levels remain significantly below those levels reached in late 2019 before the COVID-19 pandemic as the market continues to be oversupplied. Uncertainty remains around the timing and speed of a global economic recovery and therefore the timing of any increase in oil demand, although the Company anticipates some degree of market recovery by mid-2022. Since the supply of rigs in the market still outweighs demand there will continue to be a dampening effect on utilization levels and dayrates across all segments in 2021. However, the Company anticipates that it will continue to see accelerated retirement of older, and long-term stacked assets coupled with an expected increase in demand in late 2021, and this should go towards addressing the imbalance between demand and supply.

Continued periods of low demand can cause excess rig supply and intensify competition in our industry, which often results in drilling rigs, particularly older and less technologically-advanced drilling rigs, being idle for long periods of time. We cannot predict the future level of demand for drilling rigs or future condition of the oil and gas industry with any degree of certainty. In response to the decrease in the prices of oil and gas, a number of our oil and gas company customers have announced significant decreases in budgeted expenditures for offshore drilling. Any future decrease in exploration, development or production expenditures by oil and gas companies could further reduce our revenues and materially harm our business.

In addition to oil and gas prices, the offshore drilling industry is influenced by additional factors, which could reduce demand for our services and adversely affect our business, including:including, but not limited to, the following:

the availability and quality of competing offshore drilling units;
the availability of debt financing on reasonable terms;
the level of costs for associated offshore oilfield and construction services;
oil and gas transportation costs;
the level of rig operating costs, including crew and maintenance;
the discovery of new oil and gas reserves;
the political and military environment of oil and gas reserve jurisdictions; and
regulatory restrictions on offshore drilling.


The offshore drilling industry is highly competitive and fragmented and includes several large companies that compete in many of the markets we serve, as well as numerous small companies that compete with us on a local basis. Offshore drilling contracts are generally awarded on a competitive bid basis or through privately negotiated transactions. In determining which qualified drilling contractor is awarded a contract, the key factors are pricing, rig availability, rig location, the condition and integrity of equipment, the rig'srig’s and/or the drilling contractor'scontractor’s record of operating efficiency, including high operating uptime, technical specifications, safety performance record, crew experience, reputation, industry standing and customer relations. Our operations may be adversely affected if our current competitors or new market entrants introduce new drilling rigs with better features, performance, prices or other characteristics compared to our drilling rigs, or expand into service areas where we operate.
Competitive pressures and other factors may result in significant price competition, particularly during industry downturns, which could have a material adverse effect on our results of operations and financial condition.
The current downturnHistorical downturns in activity in the oil and gas drilling industry has had an adverse impact on our business and results of operations, and any future downturn or volatile market conditions is likely to continue to have an adverseadversely impact on our business and results of operations.
The oil and gas drilling industry is cyclical and is currentlybut has been in a prolonged downcycle. The pricedown cycle since 2014 and uncertainty remains around the timing and speed of Brent crude has fallen from $115 per barrelany increase in June 2014 to a lowoil demand, although the Company anticipates some degree of $30 per barrel in January 2016. As at December 31, 2018, the price of Brent crude was approximately $55 per barrel. During the downturn our customers have reduced their expenditures on offshore drilling which, coupled with additional newbuild supply, has led to increased price competition and has put significant pressure on dayrates and utilization of our rigs.market recovery by mid-2022.

If we are unable to secure contracts for our drilling units upon the expiration of our existing contracts, we may stack our units. When idled or stacked, drilling units do not earn revenues, but continue to require cash expenditures for crews, fuel, insurance, berthing and associated items. As of December 31, 2018,2020, we had 16 idle5 “warm stacked” units either “warm stacked,”(3 of which are future contracted), which means the rig is kept operational and ready for redeployment, and maintains most of its crew, or17 “cold stacked,”stacked” units, which means the rig is stored in a harbor, shipyard or a designated offshore area, and the crew is reassigned to an active rig or dismissed. Without new drilling contracts or additional financing being available when needed or available only on unfavorable terms, we will be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete additional drilling unit acquisitions or otherwise take advantage of business opportunities as they arise.

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In the current environment,During volatile market conditions or expected downturns, our customers may also seek to cancel or renegotiate our contracts for various reasons, including adverse conditions, resulting in lower dayrates. Our inability, or the inability of our customers to perform, under our or their contractual obligations may have a material adverse effect on our financial position, results of operations and cash flows.

From time to time, we are approached by potential buyers for the outright purchase of some of our drilling units, businesses, or other fixed assets. We may determine that such a sale would be in our best interests and agree to sell certain drilling units or other assets. Such a sale could have an impact on short-term liquidity and net income. We may recognize a gain or loss on disposal depending on whether the fair value of the consideration received is higher or lower than the carrying value of the asset.

We do not know when the market for offshore drilling units may recover, or the nature or extent of any future recovery. There can be no assurance that the current demand for drilling rigs will not further decline in future periods. The continued orA future decline in demand for drilling rigs would adversely affect our financial position, operating results and cash flows.
We may not have sufficient liquidity to meet our obligations as they fall due or have the ability to raise new capital or refinance existing facilities on acceptable terms.
As at December 31, 2018, we had $7,086 million in principal amount of interest-bearing debt (excluding related party debt of $314 million). This includes our 12% (4% payable in cash and 8% payment-in-kind ("PIK") secured notes due 2025 (the “NSNs”) issued in connection with our Chapter 11 Proceedings, of which $769 million in principal amount remains outstanding. Our debt is secured by, among other things, liens on our drilling units, investments in affiliates and available cash.
Our outstanding indebtedness and potential future indebtedness could affect our future operations, since a portion of our cash flow from operations will be dedicated to the payment of interest and principal and will not be available for other purposes (noting that the debt service will primarily comprise of interest for the three years from the Effective Date as the majority of our current lenders have agreed to an amortization holiday during this period). Similarly, the fact that our debt is secured by our assets means that these assets or their proceeds cannot be used for debt service or other corporate purposes.
We have however successfully completed a consent solicitation process to amend certain terms of the indenture and escrow agreement related to the NSNs to enable us to, among other things, make a tender offer for the NSNs using various proceeds, including the approximately $230 million held in a secured escrow account for the NSNs and certain unused net realization proceeds arising from the NSN collateral. An indirect subsidiary of the Company commenced a cash tender offer for up to $311 million in aggregate principal amount of the NSNs pursuant to an offer to purchase dated March 12, 2019. The tender offer will expire on April 8, 2019.

We have a 35% interest in the common units of Seadrill Partners LLC. The distribution on those units in respect of the quarter ended December 31, 2018 was reduced by 90% to one cent per unit. In the event, distributions continue at a minimal level, this may adversely affect our liquidity position.

Covenants contained in our debt agreements require us to meet certain financial and non-financial tests, which may affect our flexibility in planning for, and reacting to, changes in our business or economic conditions, which may limit our ability to dispose of assets or place restrictions on the use of proceeds from such dispositions, withstand current or future economic or industry downturns, and compete with others in our industry for strategic opportunities, and may limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate and other purposes.
Our ability to meet our debt service obligations and to fund planned expenditures will be dependent upon our future performance, which will be subject to prevailing economic conditions, industry cycles and financial, business, regulatory and other factors affecting our operations, many of which are beyond our control. Our future cash flows may be insufficient to meet all our debt obligations and contractual commitments, and any insufficiency could negatively impact our business. To the extent that we are unable to repay our indebtedness as it becomes due or at maturity, we may need to refinance or restructure our debt, raise new debt, sell assets or repay the debt with the proceeds from equity offerings.
The covenants in our credit facilities impose operating and financial restrictions on us, of which a breach could result in a default under the terms of these agreements, which could accelerate our repayment of funds that we have borrowed.
Our credit facility agreements impose operating and financial restrictions on us. These restrictions may prohibit or otherwise limit our ability to undertake certain business activities without consent of the lending banks. These restrictions include:
executing other financing arrangements;
incurring additional indebtedness;
creating or permitting liens on our assets;
selling our drilling units or the shares of our subsidiaries;
making investments;
changing the general nature of our business;
paying dividends to our shareholders;
changing the management and/or ownership of the drilling units; and
making capital expenditures.
These restrictions may affect our ability to compete effectively to the extent of our competitors, whom are subject to less onerous restrictions.

Our lenders’ interests may be different from ours and we may not be able to obtain our lenders’ consent when beneficial for our business, which may impact our performance or our ability to obtain replacement or additional finance. In addition, the profile of our lenders has changed since emergence from the Chapter 11 Proceedings, with the replacement of certain relationship banks by lenders whose focus may be shorter-term in nature or different. The new profile of our lenders may make it more difficult for us to obtain lender consents when beneficial to our business or to obtain replacement or additional finance.
The different rankings in our capital structure of our lenders and the collateral arrangements which they benefit from in relation to different assets and the consequential complex intercreditor arrangements that exist means that the interests of our lenders will not always be aligned, which may make it more difficult for us to obtain lender consents when beneficial to our business or to obtain replacement or additional finance.

Following emergence from Chapter 11 Proceedings on the Effective Date, with exception of minimum liquidity requirements, we are exempt from financial covenants until Q1 2021. Thereafter, in addition to minimum liquidity requirements we are required to maintain and satisfy certain financial ratios and covenants, relating to net leverage and debt service coverage.
The time that we spent subject to Chapter 11 Proceedings has utilized some of the period for which we were able to negotiate financial covenant flexibility and reduced the period available for the Group to operate outside of Chapter 11 Proceedings to reach a position of compliance with the financial covenants when they do apply.

If we are unable to comply with the net leverage and debt service coverage covenants in our debt agreements between Q1 2021 and Q4 2021, this will lead to a margin increase of up to 100 bps PIK interest, however it does not constitute an event of default. Thereafter, if we are unable to comply with any of these restrictions and covenants, and we are unable to obtain a waiver or amendment from our lenders for such non-compliance, a default could occur under the terms of those agreements. If a default occurs under these agreements, lenders could terminate their commitments to lend or accelerate the outstanding loans and declare all amounts borrowed due and payable or exercise other enforcement rights.

Our debt agreements contain cross-default provisions, meaning that if we are in default under one of our loan agreements, amounts outstanding under our other loan agreements may also be in default, accelerated and become due and payable. Our drilling units also serve as security under certain of our debt agreements. If our lenders were to foreclose their liens on our drilling units in the event of a default, this may impair our ability to continue our operations. As at December 31, 2018, we had $7,086 million of interest-bearing debt secured by, among other things, liens on our drilling units.
If any of the aforementioned events occurs, our assets may be insufficient to repay all our outstanding indebtedness in full, and we may be unable to find alternative financing. Even if we could obtain alternative financing, that financing might not be on terms that we consider favorable or acceptable. Moreover, in connection with any further waivers of or amendments to our credit facilities that we may obtain, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities. Any of these events may further restrict our ability to pay dividends, repurchase our common shares, make capital expenditures or incur additional indebtedness.
Certain of our affiliated or related companies may be unable to service their debt requirements and comply with the provisions contained in their loan agreements.
The failure of certain of the Company's affiliated or related companies to service their debt requirements and comply with the provisions contained in their debt agreements may lead to an event of default under such agreements, which may have a material adverse effect on the Group. Such affiliated and related companies include (i) Asia Offshore Drilling ("AOD"), (ii) certain subsidiaries of Ship Finance International Limited ("Ship Finance"), and (iii) certain subsidiaries of Seabras Sapura.
If a default occurs under the debt agreements of our affiliated or related companies, the lenders could accelerate the outstanding borrowings and declare all amounts outstanding due and payable. In this case, if such entities are unable to obtain a waiver or an amendment to the applicable provisions of the debt agreements, or do not have enough cash on hand to repay the outstanding borrowings, the lenders may, among other things, foreclose their liens on the drilling units and other assets securing the loans, if applicable, or seek repayment of the loan from such entities. 
We have provided guarantees over certain debt facilities of our affiliates and related companies. If our affiliates or related companies are unable to meet their obligations outlined above, the lenders could look to us to meet such liabilities. Some examples are outlined in the following paragraphs.
We have provided guarantees over AOD's senior secured debt as we have in respect of the bank facilities of other members of the Group and may not have sufficient funds to repay lenders in full if they seek to enforce the guarantees.
We have an outstanding financial guarantee over one of Seabras Sapura's senior secured credit facility agreements that was used to partially fund the acquisition of the pipe-laying support vessel Sapura Esmeralda. As a condition to the lenders making the loan available to Seabras Sapura, we provided a sponsor guarantee, on a joint and several basis with our joint venture partner, Sapura Energy. The total amount guaranteed by the joint venture partners as at December 31, 2018 was $165 million.
We also consolidate certain subsidiaries of Ship Finance into our Consolidated Financial Statements as variable interest entities or VIEs. To the extent that the VIEs default under their indebtedness and their debt becomes classified as current in their financial statements, we would in turn mark such indebtedness as current in our Consolidated Financial Statements. The characterization of the indebtedness in our Consolidated Financial Statements as current may adversely impact our compliance with the covenants contained in our existing and future debt agreements.
Our debt agreements also contain cross-default provisions that may be triggered if we fail to comply with our obligations under the guarantees or support agreements described above. Such cross-defaults could result in the acceleration of the maturity of the debt under our agreements

and our lenders may foreclose upon any collateral securing that debt, including our drilling units and other assets, even if such default was subsequently cured. In the event of such acceleration and foreclosure, we will not have sufficient funds or other assets to satisfy all our obligations.
A number of our affiliates or related companies are joint ventures, to which we may have funding obligations. Our partners in these joint ventures may have different objectives or strategies or different financial positions from us and this may affect how these joint ventures perform, how they are supported, their compliance with the financing and contractual arrangements to which they are subject and our interests in and cash flows from them. In addition, affiliates or related companies that we do not control may take actions that we would not have taken or fail to take action which we would have taken.

The occurrence of any of the events described above would have a material adverse effect on our business and may impair our ability to continue as a going concern.
Our customers may seek to cancel or renegotiate their contracts to include unfavorable terms such as unprofitable rates, particularly in the circumstance that operations are suspended or interrupted.
In the current market conditions, some of our customers may seek to terminate their agreements with us.
Some of our customers have the right to terminate their drilling contracts without cause upon the payment of an early termination fee. The general principle is that such early termination fee shall compensate us for lost revenues less operating expenses for the remaining contract period; however, in some cases, such payments may not fully compensate us for the loss of the drilling contract.
Under certain circumstances our contracts may permit customers to terminate contracts early without the payment of any termination fees, as a result of non-performance, periods of downtime or impaired performance caused by equipment or operational issues, or sustained periods of downtime due to force majeure events beyond our control. In addition, national oil company customers may have special termination rights by law. During periods of challenging market conditions, we may be subject to an increased risk of our customers seeking to repudiate their contracts, including through claims of non-performance.
Our customers may seek to renegotiate their contracts with us using various techniques, including threatening breaches of contract and applying commercial pressure, resulting in lower dayrates or the cancellation of contracts with or without any applicable early termination payments.
Reduced dayrates in our customer contracts and cancellation of drilling contracts (with or without early termination payments) may adversely affect our performance and lead to reduced revenues from operations.
Our contract backlog for our fleet of drilling units may not be realized.
As of February 28, 2019, our contract backlog was approximately $2 billion. The contract backlog presented in this annual report on Form 20-F and our other public disclosures is only an estimate. The actual amount of revenues earned and the actual periods during which revenues are earned will be different from the contract backlog projections due to various factors, including shipyard and maintenance projects, downtime and other events within or beyond our control. In addition, we or our customers may seek to cancel or renegotiate our contracts for various reasons, including adverse conditions, such as the current environment, resulting in lower dayrates. In some instances, there is an option for a customer to terminate a drilling contract prematurely for convenience on payment of an early termination fee. However, this fee may not adequately compensate us for the loss of this drilling contract. Our inability, or the inability of our customers, to perform under our or their contractual obligations may have a material adverse effect on our financial position, results of operations and cash flows.
We may not be able to renew or obtain new and favorable contracts for our drilling units whose contracts have expired or have been terminated.
During the period of high utilization and high dayrates, which we now believe ended in early 2014, industry participants ordered the construction of new drilling units, which resulted in an over-supply and caused, in conjunction with deteriorating industry conditions, a subsequent decline in utilization and dayrates when the new drilling units entered the market. A relatively large number of the drilling units currently under construction have not been contracted for future work, and a number of units in the existing worldwide fleet are currently off-contract.
As at February 28, 2019, we had 19 current or future contracted units and 16 idle units. Of the contracted units we expect 14 to become available in 2019, two in 2020, and three thereafter. We expect the three contracts that expire after 2020 to expire in 2021, 2027 and 2028. Our ability to renew contracts or obtain new contracts will depend on our customers and prevailing market conditions, which may vary among different geographic regions and types of drilling units.
The over-supply of drilling units will be exacerbated by the entry of newbuild rigs into the market, many of which are without firm drilling contracts. The supply of available uncontracted units has intensified price competition as scheduled delivery dates occur and contracts terminate without renewal, reducing dayrates as the active fleet grows. Customers may opt to contract older rigs in order to reduce costs which could adversely affect our ability to obtain new drilling contracts due to our newer fleet.
In addition, as our fleet of drilling units becomes older, any competitive advantage of having a modern fleet may be reduced to the extent that we are unable to acquire newer units or enter into newbuilding contracts as a result of financial constraints. For as long as there is an oversupply of drilling rigs, it may be more difficult for older rigs to secure extensions or new contract awards.
If we are unable to secure contracts for our drilling units upon the expiration of our existing contracts, we may continue to idle or stack our units. When idled or stacked, drilling units do not earn revenues, but continue to require cash expenditures for crews, fuel, insurance, berthing and associated items. As at February 28, 2019 we had 16 units either "warm stacked", which means the rig is kept operational and ready for redeployment, and maintains most of its crew, or “cold stacked,” which means the rig is stored in a harbor, shipyard or a designated offshore

area, and the crew is reassigned to an active rig or dismissed. Please see “-Our drilling contracts contain fixed terms and day-rates, and consequently we may not fully recoup our costs in the event of a rise in expenses, including operating and maintenance costs.”
If we are not able to obtain new contracts in direct continuation of existing contracts, or if new contracts are entered into at dayrates substantially below the existing dayrates or on terms otherwise less favorable compared to existing contract terms, our revenues and profitability could be adversely affected. We may also be required to accept more risk in areas other than price to secure a contract and we may be unable to push this risk down to other contractors or be unable or unwilling at competitive prices to insure against this risk, which will mean the risk will have to be managed by applying other controls. This could lead to us being unable to meet our liabilities in the event of a catastrophic event on one of our rigs.
The market value of our drilling units may decrease.
The market values of drilling units have been trending lower as a result of the recent continued decline in the price of oil, which has impacted the spending plans of our customers and utilization of the global fleet. If the offshore drilling industry suffers further adverse developments in the future, the fair market value of our drilling units may decrease further. Upon emergence from the Chapter 11 Proceedings, our assets, including drilling units, were recognized at fair value. The fair market value of the drilling units that we currently own, or may acquire in the future, may increase or decrease depending on a number of factors, including:
the general economic and market conditions affecting the offshore contract drilling industry, including competition from other offshore contract drilling companies;
the types, sizes and ages of drilling units;
the supply and demand for drilling units;
the costs of newbuild drilling units;
the prevailing level of drilling services contract dayrates;
governmental or other regulations; and
technological advances.
If drilling unit values fall significantly, we may have to record an impairment adjustment in our Consolidated Financial Statements, which could adversely affect our financial results and condition. Additionally, if we sell one or more of our drilling units at a time when drilling unit prices have fallen and before we have recorded an impairment adjustment to our Consolidated Financial Statements, the sale price may be less than the drilling unit’s carrying value in our Consolidated Financial Statements, resulting in a loss on disposal and a reduction in earnings and cause us to breach the covenants in our finance agreements. For more information see “-The current downturn in activity in the oil and gas drilling industry has had and is likely to continue to have an adverse impact on our business and results of operations.”
Our business and operations involve numerous operating hazards, and in the current market we are increasingly required to take additional contractual risk in our customer contracts and we may not be able to procure insurance to adequately cover potential losses.
Our operations are subject to hazards inherent in the drilling industry, such as blowouts, reservoir damage, loss of production, loss of well control, lost or stuck drill strings, equipment defects, punch-throughs, cratering, fires, explosions and pollution. Contract drilling and well servicing requires the use of heavy equipment and exposure to hazardous conditions, which may subject us to liability claims by employees, customers and third parties. These hazards can cause personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, claims by third parties or customers, investigations and other proceedings by regulatory authorities which may involve fines and other sanctions, and suspension of operations. Our offshore fleet is also subject to hazards inherent in marine operations, either while on-site or during mobilization, such as capsizing, sinking, grounding, collision, damage from severe weather (which may be more acute in certain areas where we operate) and marine life infestations. Operations may also be suspended because of machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services or personnel shortages. We customarily provide contract indemnity to our customers for claims that could be asserted by us relating to damage to or loss of our equipment, including rigs and claims that could be asserted by us or our employees relating to personal injury or loss of life.
Damage to the environment could also result from our operations, particularly through spillage of fuel, lubricants or other chemicals and substances used in drilling operations or extensive uncontrolled fires. We may also be subject to property, environmental and other damage claims by oil and gas companies.
Our insurance policies and contractual rights to indemnity may not adequately cover losses, and we do not have insurance coverage or rights to indemnity for all risks. Consistent with standard industry practice, our customers generally assume, and indemnify us against certain risks for example, well control and subsurface risks, and we generally assume, and indemnify against, above surface risks (including spills and other events occurring on our rigs). Subsurface risks indemnified by our customers generally include risks associated with the loss of control of a well, such as blowout or cratering or uncontrolled well-flow, the cost to regain control of or re-drill the well and associated pollution. However, there can be no assurances that these customers will be willing or financially able to indemnify us against these risks under our contracts. The terms of our drilling contracts vary based on negotiation, applicable local laws and regulations and other factors, and in some cases, customers may seek to cap indemnities or narrow the scope of their coverage, reducing our level of contractual protection.
In addition, a court may decide that certain indemnities in our current or future contracts are not enforceable. For example, in a decision in a case related to the fire and explosion that took place on the unaffiliated Deepwater Horizon Mobile Offshore Drilling Unit in the Gulf of Mexico in April 2010, or the Deepwater Horizon Incident (to which we were not a party), a U.S. District Court invalidated certain contractual indemnities under a drilling contract governed by U.S. law. Further, pollution and environmental risks generally are not totally insurable. If a significant accident or other event occurs that is not fully covered by our insurance or an enforceable or recoverable indemnity from a customer, the occurrence could adversely affect our performance.

The amount recoverable under insurance may also be less than the related impact on enterprise value after a loss or not cover all potential consequences of an incident and include annual aggregate policy limits. As a result, we retain the risk through self-insurance for any losses in excess of these limits. Any such lack of reimbursement may cause us to incur substantial costs.
We could decide to retain more risk through self-insurance in the future. This self-insurance results in a higher risk of losses, which could be material, which are not covered by third-party insurance contracts. Specifically, we have at times in the past elected to self-insure for physical damage to rigs and equipment caused by named windstorms in the U.S. Gulf of Mexico due to the substantial costs associated with such coverage. Although we currently insure a limited part of this windstorm risk pursuant to a policy for physical damage to rigs and equipment caused by named windstorms in the U.S. Gulf of Mexico with a combined single limit of $100 million in the annual aggregate, this policy is subject to certain exclusions and limitations and may not be sufficient to cover future losses caused by such storms. In addition, if we elect to self-insure such risks again in the future and such windstorms cause significant damage to any rig and equipment we have in the U.S. Gulf of Mexico, it could have a material adverse effect on our financial position, results of operations and cash flows.
No assurance can be made that we will be able to maintain adequate insurance in the future at rates that we consider reasonable, or that we will be able to obtain insurance against certain risks.
We rely on a small number of customers.
Our contract drilling business is subject to the risks associated with having a limited number of customers for our services. For the period from July 2, 2018 through December 31, 2018, our five largest customers, Saudi Aramco, ConocoPhillips, Petrobras, Equinor and LLOG, accounted for approximately 81% of our revenues. In addition, mergers among oil and gas exploration and production companies will further reduce the number of available customers, which would increase the ability of potential customers to achieve pricing terms favorable to them. Our results of operations could be materially adversely affected if any of our major customers fail to compensate us for our services or take actions outlined above. Please see "-Our customers may seek to cancel or renegotiate their contracts to include unfavorable terms such as unprofitable rates, particularly in the circumstance that operations are suspended or interrupted".
We are subject to risks of loss resulting from non-payment or non-performance by our customers and certain other third parties. Some of these customers and other parties may be highly leveraged and subject to their own operating and regulatory risks. If any key customers or other parties default on their obligations to us, our financial results and condition could be adversely affected. Any material non-payment or non-performance by these entities, other key customers or certain other third parties could adversely affect our financial position, results of operations and cash flows.
Our drilling contracts contain fixed terms and day-rates, and consequently we may not fully recoup our costs in the event of a rise in expenses, including operating and maintenance costs.
Our operating costs are generally related to the number of units in operation and the cost level in each country or region where the units are located. A significant portion of our operating costs may be fixed over the short term.
The majority of our contracts have dayrates that are fixed over the contract term. To mitigate the effects of inflation on revenues from term contracts, most of our long-term contracts include escalation provisions. These provisions allow us to adjust the dayrates based on stipulated external cost indices, including wages, insurance and maintenance costs. However, actual cost increases may result from events or conditions that do not cause correlative changes to the applicable indices. Furthermore, certain indices are updated semi-annually, and therefore may be outdated at the time of adjustment. The adjustments are typically performed on a semi-annual or annual basis. For these reasons, the timing and amount awarded as a result of such adjustments may differ from our actual cost increases, which could adversely affect our financial performance. Some of our long-term contracts contain rate adjustment provisions based on market dayrate fluctuations rather than cost increases. In such contracts, the dayrate could be adjusted lower during a period when costs of operation rise, which could adversely affect our financial performance. In addition, our contracts typically contain provisions for either fixed or dayrate compensation during mobilization. These rates may not fully cover our costs of mobilization, and mobilization may be delayed, increasing our costs, without additional compensation from the customer, for reasons beyond our control.
In connection with new assignments, we might incur expenses relating to preparation for operations under a new contract. Expenses may vary based on the scope and length of such required preparations and the duration of the contractual period over which such expenditures are amortized.
Equipment maintenance costs fluctuate depending upon the type of activity that the unit is performing and the age and condition of the equipment. Our operating expenses and maintenance costs depend on a variety of factors, including crew costs, provisions, equipment, insurance, maintenance and repairs, and shipyard costs, many of which are beyond our control.
In situations where our drilling units incur idle time between assignments, the opportunity to reduce the size of our crews on those drilling units is limited, as the crews will be engaged in preparing the unit for its next contract. When a unit faces longer idle periods, reductions in costs may not be immediate as some of the crew may be required to prepare drilling units for stacking and maintenance in the stacking period. Should units be idle for a longer period, we will seek to redeploy crew members who are not required to maintain the drilling unit to active rigs, to the fullest extent possible. However, there can be no assurance that we will be successful in reducing our costs in such cases.
Operating and maintenance costs will not necessarily fluctuate in proportion to changes in operating revenues. Operating revenues may fluctuate as a function of changes in supply of offshore drilling units and demand for contract drilling services. This could adversely affect our revenue from operations. For more information please see “-The success and growth of our business depend on the level of activity in the offshore oil and gas industry generally, and the drilling industry specifically, which are both highly competitive and cyclical, with intense price competition,"

“-Our customers may seek to cancel or renegotiate their contracts to include unfavorable terms such as unprofitable rates, particularly in the circumstance that operations are suspended or interrupted" and “-Our contract backlog for our fleet of drilling units may not be realized."
Consolidation and governmental regulation of suppliers may increase the cost of obtaining supplies or restrict our ability to obtain needed supplies.
We rely on certain third parties to provide supplies and services necessary for our offshore drilling operations, including, but not limited to, drilling equipment suppliers, catering and machinery suppliers. Recent mergers have reduced the number of available suppliers, resulting in fewer alternatives for sourcing key supplies. With respect to certain items, such as blow-out preventers or “BOPs” and drilling packages, we are dependent on the original equipment manufacturer for repair and replacement of the item or its spare parts. Such consolidation, combined with a high volume of drilling units under construction, may result in a shortage of supplies and services, thereby increasing the cost of supplies and/or potentially inhibiting the ability of suppliers to deliver on time. These cost increases or delays could have a material adverse effect on our results of operations, resulting in rig downtime, and delays in the repair and maintenance of our drilling rigs.
We may be unable to obtain, maintain, and/or renew permits necessary for our operations or experience delays in obtaining such permits including the class certifications of rigs.
The operation of our drilling units will require certain governmental approvals, the number and prerequisites of which cannot be determined until we identify the jurisdictions in which we will operate on securing contracts for the drilling units. Depending on the jurisdiction, these governmental approvals may involve public hearings and costly undertakings on our part. We may not obtain such approvals or such approvals may not be obtained in a timely manner. If we fail to secure the necessary approvals or permits in a timely manner, our customers may have the right to terminate or seek to renegotiate their drilling contracts to our detriment.
Every offshore drilling unit is a registered marine vessel and must be “classed” by a classification society to fly a flag. The classification society certifies that the drilling unit is “in-class,” signifying that such drilling unit has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the drilling unit’s country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned. Our drilling units are certified as being “in class” by the American Bureau of Shipping, or ABS, Det Norske Veritas and Germanisher Lloyd, or DNV GL, and the relevant national authorities in the countries in which our drilling units operate. If any drilling unit loses its flag status, does not maintain its class and/or fails any periodical survey or special survey, the drilling unit will be unable to carry on operations and will be unemployable and uninsurable. Any such inability to carry on operations or be employed could have a material adverse impact on the results of operations. Please see “Item 8. Financial Information-Legal Proceedings-Seabras Sapura joint venture” for more information.
The international nature of our operations involves additional risks including foreign government intervention in relevant markets, for example in Brazil.
We operate in various regions throughout the world. As a result of our international operations, we may be exposed to political and other uncertainties, particularly in less developed jurisdictions, including risks of:
terrorist acts, armed hostilities, war and civil disturbances;
acts of piracy, which have historically affected ocean-going vessels;
significant governmental influence over many aspects of local economies;
the seizure, nationalization or expropriation of property or equipment;
uncertainty of outcome in foreign court proceedings;
the repudiation, nullification, modification or renegotiation of contracts;
limitations on insurance coverage, such as war risk coverage, in certain areas;
political unrest;
foreign and U.S. monetary policy and foreign currency fluctuations and devaluations;
the inability to repatriate income or capital;
complications associated with repairing and replacing equipment in remote locations;
import-export quotas, wage and price controls, and the imposition of trade barriers;
U.S. and foreign sanctions or trade embargoes;
compliance with various jurisdictional regulatory or financial requirements;
compliance with and changes to taxation;
other forms of government regulation and economic conditions that are beyond our control; and
government corruption.

In addition, international contract drilling operations are subject to various laws and regulations of the countries in which we operate, including laws and regulations relating to:
the equipping and operation of drilling units;
exchange rates or exchange controls;
the repatriation of foreign earnings;
oil and gas exploration and development;
the taxation of offshore earnings and the earnings of expatriate personnel; and
the use and compensation of local employees and suppliers by foreign contractors.

Some foreign governments favor or effectively require (i) the awarding of drilling contracts to local contractors or to drilling rigs owned by their own citizens, (ii) the use of a local agent or (iii) foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may adversely affect our ability to compete in those regions. It is difficult to predict what government regulations may be enacted in the future that could adversely affect the international drilling industry. The actions of foreign governments, including initiatives by OPEC, may adversely affect our ability to compete. Failure to comply with applicable laws and regulations, including those relating to sanctions and export restrictions, may subject us to criminal sanctions or civil remedies, including fines, the denial of export privileges, injunctions or seizures of assets.
In the years ended December 31, 2018, 2017 and 2016, 22%, 17% and 15%, respectively, of our contract revenues were derived from our Brazilian operations. The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, changes in legislation price controls, currency devaluations, capital controls and limits on imports. Further changes to monetary policy, the regulatory environment of our industry, and legislation could impact our performance.
The Brazilian markets are experiencing heightened volatility due to the uncertainties derived from the ongoing Lava Jato investigation being conducted by the Office of the Brazilian Federal Prosecutor, and its impact on the Brazilian economy and political environment. Certain of these companies are also facing investigations by the Brazilian Securities Commission (Comissão de Valores Mobiliários). Members of the Brazilian federal government and of the legislative branch, as well as senior officers of large state-owned companies, have faced allegations of political corruption, since they have allegedly accepted bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas, and construction companies. The profits of these kickbacks allegedly financed the political campaigns of political parties of the current federal government coalition that were unaccounted for or not publicly disclosed and served to personally enrich the recipients of the bribery scheme. Individuals who have had commercial arrangements with us have been identified in the Lava Jato investigation and the investigations by the Brazilian authorities are ongoing. The potential outcome of these investigations is uncertain, but they have already had an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy. We cannot predict whether such allegations will lead to further political and economic instability or whether new allegations against government officials will arise in the future. In addition, we cannot predict the outcome of any such allegations on the Brazilian economy, and the Lava Jato investigation could adversely affect our business and operations. Also, on October 28, 2018, the presidential elections were held in Brazil, with the conservative candidate Jair Bolsonaro as the winner. President Bolsonaro assumed office on January 1, 2019. We cannot predict the impact on the global economy of the policies of the Bolsonaro administration and, consequently, the results of our business, financial condition and the results of our operations.
These and other developments in Brazil’s political conditions, economy and government policies may, directly or indirectly, adversely affect our business and results of operations.
Compliance with, and breach of, the complex laws and regulations governing international trade could be costly, expose us to liability and adversely affect our operations.
Our business in the offshore drilling industry is affected by laws and regulations relating to the energy industry and the environment in the geographic areas where we operate.
Accordingly, we are directly affected by the adoption of laws and regulations that, for economic, environmental or other policy reasons, curtail exploration and development drilling for oil and gas. For example, on December 20, 2016, the United States President invoked a law to ban offshore oil and gas drilling in large areas of the Arctic and the Atlantic Seaboard. While the current administration has since attempted to lift the ban and open certain of those areas to oil and gas drilling, the President's legal authority to do so has been challenged and as a result it is difficult to predict if and when such areas may be made available for future exploration activities. A ban on new drilling in Canadian Arctic waters was announced simultaneously. We may be required to make significant capital expenditures or operational changes to comply with governmental laws and regulations. It is also possible that these laws and regulations may, in the future, add significantly to our operating costs or significantly limit drilling activity.
Import activities are governed by unique customs laws and regulations in each of the countries of operation. Moreover, many countries, including the United States, control the export and re-export of certain goods, services and technology and impose related export recordkeeping and reporting obligations.
The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. These laws and regulations may be enacted, amended, enforced or interpreted in a manner materially impacting our operations. Shipments can be delayed and denied export or entry for a variety of reasons, some of which are outside our control and some of which may result from the failure to comply with existing legal and regulatory regimes. Shipping delays or denials could cause unscheduled operational downtime. Any failure to comply with applicable legal and regulatory trading obligations could also result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from government contracts, the seizure of shipments, and the loss of import and export privileges.
Offshore drilling in certain areas, including arctic areas, has been curtailed and, in certain cases, prohibited because of concerns over protecting the environment.

New laws or other governmental actions that prohibit or restrict offshore drilling or impose additional environmental protection requirements that result in increased costs to the oil and gas industry, in general, or to the offshore drilling industry, in particular, could adversely affect our performance.
The amendment or modification of existing laws and regulations or the adoption of new laws and regulations curtailing or further regulating exploratory or development drilling and production of oil and gas could have a material adverse effect on our business, results of operations or financial condition. Future earnings may be negatively affected by compliance with any such new legislation or regulations.
We are subject to complex environmental laws and regulations that can adversely affect the cost, manner or feasibility of doing business.
Our operations are subject to numerous international, national, state and local laws and regulations, treaties and conventions in force in international waters and the jurisdictions in which our drilling units operate or are registered, which can significantly affect the ownership and operation of our drilling units. These requirements include, but are not limited to the United Nation’s International Maritime Organization ("IMO"), the International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended, or MARPOL, including the designation of Emission Control Areas, or ECAs thereunder, the IMO International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended, or the CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention, the International Convention for the Safety of Life at Sea of 1974, as from time to time amended, or SOLAS, the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or the ISM Code, the IMO International Convention on Load Lines in 1966, as from time to time amended, the International Convention for the Control and Management of Ships’ Ballast Water and Sediments in February 2004 or the BWM Convention, the U.S. Oil Pollution Act of 1990, or the OPA, requirements of the U.S. Coast Guard, or the USCG, the U.S. Environmental Protection Agency, or the EPA, the U.S. Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the U.S. Maritime Transportation Security Act of 2002, or the MTSA, the U.S. Outer Continental Shelf Lands Act, certain regulations of the European Union, and Brazil’s National Environmental Policy Law (6938/81), Environmental Crimes Law (9605/98) and Federal Law (9966/2000) relating to pollution in Brazilian waters. Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or implementation of operational changes and may affect the resale value or useful lifetime of our drilling units. These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with them or the impact thereof on the resale prices or useful lives of our rigs. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations.
In addition, environmental laws often impose strict liability for the remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-mile exclusive economic zone around the United States. An oil or chemical spill, for which we are deemed a responsible party, could result in us incurring significant liability, including fines, penalties, criminal liability and remediation costs for natural resource damages under other federal, state and local laws, as well as third-party damages, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Furthermore, the 2010 explosion of the Deepwater Horizon well and the subsequent release of oil into the Gulf of Mexico, or other similar events, may result in further regulation of the shipping industry, and modifications to statutory liability schemes, thus exposing us to further potential financial risk in the event of any such oil or chemical spill.
We and, in certain circumstances, our customers are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations, and satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have arranged insurance to cover certain environmental risks, such insurance is subject to exclusions and other limits, and there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows and financial condition.
Although our drilling units are separately owned by our subsidiaries, under certain circumstances a parent company and all of the unit-owning affiliates in a group under common control engaged in a joint venture could be held liable for damages or debts owed by one of the affiliates, including liabilities for oil spills under OPA or other environmental laws. Therefore, it is possible that we could be subject to liability upon a judgment against us or any one of our subsidiaries.
Our drilling units could cause the release of oil or hazardous substances. Any releases may be large in quantity, above our permitted limits or occur in protected or sensitive areas where public interest groups or governmental authorities have special interests. Any releases of oil or hazardous substances could result in fines and other costs to us, such as costs to upgrade our drilling rigs, clean up the releases and comply with more stringent requirements in our discharge permits, as well as subject us to third party claims for damages, including natural resource damages. Moreover, these releases may result in our customers or governmental authorities suspending or terminating our operations in the affected area, which could have a material adverse effect on our business, results of operations and financial condition.
If we are able to obtain from our customers some degree of contractual indemnification against pollution and environmental damages in our contracts, such indemnification may not be enforceable in all instances or the customer may not be financially able to comply with its indemnity obligations in all cases, and we may not be able to obtain such indemnification agreements in the future. In addition, a court may decide that certain indemnities in our current or future contracts are not enforceable.
The insurance coverage we currently hold may not be available in the future, or we may not obtain certain insurance coverage. Even if insurance is available and we have obtained the coverage, it may not be adequate to cover our liabilities, or our insurance underwriters may be unable to pay compensation if a significant claim should occur. Any of these scenarios could have a material adverse effect on our business, results of operations and financial condition.

Failure to comply with international anti-corruption legislation, including the U.S. Foreign Corrupt Practices Act 1977 or the U.K. Bribery Act 2010, could result in fines, criminal penalties, damage to our reputation and drilling contract terminations.
We currently operate, and historically have operated, our drilling units in a number of countries throughout the world, including some with developing economies. We interact with government regulators, licensors, port authorities and other government entities and officials. Also, our business interaction with national oil companies as well as state or government-owned shipbuilding enterprises and financing agencies puts us in contact with persons who may be considered to be “foreign officials” under the U.S. Foreign Corrupt Practices Act of 1977 or the FCPA and the Bribery Act 2010 of the United Kingdom or the U.K. Bribery Act.
In order to effectively compete in some foreign jurisdictions, we utilize local agents and/or establish entities with local operators or strategic partners. All of these activities may involve interaction by our agents with government officials. Even though some of our agents and partners may not themselves be subject to the FCPA, the U.K. Bribery Act or other anti-bribery laws to which we may be subject, if our agents or partners make improper payments to government officials or other persons in connection with engagements or partnerships with us, we could be investigated and potentially found liable for violations of such anti-bribery laws and could incur civil and criminal penalties and other sanctions, which could have a material adverse effect on our business and results of operation.
We are subject to the risk that we or our affiliated companies or their respective officers, directors, employees and agents may take actions determined to be in violation of anti-corruption laws, including the FCPA and the U.K. Bribery Act. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business.
If our drilling units are located in countries that are subject to, or targeted by, economic sanctions, export restrictions, or other operating restrictions imposed by the United States or other governments, our reputation and the market for our debt and common shares could be adversely affected.
The U.S. and other governments may impose economic sanctions against certain countries, persons and other entities that restrict or prohibit transactions involving such countries, persons and entities. U.S. sanctions in particular are targeted against countries (such as Russia, Venezuela, Iran and others) that are heavily involved in the petroleum and petrochemical industries, which includes drilling activities. U.S. and other economic sanctions change frequently and enforcement of economic sanctions worldwide is increasing.
In 2010, the United States enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which expanded the scope of the former Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions to non-U.S. companies such as ours and introduced limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. On August 10, 2012, the U.S. signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction Act, which places further restrictions on the ability of non-U.S. companies to do business or trade with Iran and Syria. Perhaps the most significant provision in the Iran Threat Reduction Act is that prohibitions in the existing Iran sanctions applicable to U.S. persons will now apply to any foreign entity owned or controlled by a U.S. person. The other major provision in the Iran Threat Reduction Act is that issuers of securities must disclose in their annual and quarterly reports filed with the Commission after February 6, 2013 if the issuer or “any affiliate” has “knowingly” engaged in certain activities involving Iran during the timeframe covered by the report. At this time, we are not aware of any activities conducted by us or by any affiliate, which is likely to trigger such a disclosure requirement. On January 2, 2013, the U.S. signed into law the Iran Freedom and Counter-Proliferation Act of 2012 (“IFCA”), as a part of the National Defense Authorization Act for Fiscal Year 2013. Among other measures, IFCA authorizes broad sanctions on certain activities related to Iran’s energy, shipping, and shipbuilding sectors.
On July 14, 2015, the P5+1 and the European Union announced that they reached a landmark agreement with Iran titled the Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program, or the JCPOA, to significantly restrict Iran’s ability to develop and produce nuclear weapons for 10 years while simultaneously easing sanctions directed toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S. jurisdiction and not involving U.S. persons. On January 16, 2016, or the Implementation Day, the United States joined the European Union and the U.N. in lifting a significant number of their nuclear-related sanctions on Iran following an announcement by the International Atomic Energy Agency, or the IAEA, that Iran had satisfied its respective obligations under the JCPOA.
On May 8, 2018, the U.S. announced that it would be withdrawing from the JCPOA. On August 6, 2018, the U.S. issued Executive Order 13846 which reimposed certain sanctions on Iran effective as of that date and set the reimposition of additional sanctions on Iran effective November 5, 2018. On November 5, 2018, following a wind-down period, the U.S. completed the reimposition of nuclear-related sanctions against Iran that it had previously lifted in connection with the JCPOA.

The Office of Foreign Assets Control ("OFAC") acted several times over the past year to add Iranian individuals and entities to its list of Specially Designated Nationals whose assets are blocked and with whom U.S. persons are generally prohibited from dealing, including re-adding on November 5, 2018, hundreds of individuals and entities that had previously been delisted in connection with the JCPOA.

In August 2017, the U.S. passed the “Countering America’s Adversaries Through Sanctions Act” (Public Law 115-44) ("CAATSA"), which authorizes imposition of new sanctions on Iran, Russia, and North Korea. The CAATSA sanctions with respect to Russia create heightened sanctions risks for companies operating in the oil and gas sector, including companies that are based outside of the United States. OFAC sanctions targeting Venezuela have likewise increased in the past year, and any new sanctions targeting Venezuela could further restrict our ability to do business in such country. On January 28, 2019, OFAC added the Venezuelan state-owned oil company, Petróleos de Venezuela, S.A. (“PdVSA”), to its List of Specially Designated Nationals and Blocked Persons, increasing the sanctions risk for companies operating in the oil sector.


In addition to the sanctions against Iran, Russia, and Venezuela, subject to certain limited exceptions, U.S. law continues to restrict U.S. owned or controlled entities from doing business with Cuba and various U.S. sanctions have certain other extraterritorial effects that need to be considered by non-U.S. companies. Moreover, any U.S. persons who serve as officers, directors or employees of our subsidiaries would be fully subject to U.S. sanctions. It should also be noted that other governments are more frequently implementing and enforcing sanctions regimes.

From time to time, we may enter into drilling contracts with countries or government-controlled entities that are subject to sanctions and embargoes imposed by the U.S. government and/or identified by the U.S. government as state sponsors of terrorism where entering into such contracts would not violate U.S. law, or may enter into drilling contracts involving operations in countries or with government-controlled entities that are subject to sanctions and embargoes imposed by the U.S government and/or identified by the U.S. government as state sponsors of terrorism. However, this could negatively affect our ability to obtain investors. In some cases, U.S. investors would be prohibited from investing in an arrangement in which the proceeds could directly or indirectly be transferred to or may benefit a sanctioned entity. Moreover, even in cases where the investment would not violate U.S. law, potential investors could view such drilling contracts negatively, which could adversely affect our reputation and the market for our shares. We do not currently have any drilling contracts or plans to initiate any drilling contracts involving operations in countries or with government-controlled entities that are subject to sanctions and embargoes imposed by the U.S. government and/or identified by the U.S. government as state sponsors of terrorism.
Certain parties with whom we have entered into contracts may be or may be affiliated with persons or entities that are, the subject of sanctions imposed by the United States, the European Union or other international bodies as a result of the annexation of Crimea by Russia in March 2014 and the subsequent conflict in eastern Ukraine, or malicious cyber-enabled activities. If we determine that such sanctions require us to terminate existing contracts or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected, or we may suffer reputational harm. Such sanctions may prevent us from performing some or all of our obligations under any potential drilling contracts with Rosneft, which could impact our future revenue, contract backlog and results of operations, and adversely affect our business reputation. We may also lose business opportunities to companies that are not required to comply with these sanctions.
As stated above, we believe that we are in compliance with all applicable economic sanctions and embargo laws and regulations and intend to maintain such compliance. However, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Rapid changes in the scope of global sanctions may also make it more difficult for us to remain in compliance. Any violation of applicable economic sanctions could result in civil or criminal penalties, fines, enforcement actions, legal costs, reputational damage, or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in our shares. Additionally, some investors may decide to divest their interest, or not to invest, in our shares simply because we may do business with companies that do business in sanctioned countries. Moreover, our drilling contracts may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us, or our drilling rigs, and those violations could in turn negatively affect our reputation. Investor perception of the value of our shares may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Ancontinuing economic downturn could have a material adverse effect on our revenue, profitability and financial position.
We depend on our customers’ willingness and ability to fund operating and capital expenditures to explore, develop and produce oil and gas, and to purchase drilling and related equipment. There has historically been a strong link between the development of the world economy and the demand for energy, including oil and gas. The world economy is currently facing a number of challenges. Concerns persist regarding the debt burden of certain European countries and their ability to meet future financial obligations and the overall stability of the euro. Further, the COVID-19 outbreak that began in December 2019 was declared a global pandemic on March 11, 2020 by the World Health Organization. The COVID-19 outbreak has had numerous effects on the global economy and has caused a global economic downturn. While there are some signs of an economic recovery, economic activity is still depressed as a result of continuing restrictions in response to the pandemic and high levels of unemployment and associated economic uncertainty. A renewed period of adverse development in the outlook for the financial stability of European countries, or market perceptions concerning these and related issues, could reduce the overall demand for oil and natural gas and for our services and thereby could affect our financial position, results of operations and cash available for distribution. In addition, turmoil and hostilities in the Ukraine, Korea, the Middle East, North Africa and other geographic areas and countries are adding to the overall risk picture.
Negative developments in worldwide financial and economic conditions could further cause our ability to access the capital markets to be severely restricted at a time when we would like, or need, to access such markets, which could impact our ability to react to changing economic and business conditions. Worldwide economic conditions have in the past impacted, and could in the future impact, lenders willingness to provide credit facilities to our customers, causing them to fail to meet their obligations to us.
A portion of the credit under our credit facilities is provided by European banking institutions. If economic conditions in Europe preclude or limit financing from these banking institutions, we may not be able to obtain financing from other institutions on terms that are acceptable to us, or at all, even if conditions outside Europe remain favorable for lending.
An extended period of adverse development in the outlook for the world economy could also reduce the overall demand for oil and gas and for our services. Such changes could adversely affect our results of operations and cash flows beyond what might be offset by the simultaneous impact of possibly higher oil and gas prices.
Our business is capital intensive and, to the extent we do not generate sufficient cash from operations, we may need to raise additional funds through public or private debt or equity offerings to fund our capital expenditures. Our ability to access the capital markets may be limited by our financial condition at the time, by changes in laws and regulations or interpretations thereof and by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. An extended period of deterioration in outlook for the world economy could reduce the overall demand for our services and could also adversely affect our ability to obtain financing on terms acceptable to us or at all.
Any reductions in drilling activity by our customers may not be uniform across different geographic regions. Locations where costs of drilling and production are relatively higher, such as Arctic or deepwater locations, may be subject to greater reductions in activity. Such reductions in high cost regions may lead to the relocation of drilling units, concentrating drilling units in regions with relatively fewer reductions in activity leading to greater competition.

If our lenders and other debt holders are not confident that we are able to employ our assets, we may be unable to secure replacement or additional financing, when required.or amendments to existing debt documents, on terms acceptable to us or at all.
We may not have sufficient liquidity to meet our obligations as they fall due or have the ability to raise new capital or refinance existing indebtedness on acceptable terms, all of which could adversely affect our business and financial condition.
As at December 31, 2020, we had $6,177 million in principal amount of interest-bearing debt. This includes our 12% (4% payable in cash and 8% PIK) secured notes due 2025 (the “Senior Secured Notes”) issued in connection with our Previous Chapter 11 Proceedings, of which $515 million in principal (including capitalized PIK interest) amount was outstanding as at December 31, 2020. As at December 31, 2020, we had $5,662 million in principal amount of debt outstanding under our secured credit facilities. Our debt is secured by, among other things, liens on our drilling units, investments in affiliates and available cash.
Our substantial indebtedness could have significant adverse consequences for an investment in us and on our business, financial condition and future prospects, including the following:
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we may not be able to satisfy our financial obligations under our indebtedness and our contractual and commercial commitments, which may result in possible defaults on and acceleration of such indebtedness where not protected under Chapter 11 Proceedings or forbearance agreements;
we may not be able to obtain financing in the future for working capital, capital expenditures, acquisitions, debt service requirements or other purposes;
less leveraged competitors could have a competitive advantage because they have lower debt service requirements and, as a result, we may not be better positioned to withstand economic downturns;
we may be less able to take advantage of significant business opportunities and to react to changes in market or industry conditions than our competitors and our management's discretion in operating our business may be limited; and
other factors described below.

Our outstanding indebtedness and potential future indebtedness could adversely affect our business (including future prospects) and liquidity position, since a substantial portion of our cash flows from operations will be dedicated to the payment of interest and principal where not protected under Chapter 11 Proceedings or forbearance agreements and will not be available for other purposes. Similarly, the fact that our debt is secured by our assets means that we are restricted in our ability to use these assets or their proceeds for debt service, to the extent such obligations remain applicable in light of the Chapter 11 Proceedings, or other corporate purposes.
We also have provided a financial guarantee over one of Seabras Sapura’s senior secured credit facility agreements. If Seabras Sapura is unable to meet its obligations under this facility, the lenders could look to us to meet such liabilities. For more information, please see “We have suffered, and may continue to suffer, losses through our investments in other companies in the offshore drilling and oilfield services industry, which could have a material adverse effect on our business, financial condition, results of operations and cash flows” below.
Our ability to meet our debt service obligations, to the extent such obligations remain applicable in light of the Chapter 11 Proceedings, and to fund planned expenditures will be dependent upon, among other things, our future performance, which will be subject to, and our substantial indebtedness may make us more vulnerable to, prevailing economic conditions (including increases in interest rates), industry cycles, other industry conditions, and financial, business, regulatory and other factors affecting our operations, many of which are beyond our control. Our future cash flows may be insufficient to meet all our debt obligations, to the extent such obligations remain applicable in light of the Chapter 11 Proceedings, and contractual commitments, and any insufficiency could negatively impact our business. To the extent that we are unable to repay any indebtedness that is not subject of Chapter 11 Proceedings or forbearance agreements as it becomes due or at maturity (including as a result of any acceleration thereof), we may need to refinance or restructure our debt, raise new debt, reduce or delay capital expenditures, sell assets, repay the debt with the proceeds from equity offerings, or take other actions. We cannot assure you that any of these actions could be effected on satisfactory terms, if at all, or that they would yield sufficient funds to make required payments on our outstanding indebtedness and to fund our other liquidity needs. Also, the terms of existing or future debt agreements may restrict us from pursuing any of these actions. Furthermore, reducing or delaying capital expenditures or selling assets could impair future cash flows and our ability to service our debt in the future.
If for any reason we are unable to meet our debt service and repayment obligations under our debt agreements, that are not subject of Chapter 11 Proceedings or forbearance agreements, we would be in default under the terms of the agreements governing such indebtedness, which may allow creditors at that time to declare all such indebtedness then outstanding to be due and payable. This would likely in turn trigger cross-acceleration or cross-default rights among our other debt agreements to the extent such debt agreements also fall outside the scope of Chapter 11 Proceedings or forbearance agreements. Under these circumstances, if the amounts outstanding under our existing and future debt agreements were to be accelerated, or were the subject of foreclosure actions, we cannot assure you that our assets would be sufficient to repay in full the money owed to our lenders or to our other debt holders. Furthermore, if our assets are foreclosed upon, we will not have any income-producing assets left, and as such, we may not be able to generate any cash flow in the future.
The covenants in our debt agreements impose operating and financial restrictions on us that could significantly impact our ability to operate our business and a breach of which could result in a default under the terms of these agreements, which could accelerate our repayment of funds that we have borrowed.
Our credit facility agreements and the indenture governing the Senior Secured Notes impose, and future financial obligations may impose, operating and financial restrictions on us. These restrictions may prohibit or otherwise limit our ability to fund our operations or capital needs or to undertake certain other business activities without consent of the requisite debt holders, which in turn may adversely affect our financial condition. These restrictions include:
executing other financing arrangements;
incurring or guaranteeing additional indebtedness;
creating or permitting liens on our assets;
selling our drilling units or the shares of our subsidiaries;
making investments;
changing the general nature of our business;
paying dividends to our shareholders or making other restricted payments;
changing the management and/or ownership of the drilling units; and
making capital expenditures.
These restrictions may affect our ability to compete effectively with our competitors, to the extent that they are subject to less onerous restrictions. The interests of our lenders and other debt holders may be different from ours and we may not be able to obtain their consent when beneficial for our business, which may impact our performance or our ability to obtain replacement or additional financing. In addition,
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the profile of our debt holders has changed since emergence from the Previous Chapter 11 Proceedings, with the replacement of certain relationship banks by debt holders whose focus may be shorter-term in nature or different. The new profile of our debt holders may make it more difficult for us to obtain consents from our debt holders when beneficial to our business or to obtain replacement or additional financing.
The different rankings in the capital structure of our lenders and other debt holders and the collateral arrangements which they benefit from in relation to different assets and the consequential complex intercreditor arrangements that exist mean that the interests of our debt holders will not always be aligned, which may make it more difficult for us to obtain their consents when beneficial to our business or to obtain replacement or additional financing.
Following emergence from the Previous Chapter 11 Proceedings on the Effective Date, with exception of minimum liquidity requirements, we are exempt from financial covenants until the first quarter of 2021. Thereafter, in addition to minimum liquidity requirements, we are required to maintain and satisfy certain financial ratios and covenants relating to net leverage and debt service coverage.
We currently anticipate that we will not be able to meet the net leverage and debt service financial coverage covenants in our debt agreements when they begin to apply in the first quarter of 2021. We had previously been engaged in discussions with our lenders to either obtain a waiver or amendment of these financial covenant requirements. If we are unable to comply with the net leverage and debt service coverage covenants in our debt agreements between the first quarter and the fourth quarter of 2021, this will lead to an interest margin increase of up to 100 bps in the form of PIK interest; however, this does not constitute an event of default. Thereafter, if we are unable to comply with any of these restrictions and covenants, and we are unable to obtain a waiver or amendment from our lenders for such non-compliance, a default could occur under the terms of those debt agreements. We have also forecasted that we will not be able to meet the requirements under our ongoing liquidity financial covenant contained in the facility agreements during certain periods occurring after the twelve-month period following the date of this report.

Whilst substantial support was indicated by our secured lenders for the waiver or amendment of the financial covenant requirements, as certain of the amendments impacting economic terms required 100% approval across 43 institutions, recent market uncertainties had prevented a coalescing of views. As a consequence, Seadrill decided not to proceed with the bank consent, retained financial and legal advisors and is preparing for a comprehensive restructuring of the balance sheet. The outcome of this process and future capital structure is not yet determined but it remains highly likely that it will involve significant equitization of debt and thereby material reductions to current shareholder positions. For more information please see "We and a substantial number of our consolidated subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, and we are subject to the risks and uncertainties associated with such bankruptcy proceedings" above.
Our debt agreements contain cross-default provisions (or, in certain instances, cross-acceleration provisions), meaning that if we are in default under one of our debt agreements, amounts outstanding under our other debt agreements may also be in default, accelerated and become due and payable to the extent such debt agreements are not subject of Chapter 11 Proceedings or forbearance agreements. Our drilling units also serve as security under certain of our debt agreements. If our lenders were to foreclose their liens on our drilling units (to the extent they are not restricted from doing so under Chapter 11 Proceedings or forbearance agreements) in the event of a default, this may impair our ability to continue our operations or generate any cash flows in the future. As at December 31, 2020, we had $6,177 million of interest-bearing debt secured by, among other things, liens on our drilling units, investments in affiliates and available cash..
If any of the aforementioned events occurs, our assets may be insufficient to repay all our outstanding indebtedness in full, and we may be unable to find alternative financing. Even if we could obtain alternative financing, that financing might not be on terms that we consider favorable or acceptable. Moreover, in connection with any further waivers of or amendments to our credit facilities that we may obtain, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities. Any of these events may further restrict our ability to pay dividends, repurchase our Shares, make capital expenditures or incur additional indebtedness.
In addition, the failure of certain of our affiliated or related companies to service their debt requirements and comply with the provisions contained in their debt agreements may lead to an event of default under such agreements, which may have a material adverse effect on us. If a default occurs under the debt agreements of certain of our affiliated or related companies, the lenders and our other debt holders could accelerate the outstanding borrowings and declare all amounts outstanding due and payable. In this case, if such entities are unable to obtain a waiver or an amendment to the applicable provisions of the debt agreements, or do not have enough cash on hand to repay the outstanding borrowings, the lenders and other secured debt holders may, among other things, foreclose their liens on the drilling units and other assets securing the loans and other secured debt, if applicable, or seek repayment of such debt from such entities.
Certain of our affiliated or related companies may be unable to service their debt requirements and comply with the provisions contained in their loan agreements.

The failure of certain of the Company’s affiliated or related companies to service their debt requirements and comply with the provisions contained in their debt agreements may lead to an event of default under such agreements, which may have a material adverse effect on the Group.

If a default occurs under the debt agreements of our affiliated or related companies, the lenders and other debt holders could accelerate the outstanding borrowings and declare all amounts outstanding due and payable. In this case, if such entities are unable to obtain a waiver or an amendment to the applicable provisions of the debt agreements, or do not have enough cash on hand to repay the outstanding borrowings, the lenders and other secured debt holders may, among other things, foreclose their liens on the drilling units and other assets securing the loans and other secured debt, if applicable, or seek repayment of such debt from such entities.
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We have provided a financial guarantee over one of Seabras Sapura’s senior credit facility agreements that was used to partially fund the acquisition of the pipe-laying support vessel Sapura Esmeralda. As a condition to the lenders making the loan available to Seabras Sapura, we provided a sponsor guarantee, on a joint and several basis with our joint venture partner, Sapura Energy. The total amount guaranteed by the joint venture partners as at December 31, 2020 was $132 million. If Seabras Sapura is unable to meet its obligations under the above references credit facilities, the lenders could look to us to meet such liabilities. If this occurs, we may not be able to satisfy our obligations under the guarantee. For more information, please see “We may not have sufficient liquidity to meet our obligations as they fall due or have the ability to raise new capital or refinance existing indebtedness on acceptable terms, all of which could adversely affect our business and financial condition.

Our debt agreements also contain cross-default and cross-acceleration provisions that may be triggered if we fail to comply with our obligations under the guarantee described above. Such cross-defaults and cross-accelerations, as applicable, could, to the extent they are not protected under Chapter 11 Proceedings or forbearance arrangements, result in the acceleration of the maturity of the debt under our agreements and our lenders or other secured debt holders may foreclose upon any collateral securing that debt, including our drilling units and other assets, even if such default was subsequently cured. In the event of such acceleration and foreclosure, we will not have sufficient funds or other assets to satisfy all our obligations.
A number of our affiliates or related companies are joint ventures, to which we may have funding obligations. Our partners in these joint ventures may have different objectives or strategies or different financial positions from us and this may affect how these joint ventures perform, how they are supported, their compliance with the financing and contractual arrangements to which they are subject and our interests in and cash flows from them. In addition, affiliates or related companies that we do not control may take actions that we would not have taken or fail to take actions which we would have taken.

The occurrence of any of the events described above would have a material adverse effect on our business and may impair our ability to continue as a going concern.
Our customers may seek to cancel or renegotiate their contracts to include unfavorable terms such as unprofitable rates, particularly in the circumstance that operations are suspended or interrupted.
During current or worsened market conditions, some of our customers may seek to terminate their agreements with us. Some of our customers have the right to terminate their drilling contracts without cause upon the payment of an early termination fee. The general principle is that such early termination fee shall compensate us for lost revenues less operating expenses for the remaining contract period; however, in some cases, such payments may not fully compensate us for the loss of the drilling contract.
Under certain circumstances our contracts may permit customers to terminate contracts early without the payment of any termination fees, as a result of non-performance, periods of downtime or impaired performance caused by equipment or operational issues, or sustained periods of downtime due to force majeure events beyond our control. In addition, national oil company customers may have special termination rights by law. During periods of challenging market conditions, we may be subject to an increased risk of our customers seeking to repudiate their contracts, including through claims of non-performance. Our customers may seek to renegotiate their contracts with us using various techniques, including threatening breaches of contract and applying commercial pressure, resulting in lower dayrates or the cancellation of contracts with or without any applicable early termination payments.
Reduced dayrates in our customer contracts and cancellation of drilling contracts (with or without early termination payments) may adversely affect our financial performance and lead to reduced revenues from operations.
Our contract backlog for our fleet of drilling units may not be realized.
As at December 31, 2020, our contract backlog was approximately $1.9 billion. The contract backlog presented in this annual report on Form 20-F and our other public disclosures is only an estimate. The actual amount of revenues earned and the actual periods during which revenues are earned will be different from the contract backlog projections due to various factors, including shipyard and maintenance projects, downtime and other events within or beyond our control. In addition, we or our customers may seek to cancel or renegotiate our contracts for various reasons, including adverse conditions, such as the current environment, resulting in lower dayrates. In some instances, there is an option for a customer to terminate a drilling contract prematurely for convenience on payment of an early termination fee. However, this fee may not adequately compensate us for the loss of this drilling contract. Our inability, or the inability of our customers, to perform under our or their contractual obligations may have a material adverse effect on our financial position, results of operations and cash flows.

We may not be able to renew or obtain new and favorable contracts for our drilling units whose contracts have expired or have been terminated.
During the previous period of high utilization and high dayrates, which we now believe ended in early 2014, industry participants ordered the construction of new drilling units, which resulted in an over-supply and caused, in conjunction with deteriorating industry conditions, a subsequent decline in utilization and dayrates when the new drilling units entered the market. A relatively large number of the drilling units currently under construction have not been contracted for future work, and a number of units in the existing worldwide fleet are currently off-contract.
As at December 31, 2020, we had 12 operating units, 5 warm-stacked units (of which 3 are future contracted) and 17 cold-stacked units. Of the contracted units we expect 3 to become available in 2021, 4 in 2022, and 5 thereafter. Our ability to renew contracts or obtain new
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contracts will depend on our customers and prevailing market conditions, which may vary among different geographic regions and types of drilling units.
The over-supply of drilling units will be exacerbated by the entry of newbuild rigs into the market, many of which are without firm drilling contracts. The supply of available uncontracted units may intensify price competition as scheduled delivery dates occur and contracts terminate without renewal, reducing dayrates as the active fleet grows.
In addition, as our fleet of drilling units becomes older, any competitive advantage of having a modern fleet may be reduced to the extent that we are unable to acquire newer units or enter into newbuilding contracts as a result of financial constraints. For as long as there is an oversupply of drilling rigs, it may be more difficult for older rigs to secure extensions or new contract awards.
If we are unable to secure contracts for our drilling units upon the expiration of our existing contracts, we may continue to idle or stack our units. When idled or stacked, drilling units do not earn revenues, but continue to require cash expenditures for crews, fuel, insurance, berthing and associated items. As at December 31, 2020 we had 5 units “warm stacked,” which means the rig is kept operational and ready for redeployment, and maintains most of its crew, and 17 units “cold stacked,” which means the rig is stored in a harbor, shipyard or a designated offshore area, and the crew is reassigned to an active rig or dismissed. Please see “ Our drilling contracts contain fixed terms and day-rates, and consequently we may not fully recoup our costs in the event of a rise in expenses, including operating and maintenance costs” for more information.
If we are not able to obtain new contracts in direct continuation of existing contracts, or if new contracts are entered into at dayrates substantially below the existing dayrates or on terms otherwise less favorable compared to existing contract terms, our revenues and profitability could be adversely affected. We may also be required to accept more risk in areas other than price to secure a contract and we may be unable to push this risk down to other contractors or be unable or unwilling to insure against this risk, which will mean the risk will have to be managed by applying other controls. This could lead to us being unable to meet our liabilities in the event of a catastrophic event on one of our rigs. Any of the events described above could impair our ability to generate sufficient cash flows to meet our debt service obligations, to the extent such obligations remain applicable in light of the Chapter 11 Proceedings, capital expenditure and other obligations. For more information, please see “We may not have sufficient liquidity to meet our obligations as they fall due or have the ability to raise new capital or refinance existing indebtedness on acceptable terms, all of which could adversely affect our business and financial condition” above.
The market value of our drilling units may decrease.
The market values of drilling units have been trending lower as a result of the continued decline in the price of oil, which has impacted the spending plans of our customers and utilization of the global fleet. If the offshore drilling industry suffers further adverse developments in the future, the fair market value of our drilling units may decrease further. Upon emergence from the Previous Chapter 11 Proceedings, our assets, including drilling units, were recognized at fair value. The fair market value of the drilling units that we currently own, or may acquire in the future, may increase or decrease depending on a number of factors, including:
the general economic and market conditions affecting the offshore contract drilling industry, including competition from other offshore contract drilling companies;
the types, sizes and ages of drilling units;
the supply and demand for drilling units;
the costs of newbuild drilling units;
the prevailing level of drilling services contract dayrates;
governmental or other regulations; and
technological advances.
If drilling unit values fall significantly, we may have to record an impairment adjustment in our Consolidated Financial Statements, which could adversely affect our financial results and condition and cause us to breach the covenants in our finance agreements. For more information, see “Historical downturns in activity in the oil and gas drilling industry has had an adverse impact on our business and results of operations, and any future downturn or volatile market conditions is likely to adversely impact our business and results of operations”.
Our business and operations involve numerous operating hazards, and in the current market we are increasingly required to take additional contractual risk in our customer contracts and we may not be able to procure insurance to adequately cover potential losses.
Our operations are subject to hazards inherent in the drilling industry, such as blowouts, reservoir damage, loss of production, loss of well control, lost or stuck drill strings, equipment defects, punch-throughs, cratering, fires, explosions and pollution. Contract drilling and well servicing requires the use of heavy equipment and exposure to hazardous conditions, which may subject us to liability claims by employees, customers and third parties. These hazards can cause personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental or natural resource damage, claims by third parties or customers, investigations and other proceedings by regulatory authorities which may involve fines and other sanctions, and suspension of operations. Our offshore fleet is also subject to hazards inherent in marine operations, either while on-site or during mobilization, such as capsizing, sinking, grounding, collision, damage from severe weather (which may be more acute in certain areas where we operate) and marine life infestations. Operations may also be suspended because of machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services or personnel shortages. We customarily provide contract indemnity to our customers for claims relating to damage to or loss of our equipment, including rigs and claims relating to personal injury or loss of life.
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Damage to the environment could also result from our operations, particularly through spillage of fuel, lubricants or other chemicals and substances used in drilling operations or extensive uncontrolled fires. We may also be subject to property, environmental, natural resource, personal injury, and other damage claims by private parties, including oil and gas companies, as well as administrative, civil, and criminal penalties or injunctions by government authorities.
Our insurance policies and contractual rights to indemnity may not adequately cover losses, and we do not have insurance coverage or rights to indemnity for all risks. Consistent with standard industry practice, our customers generally assume, and indemnify us against certain risks, for example, well control and subsurface risks, and we generally assume, and indemnify against, above surface risks (including spills and other events occurring on our rigs). Subsurface risks indemnified by our customers generally include risks associated with the loss of control of a well, such as blowout or cratering or uncontrolled well-flow, the cost to regain control of or re-drill the well and associated pollution. However, there can be no assurances that these customers will be willing or financially able to indemnify us against these risks under our contracts. The terms of our drilling contracts vary based on negotiation, applicable local laws and regulations and other factors, and in some cases, customers may seek to cap indemnities or narrow the scope of their coverage, reducing our level of contractual protection.
In addition, a court may decide that certain indemnities in our current or future contracts are not enforceable. For example, in a decision in a case related to the fire and explosion that took place on the unaffiliated Deepwater Horizon Mobile Offshore Drilling Unit in the Gulf of Mexico in April 2010, or the Deepwater Horizon Incident (to which we were not a party), a U.S. District Court invalidated certain contractual indemnities under a drilling contract governed by U.S. law. Further, pollution and environmental risks generally are not totally insurable. If a significant accident or other event occurs that is not fully covered by our insurance or an enforceable or recoverable indemnity from a customer, the occurrence could adversely affect our performance.
The amount recoverable under insurance may also be less than the related impact on enterprise value after a loss or not cover all potential consequences of an incident and include annual aggregate policy limits. As a result, we retain the risk through self-insurance for any losses in excess of these limits. Any such lack of reimbursement may cause us to incur substantial costs.
We could decide to retain more risk through self-insurance in the future. This self-insurance results in a higher risk of losses, which could be material, which are not covered by third-party insurance contracts. Specifically, we have at times in the past elected to self-insure for physical damage to rigs and equipment caused by named windstorms in the U.S. Gulf of Mexico due to the substantial costs associated with such coverage. Although we currently insure a limited part of this windstorm risk pursuant to a policy for physical damage to rigs and equipment caused by named windstorms in the U.S. Gulf of Mexico with a combined single limit of $100 million in the annual aggregate, this policy is subject to certain exclusions and limitations and may not be sufficient to cover future losses caused by such storms. In addition, if we elect to self-insure such risks again in the future and such windstorms cause significant damage to any rig and equipment we have in the U.S. Gulf of Mexico, it could have a material adverse effect on our financial position, results of operations and cash flows.
No assurance can be made that we will be able to maintain adequate insurance in the future at rates that we consider reasonable, or that we will be able to obtain insurance against certain risks.
We rely on a small number of customers and our results of operations could be materially adversely affected if any of our major customers fail to compensate us for our services or if we lose a significant customer contract.
Our contract drilling business is subject to the risks associated with having a limited number of customers for our services. For the year ended December 31, 2020, our five largest customers, ConocoPhillips, Equinor, Saudi Aramco, LLOG and Petrobras accounted for approximately 49% of our revenues. In addition, mergers among oil and gas exploration and production companies will further reduce the number of available customers, which would increase the ability of potential customers to achieve pricing terms favorable to them. Our results of operations could be materially adversely affected if any of our major customers fail to compensate us for our services or take actions outlined above. Please see "Our customers may seek to cancel or renegotiate their contracts to include unfavorable terms such as unprofitable rates, particularly in the circumstance that operations are suspended or interrupted” above for more information.
We are subject to risks of loss resulting from non-payment or non-performance by our customers and certain other third parties. Some of these customers and other parties may be highly leveraged and subject to their own operating and regulatory risks. If any key customers or other parties default on their obligations to us, our financial results and condition could be adversely affected. Any material non-payment or non-performance by these entities, other key customers or certain other third parties could adversely affect our financial position, results of operations and cash flows.
Our drilling contracts contain fixed terms and dayrates, and consequently we may not fully recoup our costs in the event of a rise in expenses, including reactivation, operating and maintenance costs.
Our operating costs are generally related to the number of units in operation and the cost level in each country or region where the units are located. A significant portion of our operating costs may be fixed over the short term.
Most of our contracts have dayrates that are fixed over the contract term. To mitigate the effects of inflation on revenues from term contracts, most of our long-term contracts include escalation provisions. These provisions allow us to adjust the dayrates based on stipulated external cost indices, including wages, insurance and maintenance costs. However, actual cost increases may result from events or conditions that do not cause correlative changes to the applicable indices. Furthermore, certain indices are updated semi-annually, and therefore may be outdated at the time of adjustment. The adjustments are typically performed on a semi-annual or annual basis. For these reasons, the timing and amount awarded as a result of such adjustments may differ from our actual cost increases, which could adversely affect our financial performance. Some of our long-term contracts contain rate adjustment provisions based on market dayrate fluctuations rather than cost increases. In such contracts, the dayrate could be adjusted lower during a period when costs of operation rise, which could adversely affect our financial
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performance. In addition, our contracts typically contain provisions for either fixed or dayrate compensation during mobilization. These rates may not fully cover our costs of mobilization, and mobilization may be delayed, increasing our costs, without additional compensation from the customer, for reasons beyond our control.
In connection with new assignments, we might incur expenses relating to preparation for operations under a new contract. Expenses may vary based on a number of factors including the scope and length of such required preparations, whether the relevant unit is idle or stacked and reactivation is required, and the duration of the contractual period over which such expenditures are amortized.
Equipment maintenance costs fluctuate depending upon the type of activity that the unit is performing and the age and condition of the equipment, as well as the applicable environmental, safety and maritime regulations and standards. Our operating expenses and maintenance costs depend on a variety of factors, including crew costs, provisions, equipment, insurance, maintenance and repairs, and shipyard costs, many of which are beyond our control.
In situations where our drilling units incur idle time between assignments, the opportunity to reduce the size of our crews on those drilling units is limited, as the crews will be engaged in preparing the unit for its next contract. When a unit faces longer idle periods, reductions in costs may not be immediate as some of the crew may be required to prepare drilling units for stacking and maintenance in the stacking period. Should units be idle for a longer period, we will seek to redeploy crew members who are not required to maintain the drilling unit to active rigs, to the fullest extent possible. However, there can be no assurance that we will be successful in reducing our costs in such cases.
Operating and maintenance costs will not necessarily fluctuate in proportion to changes in operating revenues. Operating revenues may fluctuate as a function of changes in supply of offshore drilling units and demand for contract drilling services. This could adversely affect our revenue from operations. For more information please see “The success and growth of our business depend on the level of activity in the offshore oil and gas industry generally, and the drilling industry specifically, which are both highly competitive and cyclical, with intense price competition”, “Our customers may seek to cancel or renegotiate their contracts to include unfavorable terms such as unprofitable rates, particularly in the circumstance that operations are suspended or interrupted” and “Our contract backlog for our fleet of drilling units may not be realized”.
Consolidation and governmental regulation of suppliers may increase the cost of obtaining supplies or restrict our ability to obtain needed supplies.
We rely on certain third parties to provide supplies and services necessary for our offshore drilling operations, including, but not limited to, drilling equipment suppliers, catering and machinery suppliers. Recent mergers have reduced the number of available suppliers, resulting in fewer alternatives for sourcing key supplies. With respect to certain items, such as blow-out preventers (“BOPs”) and drilling packages, we are dependent on the original equipment manufacturer for repair and replacement of the item or its spare parts. Such consolidation, combined with a high volume of drilling units under construction, may result in a shortage of supplies and services, thereby increasing the cost of supplies and/or potentially inhibiting the ability of suppliers to deliver on time. These cost increases or delays could have a material adverse effect on our results of operations, resulting in rig downtime, and delays in the repair and maintenance of our drilling rigs.
We may be unable to obtain, maintain, and/or renew permits necessary for our operations or experience delays in obtaining such permits including the class certifications of rigs.
The operation of our drilling units will require certain governmental approvals, the number and prerequisites of which cannot be determined until we identify the jurisdictions in which we will operate on securing contracts for the drilling units. Depending on the jurisdiction, these governmental approvals may involve public hearings and costly undertakings on our part. We may not obtain such approvals or such approvals may not be obtained in a timely manner. If we fail to secure the necessary approvals or permits in a timely manner, our customers may have the right to terminate or seek to renegotiate their drilling contracts to our detriment.
Every offshore drilling unit is a registered marine vessel and must be “classed” by a classification society to fly a flag. The classification society certifies that the drilling unit is “in-class,” signifying that such drilling unit has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the drilling unit’s country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned. Our drilling units are certified as being “in class” by the American Bureau of Shipping, or ABS, Det Norske Veritas and Germanisher Lloyd, or DNV GL, and the relevant national authorities in the countries in which our drilling units operate. If any drilling unit loses its flag status, does not maintain its class, fails any periodical survey or special survey and/or fails to satisfy any laws of the country of operation, the drilling unit will be unable to carry on operations and will be unemployable and uninsurable, which could cause us to be in violation of certain covenants in certain of our debt agreements. Any such inability to carry on operations or be employed could have a material adverse impact on the results of operations. Please see Item 8 - "Financial Information - Legal Proceedings - Seabras Sapura joint venture" for more information.

Certain jurisdictions in which we operate may impose flagging requirements for vessels operating in that jurisdiction. We received notification from the Transport General Authority of Saudi Arabia in October 2020 requiring all rigs operating in Saudi Arabian territorial waters to be registered under the Saudi Arabian flag by March 2021. Registration under the Saudi flag requires the rig owning entity to be at least 51% owned by a local entity, which may have significant adverse implications on the cost of operating the rigs in the Kingdom. In February 2021, the Transport General Authority granted a three-year grace period to comply with this requirement to all affected shipping companies in the Kingdom. Whilst we will be able to rely on the extension for the time being and continue to operate in the Kingdom provided current operating licenses are renewed in the normal course, we are assessing the impact of any future requirement to register under
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the flag of Saudi Arabia (including the local ownership requirements) on our ability to win future contracts in the Kingdom, and intend to continue to contest the requirement to register our rigs in the Kingdom. If we are unable to negotiate a plan of reorganization and future debt documents which allow us to change the flag of registration and ownership of collateral rigs, and our attempts to obtain exemptions from the requirement are denied, we may not be able to operate in the Kingdom in the future. The situation in Saudi Arabia is difficult to predict and any inability to carry out operations in Saudi Arabia or any other jurisdiction as a result of our inability to comply with applicable laws and regulations might have an adverse effect on our results of operations.

The international nature of our operations involves additional risks including foreign government intervention in relevant markets, for example in Brazil.
We operate in various regions throughout the world. As a result of our international operations, we may be exposed to political and other uncertainties, particularly in less developed jurisdictions, including risks of:
terrorist acts, armed hostilities, war and civil disturbances;
acts of piracy, which have historically affected ocean-going vessels;
abduction, kidnapping and hostage situations;
significant governmental influence over many aspects of local economies;
the seizure, nationalization or expropriation of property or equipment;
uncertainty of outcome in foreign court proceedings;
the repudiation, nullification, modification or renegotiation of contracts;
limitations on insurance coverage, such as war risk coverage, in certain areas;
political unrest;
foreign and U.S. monetary policy and foreign currency fluctuations and devaluations;
the inability to repatriate income or capital;
complications associated with repairing and replacing equipment in remote locations;
import-export quotas, wage and price controls, and the imposition of trade barriers;
U.S., U.K., European Union and foreign sanctions or trade embargoes;
receiving a request to participate in an unsanctioned foreign boycott under U.S. law;
compliance with various jurisdictional regulatory or financial requirements;
compliance with and changes to taxation;
interacting and contracting with government-controlled organizations;
other forms of government regulation and economic conditions that are beyond our control;
legal and economic systems that are not as mature or predictable as those in more developed countries, which may lead to greater uncertainty in legal and economic matters; and
government corruption.

In addition, international contract drilling operations are subject to various laws and regulations of the countries in which we operate, including laws and regulations relating to:
the equipping and operation of drilling units;
exchange rates or exchange controls;
the repatriation of foreign earnings;
oil and gas exploration and development;
the taxation of offshore earnings and the earnings of expatriate personnel; and
the use and compensation of local employees and suppliers by foreign contractors.

Some foreign governments favor or effectively require (i) the awarding of drilling contracts to local contractors or to drilling rigs owned by their own citizens, (ii) the use of a local agent or (iii) foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices may adversely affect our ability to compete in those regions. It is difficult to predict what government regulations may be enacted in the future that could adversely affect the international drilling industry. The actions of foreign governments, including initiatives by OPEC, may adversely affect our ability to compete. Failure to comply with applicable laws and regulations, including those relating to sanctions and export restrictions, may subject us to criminal sanctions or civil remedies, including fines, the denial of export privileges, injunctions or seizures of assets.
In the years ended December 31, 2020, 2019 and 2018, 5%, 10% and 22%, respectively, of our revenues were derived from our Brazilian operations. The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, changes in interest rates, changes in tax policies, changes in legislation, wage controls, price controls, currency devaluations, capital controls and limits on imports of goods and services. Changes to fiscal and monetary policy, the regulatory environment of our industry, and legislation could impact our performance.
The Brazilian markets have experienced heightened volatility in recent years due to the uncertainties derived from the ongoing investigations being conducted by the Office of the Brazilian Federal Prosecutor, the Brazilian Federal Police, the Brazilian Securities Commission (Comissão de Valores Mobiliários), the Securities and Exchange Commission, the U.S. Department of Justice, and other Brazilian and foreign public authorities, including the largest such investigation known as Lava Jato, and the impact that such investigations have on the Brazilian economy and political environment. Numerous elected officials, public servants and executives and other personnel of large and state-owned
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companies have been subject to investigation, arrest, criminal charges and other proceedings in connection with allegations of political corruption, including the acceptance of bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas and construction companies, among others. The profits of these kickbacks allegedly financed the political campaigns of political parties that were unaccounted for or not publicly disclosed and served to personally enrich the recipients of the bribery scheme. Individuals who have had commercial arrangements with us have been identified in the Lava Jato investigations and the investigations by the Brazilian authorities are ongoing. On September 23, 2020, Seadrill's subsidiary Seadrill Serviços de Petroleo, Ltda was served with a search and seizure warrant from the Federal Police in Rio de Janeiro, Brazil as part of the phase of Operation Lava Jato relating to individuals formally associated with Seadrill Serviços. The outcome of certain of these investigations is uncertain, but they have already had an adverse impact on the business, image and reputation of the implicated companies, and on the general market perception of the Brazilian economy. We cannot predict whether such allegations will lead to further political and economic instability or whether new allegations against government officials or executives will arise in the future. We also cannot predict the outcome of any such allegations on the Brazilian economy, and the Lava Jato investigation including its recent phases, could adversely affect our business and operations. In addition, conservative presidential candidate Jair Bolsonaro assumed office on January 1, 2019. Uncertainty about the ability of the Bolsonaro administration to adopt and implement new policies may reduce investor and market confidence and we are unable to predict the political and economic direction of Brazil in coming years.

These and other developments in Brazil’s political conditions, economy and government policies may, directly or indirectly, adversely affect our business, financial condition and results of operations.
Compliance with, and breach of, the complex laws and regulations governing international trade could be costly, expose us to liability and adversely affect our operations.
Our business in the offshore drilling industry is affected by laws and regulations relating to the energy industry and the environment in the geographic areas where we operate.
Accordingly, we are directly affected by the adoption of laws and regulations that, for economic, environmental or other policy reasons, curtail exploration and development drilling for oil and gas. For example, in 2015 and 2016, the United States President issued three Presidential Memoranda and an Executive Order withdrawing certain areas of the Outer Continental Shelf in the Atlantic Coast, Alaska, and Arctic from mineral leasing under Section 12(a) of the Outer Continental Shelf Land Act (“OCSLA”). Canada issued a similar ban on new drilling in Canadian Arctic waters in December 2016. President Trump issued Executive Order 13795 on April 28, 2017, directing the Department of the Interior to reconsider prior actions to limit or regulate offshore oil and gas development and revoking the 2015 and 2016 withdrawals. Environmental groups challenged the Executive Order and the U.S. District Court for the District of Alaska vacated the portion of the Executive Order rolling back the withdrawals; the Trump Administration appealed the decision to the Court of Appeals for the Ninth Circuit, which remains pending. On January 20, 2021, President Biden issued Executive Orders revoking Executive Order 13795 and pausing new oil and gas leasing in federal waters, including the Gulf of Mexico, pending a comprehensive review of the leasing program. In addition, environmental groups have challenged numerous lease sales offered by the Department of the Interior under the 2017-2022 five-year lease program and that litigation remains pending. As a result it is difficult to predict if and when such areas may be made available for future exploration activities. We may be required to make significant capital expenditures or operational changes to comply with governmental laws and regulations. It is also possible that these laws and regulations may, in the future, add significantly to our operating costs or significantly limit drilling activity.

Import activities are governed by unique customs laws and regulations in each of the countries of operation. Moreover, many countries, including the United States, control the export and re-export of certain goods, services and technology and impose related export recordkeeping and reporting obligations.
The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. These laws and regulations may be enacted, amended, enforced or interpreted in a manner materially impacting our operations. Shipments can be delayed and denied export or entry for a variety of reasons, some of which are outside our control and some of which may result from the failure to comply with existing legal and regulatory regimes. Shipping delays or denials could cause unscheduled operational downtime. Any failure to comply with applicable legal and regulatory trading obligations could also result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from government contracts, the seizure of shipments, and the loss of import and export privileges.
Offshore drilling in certain areas, including arctic areas, has been curtailed and, in certain cases, prohibited because of concerns over protecting the environment.
New laws or other governmental actions that prohibit or restrict offshore drilling or impose additional environmental protection requirements that result in increased costs to the oil and gas industry, in general, or to the offshore drilling industry, in particular, could adversely affect our performance.
The amendment or modification of existing laws and regulations or the adoption of new laws and regulations curtailing or further regulating exploratory or development drilling and production of oil and gas could have a material adverse effect on our business, results of operations or financial condition. Future earnings may be negatively affected by compliance with any such new legislation or regulations.
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We are subject to complex environmental laws and regulations that can adversely affect the cost, manner or feasibility of doing business.
Our operations are subject to numerous international, national, state and local laws and regulations, treaties and conventions in force in international waters and the jurisdictions in which our drilling units operate or are registered, which can significantly affect the ownership and operation of our drilling units. These requirements include, but are not limited to:
conventions under the auspices of the United Nation’s International Maritime Organization (“IMO”);
the International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended (“MARPOL”);
the International Convention on Civil Liability for Oil Pollution Damage of 1969, as from time to time amended (“CLC”);
the International Convention on Civil Liability for Bunker Oil Pollution Damage (the “Bunker Convention”), the International Convention for the Safety of Life at Sea of 1974, as from time to time amended (“SOLAS”);
the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (the “ISM Code”);
the IMO International Convention on Load Lines of 1966, as from time to time amended, the International Convention for the Control and Management of Ships’ Ballast Water and Sediments in February 2004 (the “BWM Convention”);
EU Directive 2013/30 on the Safety of Offshore Oil and Gas Operations;
the U.S. Oil Pollution Act of 1990 (“OPA”);
requirements of the U.S. Coast Guard (“USCG”);
the U.S. Environment Protection Agency (“EPA”);
the U.S. Comprehensive Environmental Response;
Compensation and Liability Act (“CERCLA”)
the U.S. Maritime Transportation Security Act of 2002 (“MTSA”);
the U.S. Outer Continental Shelf Lands Act (“OCSLA”); and
certain regulations of the EU.

Compliance with such laws, regulations and standards, where applicable, may require installation of costly equipment or implementation of operational changes and may affect the resale value or useful lifetime of our drilling units. These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with them or the impact thereof on the resale prices or useful lives of our rigs. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may materially adversely affect our operations.
Certain environmental laws impose strict liability for the remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-mile exclusive economic zone around the United States. An oil or chemical spill, for which we are deemed a responsible party, could result in us incurring significant liability, including fines, penalties, criminal liability and remediation costs for natural resource damages under other federal, state and local laws, as well as third-party damages, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Future increased regulation of the shipping industry, or modifications to statutory liability schemes could, expose us to further potential financial risk in the event of any such oil or chemical spill.
We and, in certain circumstances, our customers are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations, and satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have arranged insurance to cover certain environmental risks, such insurance is subject to exclusions and other limits, and there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows and financial condition.
Although our drilling units are separately owned by our subsidiaries, under certain circumstances a parent company and all of the unit-owning affiliates in a group under common control engaged in a joint venture could be held liable for damages or debts owed by one of the affiliates, including liabilities for oil spills under OPA or other environmental laws. Therefore, it is possible that we could be subject to liability upon a judgment against us or any one of our subsidiaries.
Our drilling units could cause the release of oil or hazardous substances. Any releases may be large in quantity, above our permitted limits or occur in protected or sensitive areas where environmental groups or governmental authorities have special interests. Any releases of oil or hazardous substances could result in fines and other costs to us, such as costs to upgrade our drilling rigs, clean up the releases and comply with more stringent requirements in our discharge permits, as well as subject us to third party claims for damages, including natural resource damages. Moreover, these releases may result in our customers or governmental authorities suspending or terminating our operations in the affected area, which could have a material adverse effect on our business, results of operations and financial condition.
If we are able to obtain from our customers some degree of contractual indemnification against pollution and environmental damages in our contracts, such indemnification may not be enforceable in all instances or the customer may not be financially able to comply with its indemnity obligations in all cases, and we may not be able to obtain such indemnification agreements in the future. In addition, a court may decide that certain indemnities in our current or future contracts are not enforceable.
The insurance coverage we currently hold may not be available in the future, or we may not obtain certain insurance coverage. Even if insurance is available and we have obtained the coverage, it may not be adequate to cover our liabilities, or our insurance underwriters may be
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unable to pay compensation if a significant claim should occur. Any of these scenarios could have a material adverse effect on our business, results of operations and financial condition.
Failure to comply with international anti-corruption legislation, including the U.S. Foreign Corrupt Practices Act 1977 or the U.K. Bribery Act 2010, could result in fines, criminal penalties, damage to our reputation and drilling contract terminations.

We currently operate, and historically have operated, our drilling units in a number of countries throughout the world, including some with developing economies. We interact with government regulators, licensors, port authorities and other government entities and officials. Also, our business interaction with national oil companies as well as state or government-owned shipbuilding enterprises and financing agencies puts us in contact with persons who may be considered to be “foreign officials” under the U.S. Foreign Corrupt Practices Act of 1977 or the FCPA and the Bribery Act 2010 of the United Kingdom or the U.K. Bribery Act.

In order to effectively compete in some foreign jurisdictions, we utilize local agents and/or establish entities with local operators or strategic partners. All of these activities may involve interaction by our agents with government officials. Even though some of our agents and partners may not themselves be subject to the FCPA, the U.K. Bribery Act or other anti-bribery laws to which we may be subject, if our agents or partners make improper payments to government officials or other persons in connection with engagements or partnerships with us, we could be investigated and potentially found liable for violations of such anti-bribery laws and could incur civil and criminal penalties and other sanctions, which could have a material adverse effect on our business and results of operation.

We are subject to the risk that we or our affiliated companies or their respective officers, directors, employees and agents may take actions determined to be in violation of anti-corruption laws, including the FCPA and the U.K. Bribery Act. Any such violation could result in substantial fines, disgorgement, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

If our drilling units are located in countries that are subject to, or targeted by, economic sanctions, export restrictions, or other operating restrictions imposed by the United States, the United Kingdom, European Union or other governments, our reputation and the market for our debt and common shares could be adversely affected.

The U.S., the U.K., European Union or and other governments may impose economic sanctions against certain countries, persons and other entities that restrict or prohibit transactions involving such countries, persons and entities. U.S. sanctions in particular are targeted against countries (such as Russia, Venezuela, Iran and others) that are heavily involved in the petroleum and petrochemical industries, which includes drilling activities. U.S., U.K., European Union and other economic sanctions change frequently and enforcement of economic sanctions worldwide is increasing.

In 2010, the United States enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which expanded the scope of the former Iran Sanctions Act. Among other things, CISADA expands the application of sanctions to non-U.S. companies such as ours and introduced limits on such companies and persons that do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. On August 10, 2012, the U.S. signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction Act, which places further restrictions on the ability of non-U.S. companies to do business or trade with Iran and Syria. Perhaps the most significant provision in the Iran Threat Reduction Act is that prohibitions in the existing Iran sanctions applicable to U.S. persons will now apply to any foreign entity owned or controlled by a U.S. person. Another major provision in the Iran Threat Reduction Act is that issuers of securities must disclose in their annual and quarterly reports filed with the Commission after February 6, 2013 if the issuer or “any affiliate” has “knowingly” engaged in certain activities involving Iran during the timeframe covered by the report. At this time, we are not aware of any activities conducted by us or by any affiliate, which is likely to trigger such a disclosure requirement. On January 2, 2013, the U.S. signed into law the Iran Freedom and Counter-Proliferation Act of 2012 (“IFCA”), as a part of the National Defense Authorization Act for Fiscal Year 2013. Among other measures, IFCA authorizes broad sanctions on certain activities related to Iran’s energy, shipping, and shipbuilding sectors.

On July 14, 2015, the P5+1 and the European Union (“E.U.”), at that time including the U.K., announced that they reached a landmark agreement with Iran titled the Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program, or the JCPOA, to significantly restrict Iran’s ability to develop and produce nuclear weapons for 10 years while simultaneously easing sanctions directed toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S. jurisdiction and not involving U.S. persons. On January 16, 2016, or the Implementation Day, the United States joined the E.U. and the U.N. in lifting a significant number of their nuclear-related sanctions on Iran following an announcement by the International Atomic Energy Agency, or the IAEA, that Iran had satisfied its respective obligations under the JCPOA.

On May 8, 2018, the U.S. announced that it would be withdrawing from the JCPOA. On August 6, 2018, the U.S. issued Executive Order 13846 which reimposed certain sanctions on Iran effective as of that date and set the reimposition of additional sanctions on Iran effective November 5, 2018. On November 5, 2018, following a wind-down period, the U.S. completed the reimposition of nuclear-related sanctions against Iran that it had previously lifted in connection with the JCPOA. Since that time the U.S. has issued additional Executive Orders imposing sanctions with respect to Iran.

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The Office of Foreign Assets Control (“OFAC”) acted several times over 2019 and 2018 to add Iranian individuals and entities to its list of Specially Designated Nationals whose assets are blocked and with whom U.S. persons are generally prohibited from dealing, including re-adding on November 5, 2018, hundreds of individuals and entities that had previously been delisted in connection with the JCPOA. Further, OFAC issued sanctions on specific sectors of the Iranian economy, including the iron, steel, aluminum, and copper sectors (May 8, 2019), the construction, mining, manufacturing, or textiles sectors (January 10, 2020), and the financial sector (October 8, 2020). These sector-wide sanctions also authorize the imposition of secondary sanctions on non-U.S. persons and non-U.S. financial institutions who engage in certain dealings in those sectors, including the potential designation of such persons or financial institutions themselves.

In August 2017, the U.S. passed the “Countering America’s Adversaries Through Sanctions Act” (Public Law 115-44) (“CAATSA”), which authorizes imposition of new sanctions on Iran, Russia, and North Korea. The CAATSA sanctions with respect to Russia create heightened sanctions risks for companies operating in the oil and gas sector, including companies that are based outside of the United States. OFAC sanctions targeting Venezuela have likewise increased in the past year, and any new sanctions targeting Venezuela could further restrict our ability to do business in such country. On January 28, 2019, OFAC added the Venezuelan state-owned oil company, Petróleos de Venezuela, S.A. (“PdVSA”), to its List of Specially Designated Nationals and Blocked Persons, increasing the sanctions risk for companies operating in the oil sector. Subsequently, on August 5, 2019, the U.S. issued Executive Order 13884 which further increased sanctions on Venezuela and blocked the entire Government of Venezuela. OFAC has also imposed sanctions on non-Venezuelan firms for operating in Venezuela. On February 18, 2020, OFAC imposed sanctions on Switzerland-based firm Rosneft Trading S.A., due to its operations in the oil sector of Venezuela. On November 30, 2020, OFAC imposed sanctions on the Chinese state owned entity China National Electronics Imports and Export Corporation (“CEIEC”) for providing support to Venezuela government entities.

In addition to the sanctions against Iran, Russia, and Venezuela, subject to certain limited exceptions, U.S. law continues to restrict U.S. owned or controlled entities from doing business with Cuba and various U.S. sanctions have certain other extraterritorial effects that need to be considered by non-U.S. companies. Moreover, any U.S. persons who serve as officers, directors or employees of our subsidiaries would be fully subject to U.S. sanctions. It should also be noted that other governments are more frequently implementing and enforcing sanctions regimes.

On December 14, 2020, the United States Department of State rescinded its designation of Sudan as a state sponsor of terror. Though U.S. comprehensive sanctions on Sudan had previously been lifted in 2017, certain sanctions and export requirements on Sudan remained. The removal of Sudan’s status as a state sponsor of terror has not immediately resulted in a change in sanctions or export restrictions, though OFAC and the U.S. Department of Commerce may engage in a rule making process that will result in certain export license exceptions being applicable for exports to Sudan.

On December 18, 2020, the U.S. Department of Commerce Bureau of Industry and Security (“BIS”) designated a number of Chinese parties on the Entity List, including parties involved in the offshore drilling and maritime industries such as China Communications Construction Company Ltd. Most items subject to the Export Administration Regulations (“EAR”) now require a license to export or reexport to such parties. On January 14, 2021, BIS added Chinese National Offshore Oil Corporation to the Entity List. On December 23, 2020, BIS also established a Military End User List (“MEUL”) and designated over 100 parties from China and Russia on the MEUL, including those in the offshore drilling and maritime industries. Certain items subject to the EAR require a license from BIS to export or reexport to such parties.

From time to time, we may enter into drilling contracts with countries or government-controlled entities that are subject to sanctions, export restrictions and embargoes imposed by the U.S. government and/or identified by the U.S. government as state sponsors of terrorism where entering into such contracts would not violate U.S. law, or may enter into drilling contracts involving operations in countries or with government-controlled entities that are subject to sanctions and embargoes imposed by the U.S. government and/or identified by the U.S. government as state sponsors of terrorism. However, this could negatively affect our ability to obtain investors. In some cases, U.S. investors would be prohibited from investing in an arrangement in which the proceeds could directly or indirectly be transferred to or may benefit a sanctioned entity. Moreover, even in cases where the investment would not violate U.S. law, potential investors could view such drilling contracts negatively, which could adversely affect our reputation and the market for our Shares. We do not currently have any drilling contracts or plans to initiate any drilling contracts involving operations in countries or with government-controlled entities that are subject to sanctions and embargoes imposed by the U.S. government and/or identified by the U.S. government as state sponsors of terrorism.

Certain parties with whom we have entered into contracts may be or may be affiliated with persons or entities that are, the subject of sanctions imposed by the United States, the U.K., the E.U. or other international bodies as a result of the annexation of Crimea by Russia in March 2014 and the subsequent conflict in eastern Ukraine, or malicious cyber-enabled activities. If we determine that such sanctions require us to terminate existing contracts or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected, or we may suffer reputational harm. Such sanctions may prevent us from performing some or all of our obligations under any potential drilling contracts with Rosneft, which could impact our future revenue, contract backlog and results of operations, and adversely affect our business reputation. We may also lose business opportunities to companies that are not required to comply with these sanctions.

As stated above, we believe that we are in compliance with all applicable economic sanctions and embargo laws and regulations and intend to maintain such compliance. However, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Rapid changes in the scope of global sanctions may also make it more difficult for us to remain in compliance. Any violation of applicable economic sanctions could result in civil or criminal penalties, fines, enforcement actions, legal costs, reputational damage, or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in our Shares. Additionally, some investors may decide to divest their interest, or not to invest, in our Shares simply because we may do business with companies that do business in sanctioned countries. Moreover, our drilling contracts may
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violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us, or our drilling rigs, and those violations could in turn negatively affect our reputation. Investor perception of the value of our Shares may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.

We have suffered, and may continue to suffer, losses through our investments in other companies in the offshore drilling and oilfield services industry, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We currently hold investments in several other companies in our industry that own/operate offshore drilling rigs with similar characteristics to our fleet of rigs or deliver various other oilfield services. These investments include equity interests in Seadrill Partners, SeaMex, Sonadrill, Gulfdrill, Archer and Seabras Sapura. In addition, we have provided subordinated loans to Seamex and Seabras Sapura and have various intercompany arrangements with Seadrill Partners, Seamex, Sonadrill and Gulfdrill. These arrangements include management and administrative services agreements pursuant to which we provide Seadrill Partners, Seamex and Sonadrill with certain management and administrative services charged primarily on a cost-plus mark-up basis.

As at December 31, 2020, the carrying value of our equity investments in these companies was $248 million. In addition, we had loan and trade receivables due from related parties with a carrying value of $477 million. Please see Note 17 – "Marketable securities", Note 20 – "Investment in associated companies", and Note 32 – "Related party transactions" to the Consolidated Financial Statements included herein.

The market value of our equity interest in these companies has been, and may continue to be, volatile and has fluctuated, and may continue to fluctuate, in response to changes in oil and gas prices and activity levels in the offshore oil and gas industry. If we sell our equity interest in an investment at a time when the value of such investment has fallen, we may incur a loss on the sale or an impairment loss being recognized, ultimately leading to a reduction in earnings. Furthermore, dividends from

On December 1, 2020, Seadrill Partners and 28 affiliated debtors filed for Chapter 11 bankruptcy protection with the United States Bankruptcy Court for the Southern District of Texas. We own 35 percent of the outstanding common units of Seadrill Partners, 100% of Seadrill Partner’s subordinated units, and through Seadrill Member LLC, all of Seadrill Partners’ incentive distribution rights. Seadrill Partners filed for Chapter 11 protection with the stated purpose of restructuring and/or replacing management services with us to maximize value. Seadrill Partners further cites the November 25, 2020 settlement of rights under the Amended and Restated Management and Administrative Services Agreement, dated as of September 11, 2017 (the “MSA”), to settle approximately $24 million in various claims. On February 3, 2021 Seadrill Partners entered into a management agreement with Energy Drilling to maintain, market and operate the Seadrill Partners owned tender rigs T-15, T-16 and West Vencedor. The agreement started a 90-day transition period of services provided by us to Energy Drilling which ends on May 1, 2021. During the transition period, our management will be required to spend a significant amount of time and effort focusing on the transition and customer relationships and communication as well as focusing on our business operations.This diversion of attention may have an adverse effect on the conduct of our business. Additionally, income from management and administrative services provided to Seadrill Partners will decrease, adversely impacting our cashflows. On February 10, 2021, Seadrill Partners submitted a motion for the approval of a new framework agreement with Vantage Drilling for certain rigs in the Seadrill Partners fleet. Although the outcome of that hearing and how much of the management services we currently provide to Seadrill Partners will ultimately be transitioned to Vantage Drilling or other third parties are not clear, a full or partial transition may result in further loss of management fee income and also reduce our ability to capitalize on greater economies of scale that exist by having a larger managed fleet. As a result, our result of operations may be reduced or cancelled going forward as they have been in the past. adversely impacted.

In current market conditions, we may consider entering into joint venture arrangements where each joint venture partner bareboatsbareboat charters their rigs into the joint venture entity. Through such a structure, we would seek to manage and operate all joint venture rigs and enable the Group to access additional markets, increase presence in a particular market or secure drilling contracts from counterparties who may only be willing to grant those drilling contracts pursuant to or as part of implementing a joint venture with us. However, any financial return from drilling contracts entered into in respect of our rig will be diluted to the shareholding percentage we hold in the joint venture entity and financial success of the joint venture will depend on the management fee rates we are able to agree with our joint venture partner.
During the years ended December 31, 20172020 and 20162019 we recognized charges of $841$47 million and $895$302 million respectively relating to certain of our investments due to declining dayrates and future market expectations for dayrates in the sector. Please see Note 1113 - Impairment"Impairment loss on marketable securities and investments in associated companiescompanies" to ourthe Consolidated Financial Statements included herein for furthermore information.

Our ability to operate our drilling units in the U.S. Gulf of Mexico could be impaired by governmental regulation, particularly in the aftermath of the moratorium on offshore drilling in the U.S. Gulf of Mexico, and new regulations adopted as a result of the investigation into the Macondo well blowout.

In the aftermath of the Deepwater Horizon Incident (in which we were not involved), various governmental agencies, including the U.S Department of the Interior, U.S. Bureau of Safety and Environmental Enforcement or the BSEE(“BSEE”) and its predecessor, the U.SU.S. Bureau of Ocean Energy Management or BOEM,(“BOEM”), and the U.S. Occupational Safety and Health Administration (“OSHA”), issued new and revised regulations and guidelines governing safetyenvironmental protection, public and environmental management, occupational injuriesworker health and illnesses,safety, financial assurance requirements, inspection programs and other well control measuremeasures relating to our drilling rigs.

In order to obtain drilling permits, operators must submit applications that demonstrate compliance with the enhanced regulations, which require independent third-party inspections, certification of well design and well control equipment and emergency response plans in the event of a blowout, among other requirements. Operators have previously had, and may in the future have, difficulties obtaining drilling permits in the U.S. Gulf of Mexico.
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In addition, the oil and gas industry has adopted new equipment and operating standards, such as the American Petroleum Institute Standard 53 relating to the design, maintenance, installation and testing of well control equipment. Current and pending regulations, guidelines and standards for safety, environmental and financial assurance such as the above and any other new guidelines or standards the U.S. government or industry may issue (including relating to the Deepwater Horizon Incident or the other catastrophic events involving pollution from oil exploration and development activities) or any other steps the U.S. government or industry may take relating to our business activities, could disrupt or delay operations, increase the cost of operations, increase out-of-service time or reduce the area of operations for drilling rigs in U.S. and non-U.S. offshore areas.

As new standards and procedures are being integrated into the existing framework of offshore regulatory programs, there may be increased costs associated with regulatory compliance and delays in obtaining permits for other operations such as re-completions, workovers and abandonment activities.

We are not able to predict the likelihood, nature or extent of additional rulemaking or when the interim rules, or any future rules, could become final. The current and future regulatory environment in the U.S. Gulf of Mexico could impact the demand for drilling units in the U.S. Gulf of Mexico in terms of overall number of rigs in operations and the technical specification required for offshore rigs to operate in the U.S. Gulf of Mexico. Additional governmental regulations concerning licensing, taxation, equipment specifications, training requirements or other matters could increase the costs of our operations, and escalating costs borne by our customers, along with permitting delays, could reduce exploration and development activity in the U.S. Gulf of Mexico and, therefore, reduce demand for our services. In addition, insurance costs across the industry have increased as a result of the Deepwater Horizon Incident and, in the future, certain insurance coverage is likely to become more costly, and may become less available or not available at all. We cannot predict the potential impact of new regulations that may be forthcoming, nor can we predict if implementation of additional regulations might subject us to increased costs of operating and/or a reduction in the area of operation in the U.S. Gulf of Mexico. As such, our cash flowflows and financial position could be adversely affected if our ultra-deepwater semi-submersible drilling rigs and ultra-deepwater drillships operating in the U.S. Gulf of Mexico were subject to the risks mentioned above.

In addition, hurricanes have from time to time caused damage to a number of drilling units and production facilities unaffiliated to us in the Gulf of Mexico. The BOEM and the BSEE, have in recent years issued more stringent guidelines for tie-downs on drilling units and permanent equipment and facilities attached to outer continental shelf production platforms, moored drilling unit fitness, as well as other guidelines and regulations in an attempt to increase the likelihood of the survival of offshore drilling units during a hurricane. Implementation of new guidelines or regulations that may apply to our drilling units may subject us to increased costs and limit the operational capabilities of our drilling units.


Failure to obtain or retain highly skilled personnel, and to ensure they have the correct visas and permits to work in the locations in which they are required, could adversely affect our operations.

We require highly skilled personnel in the right locations to operate and provide technical services and support for our business.
Competition for skilled and other labor required for our drilling operations has increased in recent years as the number of rigs activated or added to worldwide fleets has increased, and this may continue to rise. Notwithstanding the general downturn in the drilling industry, in some regions, such as Brazil and Western Africa, the limited availability of qualified personnel in combination with local regulations focusing on crew composition, are expected to further increase the demand for qualified offshore drilling crews, which may increase our costs. These factors could further create and intensify upward pressure on wages and make it more difficult for us to staff and service our rigs. Such developments could adversely affect our financial results and cash flow.flows. Furthermore, as a result of any increased competition for qualified personnel, or as a result of our Chapter 11 Proceedings or our ongoing comprehensive restructuring negotiations, we may experience a reduction in the experience level of our personnel, which could lead to higher downtime and more operating incidents.

Our ability to operate worldwide, depends on our ability to obtain the necessary visas and work permits for our personnel to travel in and out of, and to work in, the jurisdictions in which we operate. Governmental actions in some of the jurisdictions in which we operate may make it difficult for us to move our personnel in and out of these jurisdictions by delaying or withholding the approval of these permits. If we are not able to obtain visas and work permits for the employees we need for operating our rigs on a timely basis, or for third-party technicians needed for maintenance or repairs, we might not be able to perform our obligations under our drilling contracts, which could allow our customers to cancel the contracts. Please see “-OurOur customers may seek to cancel or renegotiate their contracts to include unfavorable terms such as unprofitable rates, particularly in the circumstance that operations are suspended or interrupted."interrupted” for more information.

Labor costs and our operating restrictions that apply could increase following collective bargaining negotiations and changes in labor laws and regulations.

Some of our employees are represented by collective bargaining agreements. The majority of these employees work in Brazil, Mexico, Nigeria, Norway and the United Kingdom. In addition, some of our contracted labor works under collective bargaining agreements. As part of the legal obligations in some of these agreements, we are required to contribute certain amounts to retirement funds and pension plans and are restricted in our ability to dismiss employees. In addition, many of these represented individuals are working under agreements that are subject to salary negotiation. These negotiations could result in higher personnel costs, other increased costs or increased operating restrictions that could adversely affect our financial performance.
Interest rate fluctuations could affect our earnings and cash flow.
In order to finance our growth, we have incurred significant amounts of debt. The majority of our debt arrangements have floating interest rates. As such, following our emergence from Chapter 11 Proceedings, significant movements in interest rates could have an adverse effect on our earnings and cash flow. We had previously managed our exposure to interest rate fluctuations through interest rate swaps that effectively fixed a part of our floating rate debt obligations. These swaps were terminated on September 13, 2017 as a result of entering Chapter 11. However, on May 11, 2018 we entered into an agreement to hedge part of our interest rate risk. Please see "ITEM 11 - Quantitative and qualitative disclosures about market risk" for further details of our use of derivatives to mitigate exposures to interest rate risk.
If we are unable to effectively manage our interest rate exposure through interest rate derivatives in the future, any increase in market interest rates would increase our interest rate exposure and debt service obligations, which would exacerbate the risks associated with our leveraged capital structure.
In addition, the United Kingdom Financial Conduct Authority (the “FCA”), which regulates LIBOR, has announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021 (the “FCA Announcement”). The FCA Announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021. Significant increases in LIBOR or uncertainty surrounding its phase out after 2021 could adversely affect our business, financial condition and results of operations.

Fluctuations in exchange rates and the non-convertibility of currencies could result in losses to us.
As a result of our international operations, we are exposed to fluctuations in foreign exchange rates due to revenues being received and operating expenses paid in currencies other than U.S. dollars. Accordingly, we may experience currency exchange losses if we have not adequately hedged our exposure to a foreign currency, or if revenues are received in currencies that are not readily convertible. We may also be unable to collect revenues because of a shortage of convertible currency available in the country of operation, controls over currency exchange or controls over the repatriation of income or capital.
We use the U.S. dollar as our functional currency because the majority of our revenues and expenses are denominated in U.S. dollars. Accordingly, our reporting currency is also U.S. dollars. We do, however, earn revenues and incur expenses in other currencies, such as Norwegian kroner, U.K. pounds sterling, Brazilian real, Nigerian naira, and Angolan kwanza and there is a risk that currency fluctuations could have an adverse effect on our statements of operations and cash flows.
Brexit, or similar events in other jurisdictions, can impact global markets, which may have an adverse impact on our business and operations as a result of changes in currency, exchange rates, tariffs, treaties and other regulatory matters.
A change in tax laws in any country in which we operate could result in higher tax expense.

We conduct our operations through various subsidiaries in countries throughout the world. Tax laws, regulations and treaties are highly complex and subject to interpretation. Consequently, we are subject to changing tax laws, regulations and treaties in and between the countries in which we operate, including treaties between the United States and other nations. Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. A change in these tax laws, regulations or treaties, including those in and involving the United States, or in the interpretation thereof, or in the valuation of our deferred tax assets, which is beyond our control, could result in a materially higher tax expense or a higher effective tax rate on our worldwide earnings.
In addition, the United States in December 2017 enacted major tax reform legislation.  This is likely to continue to have a material impact on the amount of overall U.S. tax expense of the Group due to reduced effective tax deductions for certain payments our U.S. operating companies make to non-U.S. rig owners and other group and affiliated companies.
A loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries could result in a higher tax rate on our worldwide earnings, which could result in a significant negative impact on our earnings and cash flows from operations.
Our income tax returns are subject to review and examination. We do not recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries; or if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure; or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could increase substantially and our earnings and cash flows from operations could be materially adversely affected.
A change in laws and regulations in any country in which we operate could have a negative impact on our business
During 2017, the European Union Economic and Financial Affairs Council released a list of non-cooperative jurisdictions for tax purposes. The stated aim of the list, and accompanying report, was to promote good governance worldwide in order to maximize efforts to prevent tax fraud and tax evasion. Bermuda was not on the list of non-cooperative jurisdictions, but did feature in the report as having committed to address concerns relating to economic substance by December 31, 2018. In accordance with that commitment, Bermuda enacted the Economic Substance Act 2018 (the “ESA”) in December 2018. The ESA requires each registered entity to maintain a substantial economic presence in Bermuda and provides that a registered entity that carries on a relevant activity complies with economic substance requirements if (i) it is directed and managed in Bermuda, (ii) its core income-generating activities (as may be further prescribed) are undertaken in Bermuda with respect to the relevant activity, (iii) it maintains adequate physical presence in Bermuda, (iv) it has adequate full time employees in Bermuda with suitable qualifications and (v) it incurs adequate operating expenditure in Bermuda in relation to the relevant activity. A registered entity that carries on a relevant activity is obliged under the ESA to file a declaration with the Bermuda Registrar of Companies on an annual basis containing certain information. At present, the impact of the ESA is unclear and it is impossible to predict the nature and effect of these requirements on the Company and its subsidiaries incorporated in Bermuda. We are currently evaluating the potential effect ESA will have on the Company and its Bermuda subsidiaries.
Climate change and the regulation of greenhouse gases could have a negative impact on our business.

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Due to concern over the risk of climate change, a number of countries, the European UnionE.U. and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions in the shipping industry. For example, ships (including rigs and drillships) must comply with IMO and European UnionE.U. regulations relating to the collection and reporting of data relating to greenhouse gas emissions. In April 2018, the IMO adopted a strategy to, among other things, reduce the 2008 level of greenhouse gas emissions from the shipping industry by 50% by the year 2050.

Other governmental bodies, such as the United StatesU.S. Environmental Protection Agency and the State of California, also may regulatebegin regulating greenhouse gas emissions from shipping sources in the future. The future of such regulations is difficult to predict because the requirements continue to evolve.predict.

Compliance with existing regulations and changes in laws, regulations and obligations relating to climate change could increase our costs to operate and maintain our assets, and might also require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions, or administer and manage a greenhouse gas emissions program. Any passage of climate control legislation or other regulatory initiatives by the IMO, the European Union,E.U., the United States or other countriesjurisdictions in which we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol, which restricts emissions of greenhouse gases, could require us to make significant financial expenditures which we cannot predict with certainty at this time.

Additionally, adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also adversely affect demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for the use of alternative energy sources. In addition, parties concerned about the potential effects of climate change have directed their attention at sources of funding for energy companies, which has resulted in certain financial institutions, funds and other sources of capital, restricting or eliminating their investment in or lending to oil and gas activities. Any material adverse effect on the oil and gas industry relating to climate change concerns could have a significant adverse financial and operational impact on our business and operations.

Finally, the impacts of severe weather, such as hurricanes, monsoons and other catastrophic storms, resulting from climate change could cause damage to our equipment and disruption to our operations and cause other financial and operational impacts, including impacts on our major customers.



Acts of terrorism, piracy, cyber-attack, political and social unrest could affect the markets for drilling services, which may have a material and adverse effect on our results of operations.

Acts of terrorism, piracy, and political and social unrest, brought about by world political events or otherwise, have caused instability in the world’s financial and insurance markets in the past and may occur in the future. Such acts could be directed against companies such as ours. Our drilling operations could also be targeted by acts of sabotage carried out by environmental activist groups.

We rely on information technology systems and networks in our operations and administration of our business. Our drilling operations or other business operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to an unauthorized release of information or alteration of information on our systems. Any such attack or other breach of our information technology systems could have a material adverse effect on our business and results of operations.

In addition, acts of terrorism and social unrest could lead to increased volatility in prices for crude oil and natural gas and could affect the markets for drilling services and result in lower dayrates. Insurance premiums could also increase and coverage may be unavailable in the future. Increased insurance costs or increased costs of compliance with applicable regulations may have a material adverse effect on our results of operations.

Our drilling contracts with national oil companies may expose us to greater risks than we normally assume in drilling contracts with non-governmental customers.

We currently own and operate rigs that are contracted with national oil companies.The terms of these contracts are often non-negotiable and may expose us to greater commercial, political and operational risks than we assume in other contracts, such as exposure to materially greater environmental liability, personal injury and other claims for damages (including consequential damages), or the risk that the contract may be terminated by our customer without cause on short-term notice, contractually or by governmental action, under certain conditions that may not provide us with an early termination payment. We can provide no assurance that the increased risk exposure will not have an adverse impact on our future operations or that we will not increase the number of rigs contracted to national oil companies with commensurate additional contractual risks.

We cannot guarantee that the use of our drilling units will not infringe the intellectual property rights of others.

The majority of the intellectual property rights relating to our drilling units and related equipment are owned by our suppliers. In the event that one of our suppliers becomes involved in a dispute over an infringement of intellectual property rights relating to equipment owned by us, we may lose access to repair services or replacement parts or could be required to cease using some equipment. In addition, our competitors may assert claims for infringement of intellectual property rights related to certain equipment on our drilling units and we may be required to stop using such equipment and/or pay damages and royalties for the use of such equipment. The consequences of these technology disputes involving our suppliers or competitors could adversely affect our financial results and operations. We have indemnity provisions in some of
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our supply contracts to give us some protection from the supplier against intellectual property lawsuits. However, we cannot make any assurances that these suppliers will have sufficient financial standing to honor their indemnity obligations or guarantee that the indemnities will fully protect us from the adverse consequences of such technology disputes. We also have provisions in some of our client contracts to require the client to share some of these risks on a limited basis, but we cannot provide assurance that these provisions will fully protect us from the adverse consequences of such technology disputes. For information on certain intellectual property litigation that we are currently involved in, please see Note 35 - “Commitments and contingencies” to the Consolidated Financial Statements included herein.

We depend on directors who are associated with affiliated companies, which may create conflicts of interest.

Our largest shareholder is Hemen. Three of our directors also serve as directors of other companies affiliated with Hemen. Our directors owe fiduciary duties to both us and other related parties and may have conflicts of interest in matters involving or affecting us and our customers. Please see Item 6 - "Directors, senior management and employees - C. Board practices" for more information.

We have agreed to market certain rigs of our affiliated entity, NOL, which may create conflicts of interest.

We executed an agreement with NODL for the commercial management of certain of the rigs acquired by our affiliated entity, NODL, which subsequently novated its rights and obligations to NOL.

To date, we have entered into drilling contracts in respect of certain NOL units directly with customers with back-to-back arrangements in place between us and NOL to allocate risk and liability back to NOL commensurate with the structure. Ultimately, we are exposed to the creditworthiness of NOL, to the extent that we have an exposure to the customer under the drilling contract and seek recovery under the back-to-back arrangements. We earn an incentivized management fee from NOL that is intended to reward us for the services we provide and the risks that we are exposed to as well as providing a right of first refusal for purchase of the unit. We currently have stacked rigs that were available but not competitive from a technical or cost perspective compared with the NOL units that secured drilling contracts through us.

The COVID-19 pandemic and recent developments in the oil and gas industry could adversely impact our financial condition and results of operations.

The COVID-19 pandemic and related public health measures implemented by governments worldwide have negatively impacted the global macroeconomic environment and resulted in a sharp decline in global oil demand and prices. As of February 2021, crude oil prices haverecovered from the historic lows seen in the first half of 2020 and are approaching 2019 prices. Our customers have generally lowered their capital expenditure plans, in many cases significantly, in light of revised pricing expectations. To date, there have been various impacts from the pandemic and the resultant drop in oil prices, including contract cancellations and the cancellation of drilling programs by operators, contract concessions, stacking rigs, inability to change crews due to travel restrictions, and workforce reductions. Our operations and business may be subject to further disruptions as a result of the spread of coronavirus among our workforce, the extension or imposition of further public health measures affecting our supply chain and logistics, and the impact of the pandemic on key customers, suppliers, and other counterparties. Oil prices are expected to continue to be volatile as a result of the near-term production instability, ongoing COVID-19 outbreaks, the implementation of vaccination programs and the related impact on overall economic activity, changes in oil inventories, industry demand and global and national economic performance.

Risks Relating to Our Shareholders
Our filing for Chapter 11 protection within the US Bankruptcy Code could result in a significant reduction or elimination of current shareholder positions.
We and a substantial number of our consolidated subsidiaries filed voluntary petitions for relief under Chapter 11. This was part of our previously announced efforts to re-align our balance sheet to current market conditions by materially reducing our overall level of indebtedness. The filing for Chapter 11 provides a platform with respect to a comprehensive restructuring of our debt under Chapter 11 Proceedings. The outcome of this process and future capital structure remain in negotiation. It is likely to involve significant equitization of debt and thereby material reductions to current shareholders positions. Accordingly investors may lose part or the full value of their investments.
The price of the Shares may be volatile or may decline regardless of our operating performance, and investors may not be able to resell the Shares at or above their initial purchase price.
The market price for the Shares may be volatile and may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others:
announcements concerning the offshore drilling market, including changes in oil and gas prices and the state of the global economy and market outlook for our various geographical operating sectors and classes of rigs;
fluctuations in the market value of our drilling units and the amount of debt we can incur under certain covenants in its current and future debt financing agreements;
general and industry-specific economic conditions;
changes in financial estimates or recommendations by securities analysts or failure to meet analysts’ performance expectations;
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additions or departures of key members of management;
any increased indebtedness we incur in the future;
speculation or reports by the press or investment community with respect to Seadrill or Seadrill Partners, or the industry in general;
announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments;
changes or proposed changes in laws or regulations affecting the oil and gas industry or enforcement of these laws and regulations, or announcements relating to these matters; and
general market, political and economic conditions, including any such conditions and local conditions in the markets in which we operate.
These and other factors may lower the market price of the Shares, regardless of our actual operating performance. In the event of a drop in the market price of the Shares, investors could lose a substantial part or all of its investment in the Shares. In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Shareholders may initiate securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from the business, which could have a negative effect on the results of operations and thus the price for the Shares.
The market price of our Shares has fluctuated widely and may fluctuate widely in the future.

The market price of our Shares has fluctuated widely and may continue to do so as a result of many factors, such as actual or anticipated fluctuations in our operating results, the outcome of our amendment negotiations with lenders under our credit facilities, changes in financial estimates by securities analysts, economic and regulatory trends, general market conditions, rumors and other factors, many of which are beyond our control. Further, there may be no continuing active or liquid public market for our Shares. If an active trading market for our Shares does not continue, the price of our Shares may be more volatile and it may be more difficult and time consuming to complete a transaction in our Shares, which could have an adverse effect on the realized price of our Shares. In addition, an adverse development in the market price for our Shares could negatively affect our ability to issue new equity to fund our activities.

We voluntarily delisted our Shares from the NYSE which could reduce the liquidity and market price of our shares.

On June 1, 2020, our Board of Directors approved the voluntarily withdrawal of our Shares from listing on the NYSE. We filed a Form 25 with the SEC on June 11, 2020 in order to delist our Shares from the NYSE, which occurred ten days thereafter upon effectiveness of the Form 25. Accordingly, our last day of trading on the NYSE was on June 19, 2020, the last trading day prior to the effectiveness of the Form 25. While the Company's common shares are currently traded on the OTCQX market, an electronic inter-dealer quotation system based in the United States, our OSE listing is now our sole listing, subject to our compliance with the OSE’s continued listing standards.

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

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

Additionally, if our Shares were delisted from the OSE and we are not able to list such securities on another appointed stock exchange (as defined in the Bermuda Monetary Authority notice to the public dated June 1, 2005 (the “BMA Notice”)), the ownership and transfer of our Shares may be subject to regulatory limitations of Bermuda law, which could include the requirement to seek and obtain consent of the Bermuda Monetary Authority prior to any transfer of our Shares.

Substantial sales of or trading in the Shares could occur, which could cause the share price to be adversely affected.

A limited number of holders own a substantial portion of the Shares, which may be traded on the OTCQX or the OSE if such Shares are freely tradable or covered by an effective registration statement. Certain Shares became freely tradable immediately following the Debtors’ emergence from the Previous Chapter 11 Proceedings and up to 76,359,119 of our Shares may be sold pursuant to a resale registration statement that we are required to maintain pursuant to a registration rights agreement with certain investors. Some of the creditors who received Shares in connection with the Plan may sell these shares for any number of reasons. We cannot predict what effect, if any, future sales of the Shares, or the availability of Shares for future sales, will have on their market price. Sales of substantial amounts of the Shares in the public market, or the perception that such sales could occur, may adversely affect the market price of the Shares, making it more difficult for holders to sell their Shares at a time and price that they deem appropriate. In addition, investment firms that are party to certain put and
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call agreements may hedge their positions by trading the Shares. The sale of significant amounts of the Shares, substantial trading in the Shares, hedging activities or the perception in the market that any of these activities will occur, may adversely affect the market price of the Shares. Sales of Shares could also impair our ability to raise capital, should we wish to do so, which may cause the share price to decline.

We may pay little or no dividends on the Shares.

The payment of any future dividends to the Company’s shareholders will depend on decisions that will be made by the Board of Directors and will depend on then existing conditions, including the Company’s operating results, financial conditions, contractual and financing restrictions, corporate law restrictions, capital agreements, the applicable laws of Bermuda and business prospects. The Company may pay little or no dividends for the foreseeable future.

In addition, since we are a holding company with no material assets other than the shares of our subsidiaries through which we conduct our operations, our ability to pay dividends will depend on our subsidiaries distributing to us their earnings and cash flows. Furthermore, our debt documents may prohibit or otherwise limit our and our subsidiaries’ ability to pay dividends and distributions without consent of the requisite debt holders. For more information, see “The covenants in our debt agreements impose operating and financial restrictions on us that could significantly impact our ability to operate our business and a breach of which could result in a default under the terms of these agreements, which could accelerate our repayment of funds that we have borrowed.”We suspended the payment of dividends in November 2014, and we cannot predict when, or if, dividends will be paid in the future.

U.S. tax authorities may treat us as a “passive foreign investment company” for U.S. federal income tax purposes, which may have adverse tax consequences for U.S. shareholders.

A foreign corporation will be treated as a “passive foreign investment company” or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest and gains from the sale or exchange of investment property, and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. For the purposes of these tests, income derived from the performance of services does not constitute “passive income.” As discussed further below, U.S. shareholders of a PFIC are subject to certain adverse U.S. federal income tax consequences including a disadvantageous U.S. federal income tax regime with respect to distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.

Based on the current and anticipated valuation of our assets, including goodwill, and composition of our income and assets, we intend to take the position that we will not be treated as a PFIC for U.S. federal income tax purposes for our current taxable year or in the foreseeable future. Our position is based on valuations and projections regarding our assets and income. While we believe these valuations and projections to be accurate, such valuations and projections may not continue to be accurate. Moreover, the determination as to whether we are a PFIC for any taxable year is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations, and is not determinable until after the end of such taxable year. Further, we have not sought a ruling from the United States Internal Revenue Service, or IRS, on this matter, the IRS or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any taxable year, the nature of our operations may change in the future, and if so, we may not be able to avoid PFIC status in the future.

If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders may face adverse U.S. federal income tax consequences. Under the PFIC rules, unless those shareholders make an election available under the United States Internal Revenue Code of 1986, as amended, or the Code (which election could itself have adverse consequences for such shareholders, as discussed below under Item 10 - "Additional Information - E. Taxation"), such shareholders would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of the Shares, as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of the Shares. In the event that our shareholders face adverse U.S. federal income tax consequences as a result of investing in our Shares, this could adversely affect our ability to raise additional capital through the equity markets. See Item 10 - "Additional Information - E. Taxation" for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. shareholders if we are treated as a PFIC.

Investors are encouraged to consult their own tax advisers concerning the overall tax consequences of the ownership and disposition of the common shares arising in an investor’s particular situation under U.S. federal, state, local or foreign law.

Because we are a foreign corporation, you may not have the same rights that a shareholder in a U.S. corporation may have.

We are incorporated under the laws of Bermuda, and substantially all of our assets are located outside of the United States. In addition, our directors and officers generally are or will be non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible for you to effect service of process on these individuals in the United States or to enforce in the United States judgments obtained in U.S. courts against us or our directors and officers based on the civil liability provisions of applicable U.S. securities laws.

In addition, you should not assume that courts in the countries in which we are incorporated or where our assets are located (1) would enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. securities laws or (2) would enforce, in original actions, liabilities against us based on those laws.
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Trading on the OTCQX may be volatile and sporadic, which could depress the market price of our Shares and make it difficult for our shareholders to resell their shares.

Our Shares are quoted on the OTCQX electronic quotation service operated by OTC Markets Group Inc. Trading in stock quoted on the OTCQX is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our Shares for reasons unrelated to operating performance. Moreover, the OTCQX is not a stock exchange, and trading of securities on the OTCQX is often more sporadic than the trading of securities listed on a quotation system or a stock exchange. Accordingly, shareholders may have difficulty reselling any of their Shares.

Certain shareholders have the right to appoint directors to the Board of Directors and their interests may not coincide with other investors’ interests.

Provided that certain circumstances exist, certain of our shareholders are entitled to appoint directors to the Board of Directors pursuant to the Bye-Laws. Hemen is currently entitled to appoint four directors (including the Chairman) to the Board of Directors, two of which must be independent directors and unrelated to Hemen. Each independent director is required to satisfy the independence rules under the United States Securities Exchange Act of 1934 (the “U.S. Securities Exchange Act”), the NYSE and the OSE. As a result of these appointment rights, Hemen is able to influence the composition of the Board of Directors and Hemen may consequently have influence with respect to the Company’s management, business plans and policies, including the appointment and removal of its officers. The interests of Hemen may not coincide with other investors’ interests, and their director designees may make decisions other investors disagree with. Please see Item 10 - "Additional information - B. Memorandum of association and bye-laws - 2. Board of Directors - ii. Election and removal of Directors” for more information on the director appointment procedure.

Our Bye-Laws limit shareholders’ ability to bring legal action against its officers and directors.

Our Bye-Laws contain a broad waiver by the shareholders of any claim or right of action, both individually and on behalf of the Company, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

Investors with Shares registered in a nominee account will need to exercise voting rights through their nominee.

Beneficial owners of Shares that are registered in a nominee account (such as through brokers, dealers or other third parties) with the Norwegian Central Securities Depository (“VPS”) will not be able to exercise voting rights directly, and they will need to receive the voting materials and provide instructions through their nominee prior to the general meetings. We can provide no assurances that beneficial owners of the Shares will receive the notice of a general meeting in time to instruct their nominees accordingly or otherwise vote their Shares in the manner desired by such beneficial owners.

General Risk Factors

The economic effects of “Brexit” may affect relationships with existing and future customers and could have an adverse impact on our business and results of operations.

On June 23, 2016, the U.K. held a referendum in which voters approved an exit from the E.U., commonly referred to as “Brexit”. The U.K.’s withdrawal from the E.U. occurred on January 31, 2020, but the U.K. remained in the E.U.’s customs union and single market for a transition period that expired on December 31, 2020. On December 24, 2020, the U.K. and the E.U. entered into a trade and cooperation agreement (the “Trade and Cooperation Agreement”), which was applied on a provisional basis from January 1, 2021. While the economic integration does not reach the level that existed during the time the U.K. was a member state of the E.U., the Trade and Cooperation Agreement sets out preferential arrangements in areas such as trade in goods and in services, digital trade and intellectual property. Negotiations between the U.K. and the E.U. are expected to continue in relation to the relationship between the U.K. and the E.U. in certain other areas which are not covered by the Trade and Cooperation Agreement. The long-term effects of Brexit will depend on the effects of the implementation and application of the Trade and Cooperation Agreement and any other relevant agreements between the United Kingdom and the European Union.

We face risks associated with the potential uncertainty and disruptions that may result from Brexit and the implementation and application of the Trade and Cooperation Agreement, including with respect to volatility in exchange rates and interest rates, disruptions to the free movement of data, goods, services, people and capital between the U.K. and the E.U. and potential material changes to the regulatory regime applicable to our operations in the U.K. The uncertainty concerning the U.K.’s future legal, political and economic relationship with the E.U. could adversely affect political, regulatory, economic or market conditions in the E.U., the U.K. and worldwide and could contribute to instability in global political institutions, regulatory agencies and financial markets. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets and could significantly reduce global market liquidity and limit the ability of key market participants to operate in certain financial markets. In particular, it could also lead to a period of considerable uncertainty in relation to the U.K. financial and banking markets, as well
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as to the regulatory process in Europe. Asset valuations, currency exchange rates and credit ratings may also be subject to increased market volatility.

We may also face new regulatory costs and challenges as a result of Brexit that could have a material adverse effect on our operations. For example, as of January 1, 2021, the United Kingdom lost the benefits of global trade agreements negotiated by the E.U. on behalf of its members, which may result in increased trade barriers that could make our doing business in areas that are subject to such global trade agreements more difficult. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which laws of the European Union to replace or replicate. There may continue to be economic uncertainty surrounding the consequences of Brexit that adversely impact customer confidence resulting in customers reducing their spending budgets on our services, which could materially adversely affect our business, financial condition and results of operations.

We may recognize impairments on long-lived assets, including goodwill and other intangible assets, or recognize impairments on our equity method investments.

As described in the risk factor above, we have previously recognized impairments on our marketable securities and investments in associated companies.

If any of our strategic equity investments decline in value and remain below cost for an extended period, we may be required to write down our investment. We have a 35% interest in the common units of Seadrill Partners, which was delisted from the NYSE on December 11, 2019 and on March 30, 2020 was impaired to nil.

Interest rate fluctuations could affect our earnings and cash flows.

In order to finance our growth, we have incurred significant amounts of debt. Our secured credit facilities have floating interest rates. As such, significant movements in interest rates could have an adverse effect on our earnings and cash flows to the extent interest becomes payable. To manage our exposure to interest rate fluctuations through interest rate swaps on May 11, 2018 we entered into an agreement to hedge part of our interest rate risk, through the purchase of an interest rate cap. Please see Item 11 - "Quantitative and qualitative disclosures about market risk" for further details of our use of derivatives to mitigate exposures to interest rate risk.

As of December 31, 2020, the total outstanding principal amount of our floating rate debt amounted to $5,662 million. We have entered into interest rate cap agreements to cap the interest rate for $4,500 million of this debt.

If we are unable to effectively manage our interest rate exposure through interest rate derivatives in the future, any increase in market interest rates would increase our interest rate exposure and debt service obligations, which would exacerbate the risks associated with our leveraged capital structure.

In addition, in July 2017 the United Kingdom Financial Conduct Authority (the “FCA”), announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. Most of our credit and loan facilities are linked to LIBOR. When LIBOR ceases to exist, we may need to amend our credit and loan facilities based on a new standard that is established, if any. Uncertainty as to the nature of LIBOR’s phase-out and alternative reference rates or disruption in the financial market could also have a material adverse effect on our financial condition, results of operations and cash flows.

Fluctuations in exchange rates and the non-convertibility of currencies could result in losses to us.

As a result of our international operations, we are exposed to fluctuations in foreign exchange rates due to revenues being received and operating expenses paid in currencies other than U.S. dollars. Accordingly, we may experience currency exchange losses if we have not adequately hedged our exposure to a foreign currency, or if revenues are received in currencies that are not readily convertible. In May 2019, we placed a total of 330 million Brazilian Reais of collateral with BTG Pactual under a letter of credit arrangement, which generated $3 million foreign exchange loss in the year ended 2019 and $17 million foreign exchange loss in the year ended 2020. There is no guarantee that our future operating results will not be adversely impacted by fluctuations in currency exchange rates. We may also be unable to collect revenues because of a shortage of convertible currency available in the country of operation, controls over currency exchange or controls over the repatriation of income or capital.

We use the U.S. dollar as our functional currency because the majority of our revenues and expenses are denominated in U.S. dollars. Accordingly, our reporting currency is also U.S. dollars. We do, however, earn revenues and incur expenses in other currencies such as Norwegian krone, U.K. pounds sterling, Brazilian real, Nigerian naira and Angolan Kwanza and there is a risk that currency fluctuations could have an adverse effect on our statements of operations and cash flows. In addition, Brexit, or similar events in other jurisdictions, can impact global markets, which may have an adverse impact on our business and operations as a result of changes in currency, exchange rates, tariffs, treaties and other regulatory matters.

A change in tax laws in any country in which we operate could result in higher tax expense.

We conduct our operations through various subsidiaries in countries throughout the world. Tax laws, regulations and treaties are highly complex and subject to interpretation. Consequently, we are subject to changing tax laws, regulations and treaties in and between the countries in which we operate, including treaties between the United States and other nations. Our income tax expense is based upon our
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interpretation of the tax laws in effect in various countries at the time that the expense was incurred. A change in these tax laws, regulations or treaties, including those in and involving the United States, or in the interpretation thereof, or in the valuation of our deferred tax assets, which is beyond our control, could result in a materially higher tax expense or a higher effective tax rate on our worldwide earnings.

A loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries could result in a higher taxes on our worldwide earnings, which could result in a significant negative impact on our earnings and cash flows from operations.

Our tax returns are subject to review and examination. We do not recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries; or if the terms of certain Double Tax Treaties are interpreted in a manner that is adverse to our structure; or if we lose a material tax dispute in any country, our taxes on our worldwide earnings could increase substantially and our earnings and cash flows from operations could be materially adversely affected. For additional information on tax assessments and claims issued, refer to Note 14 - “Taxation” to the Consolidated Financial Statements included herein.

A change in laws and regulations in any country in which we operate could have a negative impact on our business

During 2017, the E.U. Economic and Financial Affairs Council released a list of non-cooperative jurisdictions for tax purposes. The stated aim of the list, and accompanying report, was to promote good governance worldwide in order to maximize efforts to prevent tax fraud and tax evasion. Bermuda was not on the list of non-cooperative jurisdictions, but did feature in the report as having committed to address concerns relating to economic substance by December 31, 2018. In accordance with that commitment, Bermuda enacted the Economic Substance Act 2018 (as amended) and related regulations (the “ESA”), which came into force on January 1, 2019. Pursuant to the ESA, a registered entity other than an entity which is resident for tax purposes in certain jurisdictions outside Bermuda (“non-resident entity”) that carries on as a business any one or more of the “relevant activities” referred to in the ES Act must comply with economic substance requirements. The ESA may require in-scope Bermuda entities which are engaged in such “relevant activities” to be directed and managed in Bermuda, have an adequate level of qualified employees in Bermuda, incur an adequate level of annual expenditure in Bermuda, maintain physical offices and premises in Bermuda or perform core income-generating activities in Bermuda. The list of “relevant activities” includes carrying on any one or more of the following activities: banking, insurance, fund management, financing, leasing, headquarters, shipping, distribution and service center, intellectual property and holding entities. An in-scope Bermuda entity that carries on a relevant activity is obliged under the ESA to file a declaration with the Bermuda Registrar of Companies on an annual basis containing certain information. The ESA could affect the manner in which we operate our business, which could adversely affect our business, financial condition and results of operations. If we were required to satisfy economic substance requirements in Bermuda but failed to do so, we could face automatic disclosure to competent authorities in the European Union of the information filed by the entity with the Bermuda Registrar of Companies in connection with the economic substance requirements and may also face financial penalties, restriction or regulation of its business activities and/or may be struck off as a registered entity in Bermuda. For additional information on litigation matters that we are currently involved in, please see Item 8 - "Financial Information - A. Consolidated Statements and Other Financial Information - Legal Proceedings.”

We may be subject to litigation, arbitration, other proceedings and regulatory investigations that could have an adverse effect on us.

We are currently involved in various litigation and arbitration matters, and we anticipate that we will be involved in dispute matters from time to time in the future. The operating and other hazards inherent in our business expose us to disputes, including personal injury disputes, environmental and climate change litigation, contractual disputes with customers, intellectual property and patent disputes, tax or securities disputes, regulatory investigations and maritime lawsuits, including the possible arrest of our drilling units. We cannot predict, with certainty, the outcome or effect of any claim or other dispute matters, or a combination of these. If we are involved in any future disputes, or if our positions concerning current disputes are found to be incorrect, there may be an adverse effect on our business, financial position, results of operations and available cash, because of potential negative outcomes, the costs associated with asserting our claims or defending such lawsuits or proceedings, and the diversion of management’s attention to these matters.

We may also be subjectand our affiliated entity NOL are party to significant legal costscertain contracts in defending these actions, which we may or may not be ableprovide services with respect to recoup depending on the results of such claim. For additional information on litigation matters that we are currently involved in, please see “ITEM 8. Financial Information-A. Consolidated Statements West Mira and Other Financial Information-Legal Proceedings.”
We cannot guarantee that the use of ourWest Bollsta, including services pursuant to management agreements, drilling units will not infringe the intellectual property rights of others.
The majority of the intellectual property rights relating to our drilling unitscontracts, and related equipment are ownedbareboat charter agreements. NOL is controlled by our suppliers. In the event that one of our suppliers becomes involved in a dispute over an infringement of intellectual property rights relating to equipment owned by us, we may lose access to repair services or replacement parts or could be required to cease using some equipment. In addition, our competitors may assert claims for infringement of intellectual property rights related to certain equipment on our drilling units and we may be required to stop using such equipment and/or pay damages and royalties for the use of such equipment. The consequences of these technology disputes involving our suppliers or competitors could adversely affect our financial results and operations. We have indemnity provisions in some of our supply contracts to give us some protection from the supplier against intellectual property lawsuits. However, we cannot make any assurances that these suppliers will have sufficient financial standing to honor their indemnity obligations or guarantee that the indemnities will fully protect us from the adverse consequences of such technology disputes. We also have provisions in some of our client contracts to require the client to share some of these risks on a limited basis, but we cannot provide assurance that these provisions will fully protect us from the adverse consequences of such technology disputes. For information on certain intellectual property litigation that we are currently involved in, please see “ITEM 8. Financial Information - A. Consolidated Statements and Other Financial Information - Legal Proceedings.”
We depend on directors who are associated with affiliated companies, which may create conflicts of interest.
Our largest shareholder is Hemen Holding Limited, or Hemen. ManyHemen, which is also our largest shareholder. We have been engaged in commercial discussions with NOL over the last several months concerning outstanding receivables and claims between the parties, including outstanding receivables under certain management agreements. Under the management agreements, NOL (or the relevant NOL-related entity) is responsible for pre-funding and/or reimbursing us (or the relevant Seadrill-related entity) for costs, expenses and management fees incurred in relation the performance of our directors also serve as directors of other companies affiliated with Hemen. Our directors owe fiduciary duties to bothmanagement services. NOL has not pre-funded or reimbursed us for certain fees and other related parties and may have conflicts of interest in matters involving or affecting us and our customers. Please see “ITEM 6. Directors, Senior management and Employees - C. Board Practices” for more information.
expenses owed under such agreements. We have agreed to market certainthe indicative terms of a settlement resolving these outstanding receivables and claims. We are currently engaged in drafting and negotiating definitive documentation to effectuate the rigssettlement. No litigation has been commenced by either party at this time. There can be no certainty of our affiliated entity, Northern Drilling Limited (“NODL”), which may create conflicts ofany resolution.
interest.

We have executed an agreement with NODL for the commercial management of certain of the rigs acquired by our affiliated entity, NODL. To date, we have entered into drilling contracts in respect of certain NODL units directly with customers with back-to-back arrangements in place between us and NODL to allocate risk and liability back to NODL commensurate with the structure. Ultimately, we are exposed to the creditworthiness of NODL, to the extent that we have an exposure to the customer under the drilling contract and seek recovery under the back-to-back arrangements. We earn an incentivized management fee from NODL that is intended to reward us for the services we provide and the risks that we are exposed to as well as providing a right of first refusal for purchase of the unit. We currently have stacked rigs that were available but not competitive from a technical or cost perspective with the NODL units that secured drilling contracts through us.

We may be restricted from granting long-term contracts as a result of the Omnibus Agreement with Seadrill Partners.
We have entered into an omnibus agreement with Seadrill Partners, or the Omnibus Agreement, in connection with its initial public offering, which may restrict our ability to, among other things, acquire, own, operate or contract for certain drilling units operating under drilling contracts

of five or more years, unless we offer to sell such drilling units to Seadrill Partners. These restrictions could harm our business and adversely affect our financial position and results of operations and ability to implement our growth strategy. For additional information, please see “ITEM 7. Major Shareholders and Related Party Transactions - B. Related Party Transactions-Seadrill Partners-Omnibus Agreement with Seadrill Partners.”
If we fail to comply with requirements relating to internal control over financial reporting our business could be harmed and our common stockshare price could decline.

Rules adopted by the Securities and Exchange Commission pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require that we assess our internal control over financial reporting annually. The rules governing the standards that must be met for management to assess its internal control over financial reporting are complex. They require significant documentation, testing, and possible remediation of any significant deficiencies in and / or material weaknesses of internal controls in order to meet the detailed standards under these rules. Although
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we have evaluated our internal control over financial reporting as effective as of December 31, 2018,2020, in future fiscal years, we may encounter unanticipated delays or problems in assessing our internal control over financial reporting as effective or in completing our assessments by the required dates. In addition, we cannot assure you that our independent registered public accountants will attest that internal control over financial reporting is effective in future fiscal years.

If we are unable to maintain effective internal controls over financial reporting and disclosure controls, investors may lose confidence in our reported financial information, which could lead to a decline in the price of common shares, limit our ability to access the capital markets in the future, and require us to incur additional costs to improve our internal control over financial reporting and disclosure control systems and procedures. Further, if lenders and other debt financing sources lose confidence in the reliability of our financial statements, it could have a material adverse effect on our ability to fund our operations.secure replacement or additional financing, or amendments to existing debt documents, on terms acceptable to us or at all.
Public health threats could have an adverse effect on our operations and financial results.
Public health threats, such as Ebola, influenza, SARS, the Zika virus, and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate, could adversely impact our operations, and the operations of our customers. In addition, public health threats in any area, including areas where we do not operate, could disrupt international transportation. Our crews generally work on a rotation basis, with a substantial portion relying on international air transport for rotation. Any such disruptions could impact the cost of rotating our crews, and possibly impact our ability to maintain a full crew on all rigs at a given time. Any of these public health threats and related consequences could adversely affect our financial results.
Data protection and regulations related to privacy, data protection and information security could increase our costs, and our failure to comply could result in fines, sanctions or other penalties, which could materially and adversely affect our results of operations, as well as have an impact on our reputation.

We are subject to regulations related to privacy, data protection and information security in the jurisdictions in which we do business. As privacy, data protection and information security laws are interpreted and applied, compliance costs may increase, particularly in the context of ensuring that adequate data protection and data transfer mechanisms are in place.

In recent years, there has been increasing regulatory enforcement and litigation activity in the areas of privacy, data protection and information security in the U.S. and in various countries in which we operate. In addition, legislators and/or regulators in the U.S., the European UnionU.K., the E.U. and other jurisdictions in which we operate are increasingly adopting or revising privacy, data protection and information security laws that could create compliance uncertainty and could increase our costs or require us to change our business practices in a manner adverse to our business. For example, the European UnionE.U. and U.S. Privacy Shield framework was designed to serve as an appropriate safeguard in relation to international transfers of personal data from the EEA to the U.S. However, this self-certification faces a number of legal challenges and is subject to annual review. This has resulted in some uncertainty and obligations to look at other appropriate safeguards to protect the security and confidentiality of personal data in the context of cross-border data transfers. Moreover, compliance with current or future privacy, data protection and information security laws could significantly impact our current and planned privacy, data protection and information security related practices, our collection, use, sharing, retention and safeguarding of consumer and/or employee information, and some of our current or planned business activities. Our failure to comply with privacy, data protection and information security laws could result in fines, sanctions or other penalties, which could materially and adversely affect our results of operations and overall business, as well as have an impact on our reputation. For example, the General Data Protection Regulations (EU) 2016/679 (the “GDPR”), as supplemented by any national laws (such as in the U.K., the Data Protection Act 2018) and further implemented through binding guidance from the European Data Protection Board, came into effect on May 25, 2018. The GDPR expanded the scope of the EU data protection law to all foreign companies processing personal data of EEA individuals and imposed a stricter data protection compliance regime, including the introduction of administrative fines for non-compliance up to 4% of global total annual worldwide turnover or €20 million (whichever is higher), depending on the type and severity of the breach, as well as the right to compensation for financial or non-financial damages claimed by any individuals under Article 82 GDPR and the reputational damages that our business may be facing as a result of any personal data breach or violation of the GDPR.



Risks Relating to Our Common ShareholdersITEM 4.INFORMATION ON THE COMPANY
 
The price of the Shares may be volatile or may decline regardless of our operating performance, and investors may not be able to resell the Shares at or above their initial purchase price.
The market price for the Shares may be volatile and may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others:A.HISTORY AND DEVELOPMENT OF THE COMPANY
announcements concerning the offshore drilling market, including changes in oil and gas prices and the state of the global economy on market outlook for our various geographical operating sectors and classes of rigs;
fluctuations in the market value of our drilling units and the amount of debt we can incur under certain covenants in its current and future debt financing agreements;
general and industry-specific economic conditions;
changes in financial estimates or recommendations by securities analysts or failure to meet analysts' performance expectations;
additions or departures of key members of management;
any increased indebtedness we incur in the future;
speculation or reports by the press or investment community with respect to Seadrill or the industry in general;
announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments;
changes or proposed changes in laws or regulations affecting the oil and gas industry or enforcement of these laws and regulations, or announcements relating to these matters; and
general market, political and economic conditions, including any such conditions and local conditions in the markets in which we operate.
These and other factors may lower the market price of the Shares, regardless of our actual operating performance. In the event of a drop in the market price of the Shares, investors could lose a substantial part or all of its investment in the Shares. In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Shareholders may initiate securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from the business, which could have a negative effect on the results of operations and thus the price for the Shares.
The market price of our common shares has fluctuated widely and may fluctuate widely in the future.
The market price of our common shares has fluctuated widely and may continue to do so as a result of many factors, such as actual or anticipated fluctuations in our operating results, changes in financial estimates by securities analysts, economic and regulatory trends, general market conditions, rumors and other factors, many of which are beyond our control. Further, there may be no continuing active or liquid public market for our common shares. If an active trading market for our common shares does not continue, the price of our common shares may be more volatile and it may be more difficult and time consuming to complete a transaction in our common shares, which could have an adverse effect on the realized price of our common shares. In addition, an adverse development in the market price for our common shares could negatively affect our ability to issue new equity to fund our activities.
The issuance of share-based awards may dilute investors' holding of the Shares.
An aggregate of 11.1 million of the Shares are reserved for issuance for grant to our employees pursuant to awards under the Employee Incentive Plan in accordance with the Plan. The exercise of equity awards, including any share options that we may grant in the future, could have an adverse effect on the market for the Shares, including the price that an investor could obtain for their Shares. Investors may experience dilution in the net tangible book value of their investment upon the exercise of any share options that may be granted or issued pursuant to the employee incentive plan in the future.
Substantial sales of or trading in the Shares could occur, which could cause the share price to be adversely affected.
A limited number of holders own a substantial portion of the Shares, which may be traded on the NYSE or the Oslo Stock Exchange if such Shares are freely tradable or covered by an effective registration statement. Certain Shares became freely tradable immediately following the Debtors' emergence from Chapter 11 Proceedings and up to 76,359,119 of our common shares may be sold pursuant to a resale registration statement that we are required to maintain pursuant to a registration rights agreement with certain investors. Some of the creditors who received Shares in connection with the Plan may sell these shares for any number of reasons. We cannot predict what effect, if any, future sales of the Shares, or the availability of Shares for future sales, will have on their market price. Sales of substantial amounts of the Shares in the public market, or the perception that such sales could occur, may adversely affect the market price of the Shares, making it more difficult for holders to sell their Shares at a time and price that they deem appropriate. In addition, investment firms that are party to certain put and call agreements may hedge their positions by trading the Shares. The sale of significant amounts of the Shares, substantial trading in the Shares, hedging activities or the perception in the market that any of these activities will occur, may adversely affect the market price of the Shares. Sales of Shares could also impair our ability to raise capital, should we wish to do so, which may cause the share price to decline.
We may pay little or no dividends on the Shares.
The payment of any future dividends to the Company's shareholders will depend on decisions that will be made by the Board of Directors and will depend on then existing conditions, including the Company's operating results, financial conditions, contractual and financing restrictions,

corporate law restrictions, capital agreements, the applicable laws of Bermuda and business prospects. The Company may pay little or no dividends for the foreseeable future.
In addition, since we are a holding company with no material assets other than the shares of our subsidiaries through which we conduct our operations, our ability to pay dividends will depend on our subsidiaries distributing to us their earnings and cash flow. We suspended the payment of dividends in November 2014, and we cannot predict when, or if, dividends will be paid in the future.
U.S. tax authorities may treat us as a “passive foreign investment company” for U.S. federal income tax purposes, which may have adverse tax consequences for U.S. shareholders.
A foreign corporation will be treated as a “passive foreign investment company” or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest and gains from the sale or exchange of investment property, and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. For the purposes of these tests, income derived from the performance of services does not constitute “passive income.” As discussed further below, U.S. shareholders of a PFIC are subject to certain adverse U.S. federal income tax consequences including a disadvantageous U.S. federal income tax regime with respect to distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on the current and anticipated valuation of our assets, including goodwill, and composition of our income and assets, we intend to take the position that we will not be treated as a PFIC for U.S. federal income tax purposes for our current taxable year or in the foreseeable future. Our position is based on valuations and projections regarding our assets and income. While we believe these valuations and projections to be accurate, such valuations and projections may not continue to be accurate. Moreover, the determination as to whether we are a PFIC for any taxable year is based on the application of complex U.S. federal income tax rules, which are subject to differing interpretations, and is not determinable until after the end of such taxable year. Further, we have not sought a ruling from the United States Internal Revenue Service, or IRS, on this matter, the IRS or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any taxable year, the nature of our operations may change in the future, and if so, we may not be able to avoid PFIC status in the future.
If the IRS were to find that we are or have been a PFIC for any taxable year, our U.S. shareholders may face adverse U.S. federal income tax consequences.  Under the PFIC rules, unless those shareholders make an election available under the United States Internal Revenue Code of 1986, as amended, or the Code (which election could itself have adverse consequences for such shareholders, as discussed below under “Item 10. Additional Information-E. Taxation”), such shareholders would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of the common shares, as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of the common shares. In the event that our shareholders face adverse U.S. federal income tax consequences as a result of investing in shares of our common stock, this could adversely affect our ability to raise additional capital through the equity markets. See “ITEM 10. Additional Information - E. Taxation” for a more comprehensive discussion of the U.S. federal income tax consequences to U.S. shareholders if we are treated as a PFIC.
Investors are encouraged to consult their own tax advisers concerning the overall tax consequences of the ownership and disposition of the common shares arising in an investor’s particular situation under U.S. federal, state, local or foreign law.
Because we are a foreign corporation, you may not have the same rights that a shareholder in a U.S. corporation may have.
We are incorporated under the laws of Bermuda, and substantially all of our assets are located outside of the United States. In addition, our directors and officers generally are or will be non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible for you to effect service of process on these individuals in the United States or to enforce in the United States judgments obtained in U.S. courts against us or our directors and officers based on the civil liability provisions of applicable U.S. securities laws.
In addition, you should not assume that courts in the countries in which we are incorporated or where our assets are located (1) would enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. securities laws or (2) would enforce, in original actions, liabilities against us based on those laws.
We are permitted to adopt certain home country practices in relation to corporate governance, which may afford you less protection.

As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NYSE corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.

As a foreign private issuer listed on the NYSE, we are subject to corporate governance listing standards of the NYSE. However, rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in Bermuda, which is our home country, may differ significantly from corporate governance listing standards. Concurrently, we comply with certain NYSE corporate governance listing standards by following certain home country practices. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers.


Certain shareholders have the right to appoint directors to the Board of Directors and their interests may not coincide with other investors' interests.
Provided that certain circumstances exist, certain of our shareholders are entitled to appoint directors to the Board of Directors pursuant to the Bye-Laws. In summary, Hemen is entitled to appoint four directors (including the Chairman) to the Board of Directors, two of which must be independent directors and unrelated to Hemen. Centerbridge and the Select Commitment Parties each has the right to appoint one independent director. The remaining director shall also be independent and appointed by mutual agreement of Hemen, Centerbridge and the Select Commitment Parties. Each independent director is required to satisfy the independence rules under the United States Securities Exchange Act of 1934 (the "U.S.Securities Exchange Act"), the NYSE and the Oslo Stock Exchange. As a result of these appointment rights, Hemen, Centerbridge and the Commitment Parties are able to influence the composition of the Board of Directors and Hemen may consequently have influence with respect to the Company's management, business plans and policies, including the appointment and removal of its officers. The interests of Hemen, Centerbridge and the Commitment Parties may not coincide with other investors' interests, and their director designees may make decisions other investors disagree with. Please see Section 15.14.2.2 "Election and removal of Directors" for more information on the director appointment procedure.
Our bye-laws limit shareholders' ability to bring legal action against its officers and directors.
Our bye-laws contain a broad waiver by the shareholders of any claim or right of action, both individually and on behalf of the Company, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.
Investors may not be able to exercise their voting rights for Shares registered in a nominee account.
Beneficial owners of the Shares that are registered in a nominee account (such as through brokers, dealers or other third parties) may not be able to vote such Shares unless their ownership is re-registered in their names with the Norwegian Central Securities Depository ("VPS") prior to the general meetings. We can provide no assurances that beneficial owners of the Shares will receive the notice of a general meeting in time to instruct their nominees to either effect a re-registration of their Shares or otherwise vote their Shares in the manner desired by such beneficial owners.

ITEM 4.INFORMATION ON THE COMPANY
A.HISTORY AND DEVELOPMENT OF THE COMPANY
 
1) Company Details
Seadrill Limited (formerly known as “New SDRL Limited”) or the ("Successor"Successor Company") was incorporated under the Lawslaws of Bermuda on March 14, 2018 with registration number 53439. Seadrill Limited has been the parent company of the group of companies collectively known as Seadrill with effect from the Effective Date.
Seadrill Limited is an exempted company limited by shares and isprior to June 19, 2020 was listed under the Symbol "SDRL" on the New York Stock Exchange ("NYSE") and the Oslo Stock Exchange ("OSE"). On June 19, 2020 it de-listed from the NYSE and since that date has traded on the over-the-counter ("OTC") market under the Symbol "SDRLF". It retained its listing on the OSE. Its registered offices are located at Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda and our telephone number is +1 (441) 295-6935.
Before the Effective Date, Seadrill's parent company was Seadrill Limited ("Old Seadrill Limited" or "Predecessor Company") which was a company incorporated under the Lawslaws of Bermuda on May 10, 2005 with registration number 36832. Old Seadrill Limited was an exempted company limited by shares and was previously listed under the Symbol "SDRL" on the NYSE and OSE. It held the same registered offices and telephone number as the Successor Company.
2) Significant Developments for the Period from January 1, 20172019 through and including December 31, 20182020
In this section we have set out important events in the development of our business. This includes information concerning the nature and results of any material reclassification, merger or consolidation of the company or any of its significant subsidiaries; acquisitions or
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dispositions of material assets other than in the ordinary course of business; any material changes in the mode of conducting the business; material changes in the types of products produced or services rendered; name changes; or the nature and results of any bankruptcy, receivership or similar proceedings with respect to the company or significant subsidiaries. This section covers the period from the beginning of our last full financial year.year.
a) Chapter 11 ReorganizationComprehensive Restructuring and Bankruptcy Proceedings
This section providesSince the end of 2019 we have been working with senior creditors to provide a solution to Seadrill's high cash outflow for debt service. In June 2020, we announced that we had appointed financial advisors to evaluate comprehensive restructuring alternatives to reduce debt service costs and overall indebtedness, which we anticipated would require a substantial conversion of Seadrill's indebtedness to equity.
In September 2020, we did not pay interest on our secured credit facilities which constituted an overviewevent of default. Furthermore, this triggered cross-default covenants for the senior secured notes and leasing agreements in respect of theWest Hercules, West Linus and West Taurus with certain subsidiaries of SFL Corporation Limited ("Ship Finance SPVs"). As a result, we entered into forbearance agreements with certain creditors in respect of our senior secured credit facility agreements and senior secured notes. Pursuant to these agreements, the creditors agreed not to exercise any voting rights, or otherwise take actions, in respect of the default. The forbearance agreements had an initial term of 14 days until September 29, 2020. The forbearance agreements were then extended until October 31, 2020.
In October 2020, we did not make bareboat charter payments to the Ship Finance SPVs, which, together with our failure to cure the cross-default violation within the allowed waiver period, triggered an enforceable right for the Ship Finance SPVs to terminate the leasing arrangements for the West Hercules, West Linus and West Taurus.
In November 2020, we entered into new forbearance agreements with certain creditors in respect of the group's senior secured credit facility agreements, as well as the leasing agreements for the West Hercules, West Linus and West Taurus. These forbearance agreements ended on December 14, 2020. As part of the forbearance agreement with the Ship Finance SPVs, we restarted paying a proportion of the charter hire due on the West Linus and West Hercules. On expiry of the forbearance agreement, this payment mechanism was extended through a series of further agreements. This arrangement is anticipated to continue throughout the term of Seadrill's Chapter 11 Proceedings (see below).
In December 2020, we did not pay interest on our secured credit facilities and in January 2021 we did not pay the transactions described hereinsemi-annual interest payment due on the senior secured notes, which constituted additional events of default. We entered into new forbearance agreements with certain creditors which did not include three out of our twelve senior secured credit facilities or the senior secured notes. These forbearance agreements ended on January 29, 2021.
In December 2020, the lenders of the secured credit facility of a $360 million, utilized $96 million of cash held in restricted bank accounts (pledged to their facility as security) to prepay a corresponding amount of principal outstanding. The AOD I, AOD II and those contemplated by the PlanAOD III rigs are together referred toheld as the "Reorganization". The Predecessor Companycollateral against this facility.
On February 7, 2021 and certainFebruary 10, 2021 (the “Petition Dates”), Seadrill Limited and most of its subsidiaries (the "Debtors") filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court (the "Debtors"), whereas this section provides an overview of the Debtors' restructuring and emergence from bankruptcy, reflecting the acceptance of the Second Amended Joint Chapter 11 Plan (as modified), as confirmed by the Bankruptcy Court on 17 April 2018 (the "Plan"), by all classes entitled to vote and the confirmation of the Plan by the Bankruptcy Court and pursuant to which the "Effective Date" (meaning the date of the Debtors' emergence from bankruptcy proceedings in accordance with the terms and conditions of the Plan) of the Plan occurred on July 2, 2018. The description in this section is qualified in its entirety by reference to

the Plan. The terms of the Plan are more detailed than the description provided in this section, which may have omitted descriptions of items that may be of interest to particular investors. Therefore, please carefully consider the actual provisions of the Plan for more complete information about the transactions to be consummated in connection with the Debtors' emergence from bankruptcy.
i.Introduction to the Reorganization
Prior to filing of the ("Chapter 11 Proceedings (as defined below), Old Seadrill Limited engaged in extensive discussions with its secured lenders, certain holders of its unsecured bonds and potential new money investors regarding the terms of a comprehensive restructuring.
On September 12, 2017, Old Seadrill Limited entered into a restructuring support and lock-up agreement (the "RSA") with a group of bank lenders, bondholders, certain other stakeholders, and new-money providers (collectively, the "Consenting Stakeholders"). Old Seadrill Limited's consolidated subsidiaries North Atlantic Drilling Ltd. ("NADL") and Sevan Drilling, together with certain other of its consolidated subsidiaries also entered into the RSA (together with Old Seadrill Limited the "CompanyParties"). Ship Finance and three of its subsidiaries, which charter three drilling units to the Company Parties, also executed the RSA. In connection with the RSA, the Company Parties entered into the "Investment Agreement" under which Hemen Investments Limited, an affiliate of Old Seadrill Limited's largest shareholder Hemen Holding Ltd. and the Commitment Parties, committed to provide $1.06 billion in new cash commitments, subject to certain terms and conditions (the "Capital Commitment").
On September 12, 2017, to implement the transactions contemplated by the RSA and Investment Agreement, the Debtors commenced prearranged reorganization proceedings (the "Chapter 11 Proceedings") under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas Victoria Division. During(the "Bankruptcy Court"), triggering a stay on enforcement of remedies with respect to our debt obligations. The filing did not include Seadrill New Finance Limited and its subsidiaries, which hold our investments in Seamex and Seabras Sapura and are also the bankruptcy proceedings,issuers of the senior secured notes. We have agreed a forbearance agreement with the senior secured note holders to allow the Debtors continuedthe time to operate their business as debtors in possession. As a result of the Reorganization, the Plan equitized approximately $2.4 billion in unsecured bond obligations, more than $1.0 billion in contingent newbuild obligations, substantial unliquidated guarantee obligations, and approximately $250 million in unsecured interest rate and currency swap claims, while extending near term debt maturities, providing the Group with over $1.0 billion in new capital and leaving employee, customer and ordinary trade claims largely unimpaired.complete its reorganization.
ii.Corporate Reorganization
The Plan provided for Seadrill Limited to serve as the ultimate parent holding company for Old Seadrill Limited's subsidiaries after the Debtors' emergence from the Chapter 11 Proceedings. Seadrill Limited was initially formed as a wholly-owned subsidiary of Old Seadrill Limited and had not conducted any material operations prior to the Effective Date. Following the Debtors' emergence from bankruptcy, the economic interests in the existing shares of Old Seadrill Limited were extinguished, and Old Seadrill Limited was dissolved under Bermuda law. In accordance with the Plan, the common shares of Seadrill Limited were issued to the parties entitled thereto under the Plan and under the Investment Agreement. As part of the concurrent corporate reorganization, Seadrill Limited became the ultimate parent holding company of Old Seadrill Limited's subsidiaries. The Plan was effective on July 2, 2018, and some of the information provided in this annual report therefore relates to Seadrill prior to the Effective Date.
The corporate reorganization also included: (i) the formation of a new wholly-owned intermediate holding company ("IHCo") as a subsidiary of Seadrill, (ii) and a new wholly-owned intermediate holding company ("RigCo") as a subsidiary of IHCo which holds interests in Seadrill's rig-owning, rig-operating and management entities transferred to RigCo in the corporate reorganization, (iii) the formation of a new wholly-owned intermediate holding company Seadrill New Finance Limited ("NSNCo"), as a subsidiary of IHCo for the purpose of issuing the "New Secured Notes" or "NSN" (being the USD 880 million aggregate principal amount of 12% Senior Secured Notes due 2025 issued by NSNCo in connection with the Reorganization, as further described below) and (iv) the formation of certain new wholly-owned intermediate holding companies as subsidiaries of NSNCo for the purpose of holding interests in certain of the non-consolidated entities transferred to NSNCo by Old Seadrill Limited in the corporate reorganization.
iii.The Plan
The Debtors filed a proposed plan of reorganization and disclosure statement with the Bankruptcy Court on September 12, 2017, as well as a disclosure statement relating to the proposed plan of reorganization. Subsequent to September 12, 2017, the Debtors negotiated with their various creditors, including an ad hoc group of holders of unsecured bonds (the "Ad Hoc Group") and certain newbuild ship yards with which the Debtors had contractual relationships to build new rigs. On 26 February 2018, the Debtors announced a global settlement with various creditors, including the Ad Hoc Group, the official committee of unsecured creditors (the "Committee") and other major creditors in its Chapter 11 cases including Samsung and DSME, two of the Debtors' newbuild shipyards, and an affiliate of Barclays Bank PLC ("Barclays"), another holder of unsecured bonds. In connection with the global settlement, the Debtors entered into an amendment to the RSA and an amendment to the Investment Agreement. The amendments to the RSA and Investment Agreement provided for inclusion of the Ad Hoc Group and Barclays into the Capital Commitment as Commitment Parties, increased the Capital Commitment to $1.08 billion, increased recoveries for general unsecured creditors under the Plan, an agreement regarding the allowed claim of the newbuild shipyards and an immediate cessation of all litigation and discovery efforts in relation to the Plan as well as the Debtors' rejection and recognized termination of the newbuild contracts. The Investment Agreement, as amended, provided for certain milestones for the Debtors' restructuring: (1) the Bankruptcy Court entered an order confirming the Plan on April 17, 2018case number 21-30427 (the "Confirmation Date") and (2) the effective date of the Plan had to occur within 90 days of the Confirmation Date, and in any event no later than August 8, 2018.
In connection with the global settlement, on February 26, 2018, the Debtors filed a proposed Second Amended Joint Chapter 11 Plan of Reorganization with the Bankruptcy Court and on April 17, 2018, the Bankruptcy Court entered an order confirming the Second Amended Joint Chapter 11 Plan (as modified) of Reorganization, as amended and supplemented. Reference is made to the Second Amended Joint Chapter 11 Plan (as modified) of Reorganization, in the form confirmed by the Bankruptcy Court, with any further amendments or supplements thereto, as the Plan. The Plan became effective on July 2, 2018. Under the Plan and the terms of the Investment Agreement and the transactions contemplated

therein, the Commitment Parties to the Investment Agreement were issued certain common shares of Seadrill Limited and purchased additional common shares of Seadrill Limited in connection with the completion of an equity rights offering to holders of claims against the Debtors. Seadrill Limited also agreed to register its common shares for resale by the selling shareholders.
iv.Rights offering
Pursuant to the Plan and an order of the Bankruptcy Court, a set of rights offering procedures were approved. As a result, eligible holders of general unsecured claims againstCases”), the Debtors were offeredgranted “first-day” relief which enabled the rightCompany to participate in (i)continue operations without interruption.
Please refer to Item 5B for a rights offering of up to $119.4 million in principal amountdiscussion of the New Secured Notes (the "Notes Rights Offering")Company's Chapter 11 Proceedings and the corresponding pro rata portion of 57.5% of common shares in Seadrill Limited were issued to holders who participated in the Notes Rights Offering and (ii) a rights offering of up to $48.1 million in value of common shares in Seadrill Limited (the "Equity Rights Offering").
The Equity Rights Offering was directed to eligible holders of General Unsecured Claims (as defined in the Plan), who either (i) were located in the United States or (ii) were located outside the United States and who satisfied one of the following criteria (a) they were located in a member state of the European Economic Area (EEA); (b) they were located in the United Kingdom and were qualified (i) to make an investment in Seadrill Common Shares under the applicable laws of the EEA (ii) satisfied certain criteria under the laws of the United Kingdom; or (c) were located in a different jurisdiction, and under the laws of that jurisdiction were entitled to subscribe for and purchase the Seadrill Common Shares, in each case without the need for any registration or similar filing by Seadrill Limited. The subscription period for the Equity Rights Offering commenced on May 7, 2018 and ended on 5:00 pm New York City Time on June 8, 2018. The subscription right to participate in the Equity Rights Offering could not be separated from the related General Unsecured Claims, hence the only way to transfer the subscription rights was to transfer the related General Unsecured Claims. The holders of General Unsecured Claims could purchase up to 2.700 Seadrill Common Shares for each USD 1,000 in allowed amount of its claims in aggregate in the Equity Rights Offering. The subscription price for Seadrill Common Shares in the Equity Rights Offering was $8.421 per share. Holders of General Unsecured Claims who were not entitled to participate in the Equity Rights Offering, were eligible to receive a cash payment in the amount of $30 per $1,000 of the allowed amount of their claim.
The New Secured Notes and the Seadrill Common Shares were acquired by the Commitment Parties under the Investment Agreement and were reduced to the extent the Note Rights and Equity Rights were exercised in the Notes Rights Offering and the Equity Rights Offering, respectively. The Commitment Parties did not participate in the Notes Rights Offering nor the Equity Rights Offering, in accordance with the terms of the Investment Agreement.
v.Issuance and distribution of the new shares under the Plan and Investment Agreement
The following table sets forth the allocation of common shares issued on the Effective Date, subject to the terms and conditions of the Plan:
    Percentage
Recipient of Common Shares Number of shares
 Prior to dilution by Primary Structuring Fee and the shares reserved under the Employee Incentive Plan
 Prior to dilution by the shares reserved under the Employee Incentive Plan
 Fully diluted
Commitment Parties (in exchange for cash paid pursuant to the Investment Agreement) and Equity Rights Offering Subscribers 23,750,000
 25.00% 23.75% 21.38%
Recipients of New Secured Notes (including Commitment Parties and Notes Rights Offering Subscribers) 54,625,000
 57.50% 54.63% 49.16%
Holders of General Unsecured Claims 14,250,000
 15.00% 14.25% 12.82%
Former Holders of Old Seadrill Limited Equity and Seadrill Limited 510(b) Claimants 1,900,000
 2.00% 1.90% 1.71%
Fees to Select Commitment Parties 475,000
 0.50% 0.47% 0.43%
All creditors, excluding Primary Structuring Fee 95,000,000
 100.00% 95.00% 85.50%
Hemen (on account of Primary Structuring Fee) 5,000,000
 -
 5.00% 4.50%
Total, prior to dilution by shares reserved under the Employee Incentive Plan 100,000,000
 -
 100.00% 90.00%
Reserved for the Employee Incentive Plan 11,111,111
 -
 -
 10.00%
Total, fully diluted 111,111,111
 -
 -
 100.00%
vi.New Secured Notes
In accordance with the terms and conditions of the Investment Agreement, the Commitment Parties purchased the full principal amount of the New Secured Notes for $880 million in cash, less the principal amount purchased by participants in the Notes Rights Offering, and on the Effective Date, NSNCo issued $880 million in principal amount of New Secured Notes. As described above, Seadrill Limited issued approximately

57.5% of the common shares in Seadrill (prior to dilution by the Primary Structuring Fee and the shares reserved under the employee incentive plan) on a pro rata basis to the purchasers of the New Secured Notes.going concern position.
b) Acquisitions or disposals of material assets
On March 13, 2017,In September 2020, we reached settlement with Hyundai Samho Heavy Industries ("HSHI") with regard toacquired the West Mira, pursuant to which we received a cash paymentminority holding of $170 million on March 14, 2017, representing the yard installment receivable excluding any additional accrued interest. We recorded a non-cash impairment of $44 million for the year ended December 31, 2017 to reflect the difference in the carrying value33.76% of the West Mira receivable and the settlement value. As partshare capital of this settlement, NorthernAsia Offshore Drilling ("NODL"Limited (“AOD), a related party, purchased the West Mira from HSHI. In June 2018 we executed an agreement with NODLMermaid for the commercial and technical management of the West Mira as well as a right of first refusal for purchase of the Unit.
On April 29, 2017 we reached an agreement with Shelf Drilling to sell the West Triton, West Mischief and West Resolute for a totalcash consideration of $225 million. The $31 million, giving Seadrill a 100% shareholding in AOD.
In September 2020, we sold the cold-stacked harsh-environment jack-up rig West Triton and West Resolute were delivered in May 2017, whilstEpsilon for $12 million with the West Mischief was delivered in September 2017. The sale resulted in a loss on disposal of $166 million.
On April 5, 2018, we entered into a settlement and release agreement, subject proceeds paid directly to Bankruptcy Court approval, with Jurong in respect of the West Rigel, which was recorded in our Consolidated Balance Sheetbanks as an asset held for sale at December 31, 2017. The sale completed, and the proceeds were received on May 9, 2018. Per the terms of the New Secured Notes, we were required to redeem a proportion of the principal and interest outstanding on the notes usingearly repayment against our share of the West Rigel sale proceeds. We used the proceeds to make a mandatory redemption of $121 million of principal and $5 million of accrued interest on November 1, 2018.external debt.
c) Other significant developments
On April 26,Contracts to acquire eight newbuild jack-up rigs from Dalian were terminated between October 2017 as partand March 2019. In March 2019, the relevant Seadrill contracting parties commenced arbitration proceedings in London for all eight rigs to claim for the return of Archer’s restructuring plans, we agreed to make cash payments totaling $28 million to extinguish $278 million of financial guarantees provided by us on behalf of Archer. We also converted $146 million, including accruedthe paid installments plus interest and fees, in subordinated loans provided to Archer into a $45 million subordinated convertible loan.further damages for losses. The subordinated convertible loan bears interest of 5.5%, matures in December 2021 and has a conversion right into equity of Archer Limited in 2021. The exercise price of the option is $2.083 per share, which was approximately 75% above the subscription price in Archer’s private placement on March 2, 2017.
On May 11, 2018, we purchased an interest rate capSeadrill contracting parties have also filed claims for $68 million to mitigate our exposure to future increases in LIBOR on our floating rate debt. The capped rate against the 3-month US LIBOR is 2.87% and covers the period from June 15, 2018 to June 15, 2023. The principal amount covered by the cap as at December 31, 2018 is $4.5 billion.
On July 18, 2018 Seadrill Partners, received approximately $248 million relating to the West Leo early termination litigation award, of which $204 million was recognized as revenue in Seadrill Partners' Statement of Operations for the second quarter ended June 30, 2018. Seadrill Partners is an associated company in which we hold an investment (see ITEM 4C "Organizational Structure").
On October 31, 2018, we completed a transaction that fully extinguished the sponsor guarantees given by Seadrill Limited and Sapura Energy Berhad for the benefit of the lenders of certain debt facilities of the Seabras Sapura joint venture. Seadrill Limited’s guarantee obligations were previously released, discharged and terminatedthese amounts as part of the Chapter 11Dalian insolvency proceedings in China, which commenced in January 2019. SeeNote 35 - "Commitments and undercontingencies" to the termsConsolidated Financial Statements included herein for further information about the on-going legal proceedings.
In February 2019, we entered into an agreement to establish a 50:50 joint venture ("Sonadrill") with Sonangol. The joint venture was intended to operate four drillships, focusing on opportunities in Angolan waters. Each of the October 31 transaction, the lenders confirmed that they had no outstanding claims against Seadrill Limited in respect of its guarantees and released and discharged Sapura Energy Berhad’s guarantees. In return for the release and discharge of both sponsors’ guarantees, the lenders under the debt facilities received, amongst other things, cross-collateralisation of the debt facilities, a prepayment from the joint venture an increase in marginparties was intended to bareboat charter two drillships into Sonadrill with Seadrill managing and a consent fee.
On November 1, 2018, we redeemed $121 million of principaloperating all the units and $5 million of accrued interest on our New Secured Notes. Perbeing responsible for managing the termsdelivery and mobilization of the two Sonangol drillships, from the shipyard in Korea, under a separate commissioning and mobilization agreement with Sonangol. In October 2019, Seadrill and Sonangol contributed $50 million equity into the joint venture. On October 1, 2019, the first bareboat
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charter and management agreement for the Sonangol drilling unit, Libongos, became effective. The rig commenced its first drilling contract on October 10, 2019. The Libongos was suspended from operations between May 2020 and December 2020 with the remaining backlog on the contract being deferred. The remaining drillships have not yet been chartered to Sonadrill.
In August 2019, we entered into an agreement to establish a 50:50 joint venture ("Gulfdrill") with Gulf Drilling International ("GDI"), to provide drilling services in Qatar. GDI was awarded five long-term drilling contracts in Qatar which it has novated to Gulfdrill. We have leased three of our benign environment jack-up rigs, West Castor, West Telesto and West Tucana to Gulfdrill for use under these contracts and have secured bareboat charters for a further two rigs from a third-party shipyard. GDI manages and operate all rigs on behalf of the joint venture.
On March 26, 2020 we received a written notice from the New Secured Notes,York Stock Exchange ("NYSE") that we were not in compliance with listing rules due to our average closing share price falling below $1 over a period of 30 consecutive trading days. On April 8, 2020 we provided the required notice to redeemthe NYSE stating our intention to seek a proportioncure of our non-compliance. However due to the impact of the principal and interest outstandingcoronavirus pandemic on the notes using our shareoffshore drilling industry, the Board of Directors determined that delisting was in the best interests of the West Rigel sale proceeds (referCompany, announcing the decision on June 1, 2020 and filing a Form 25 with the SEC on June 11, 2020. We stopped trading on this exchange on June 19, 2020. Our Shares currently trade on the over-the-counter (OTC) market under the ticker symbol SDRLF. We will continue to section 2b above).be listed on the Oslo Stock Exchange.
In December 2018,2020, Seadrill Partners, an affiliated company, voluntarily entered into Chapter 11 proceedings. The consequence of the court involvement in operating and financial decisions meant we reached an amicableno longer had significant influence over our various interests in this entity - see Note 20 - "Investments in associated companies" to the Consolidated Financial Statements included herein for further information. The court has granted relief requested in first day motions related to ordinary course business activities. This allows Seadrill Partners to continue to pay critical third-party suppliers and vendors.
On February 3, 2021 Seadrill Partners entered into a management agreement with Transocean over alleged patent infringementEnergy Drilling to maintain, market and operate the Seadrill Partners owned tender rigs T-15, T-16 and West Vencedor. The agreement started a 90-day transition period of the Transocean dual activity patent. Under the terms of the settlement,services provided from Seadrill andLimited to Energy Drilling.
On February 10, 2021 we received notification that Seadrill Partners have entered intosubmitted a global licensemotion for the approval of a new management services agreement with Transocean ofVantage Drilling for certain rigs in the dual activity drilling method on our rigs covering alleged past infringements and future use.Seadrill Partners Fleet.
3) Capital expenditures
Our capital expenditures primarily relate to (i) our newbuilding drilling unit program, (ii) upgrades to our existing drilling units and (iii)(ii) costs incurred on major maintenance projects.
We have summarized capital expenditures for the periods covered by this annual report in the table below.

(In $ millions) Successor
 Predecessor(In $ millions)SuccessorPredecessor
Summary of capital expenditures Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

Summary of capital expendituresYear ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Additions to newbuilding 
 (1) (33) (52)Additions to newbuilding— — — (1)
Additions to drilling units and equipment (27) (48) (59) (84)Additions to drilling units and equipment(27)(48)(27)(48)
Payments for long-term maintenance (71) (78) (58) (95)Payments for long-term maintenance(121)(114)(71)(78)
Total capital expenditure (98) (127) (150) (231)Total capital expenditure(148)(162)(98)(127)
4) Further information
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. You may find additional information on Seadrill on that site. The address of that site is http://www.sec.gov.

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B.BUSINESS OVERVIEW


Table of Contents
B.BUSINESS OVERVIEW

1) Introduction
We are an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. Our primary business is the ownership and operation of drillships, semi-submersible rigs and jack-up rigs for operations in shallow to ultra-deepwater areas in both benign and harsh environments. We contract our drilling units to drill wells for our customers on a dayrate basis. Typically, our customers are oil super-majors, and major integrated oil and gas companies, state-owned national oil companies and independent oil and gas companies.
Through a number of acquisitions of companies, second-hand units and newbuildings, we have developed into one of the world's largest international offshore drilling contractors. We own and operate 3534 drilling rigs and we manage and operate 1820 rigs on behalf of Seadrill Partners, SeaMex, Sonangol, Sonadrill and Northern Drilling.Ocean.
We are recognized for providing high quality operations, in some of the most challenging sectors of offshore drilling.drilling. We employee 4,888employ 3,175 employees across the globe. We are incorporated in Bermuda, and have worldwide operations based on where activities are conducted in the global oil and gas industry.
We operate through the following segments: (i) floaters;harsh environment; (ii) jack-up rigs;floaters; and (iii) other,jack-up rigs, as further explained below and in 5A - "Operating and Financial Review".
2) Our Fleet
Our relatively modern fleet, is one ofamong the youngest and most modern of allin the industry, is well positioned compared with other major offshore drilling contractors. We currently own and operate adrillers. Our fleet of 3534 drilling units including sevenincludes 7 drillships, 12 semi-submersible rigs and 1615 jack-up rigs. We also have an option to purchase one semi-submersible rig. You may findFor additional information on our drilling units and newbuildings in itemrefer to Item 4D - "Property, Plant and Equipment".
We categorize the drilling units in our fleet as (i) floaters, (ii) jack-ups and (ii) jack-ups.(iii) harsh environment. This is further explained below.
a) Floaters
Our floaters segment encompasses our drillships and benign environment semi-submersible rigs.
i.
Drillships:
i.Drillships:
Drillships are self-propelled ships equipped for drilling offshore in water depths ranging from 1,000 to 12,000 feet and are positioned over the well through a computer-controlled thruster system similar to that used on semi-submersible rigs.system. Drillships are suitable for drilling in remote locations because of their mobility and large load-carrying capacity. Depending on country of operation, drillships operate with crews of 65 to 10050 or more people.
ii.Semi-submersible drilling rigs:
ii.Semi-submersible drilling rigs:
Semi-submersibles are self-propelled drilling rigs (which include cylindrical designed units) consisting of an upper working and living quarters deck connected to a lower hull consisting of columns and pontoons. Such rigs operate in a “semi-submerged” floating position, in which the lower hull is below the waterline and the upper deck protrudes above the surface. The rig is situated over a wellhead location and remains stable for drilling in the semi-submerged floating position, due in part to its wave transparency characteristics at the water line.
Semi-submersible rigs can be either moored or dynamically positioned. Moored semi-submersible rigs are positioned over the wellhead location with anchors and typically operate in water depths ranging up to 1,500 feet. Dynamically positioned semi-submersible rigs are positioned over the wellhead location by a computer-controlled thruster system and typically operate in water depths ranging from 1,000 to 12,000 feet. Depending on country of operation, semi-submersible rigs generally operate with crews of 65 to 10050 or more people.
b) Jack-Up Rigs
Jack-up rigs are mobile, self-elevating drilling platforms equipped with legs that are lowered to the seabed. A jack-up rig is mobilized to the drill site with a heavy lift vessel or a wet tow. At the drill site, the legs are lowered until they penetrate the sea bed and the hull is elevated to an approximate operational airgap of 50 to 100 feet depending on the expected environmental forces. After completion of the drilling operations, the hull is lowered to floating draft, the legs are raised and the rig can be relocated to another drill site. Jack-ups are generally suitable for water depths of 450 feet or less and operate with crews of 90 to 120 people.
c) Harsh Environment
Harsh environment rigs include both semi-submersibles and jack-ups that have a number of design modifications to be able to handle to weather conditions as seen in the North Sea and Canada. Compared to benign environment rigs, these modifications include increased variable load to reduce the need for resupply, increased air gap to increase wave clearance, increased automation, changes in the geometry of the legs or columns to decrease wind and wave loads, and greater spacing between the legs or columns. Harsh environment rigs tend to be larger, heavier and more expensive to construct than benign environment rigs.
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3) Competitive Strengths
We believe that ourOur competitive strengths include:focus on four key areas:
i.One of the largest offshore drilling contractors
i.Scale and age-one of the largest and youngest offshore drilling contractors
Since our inception in 2005, we have developed into one of the world’s largest international offshore drilling contractors. While we are onecompanies, with a significant geographical footprint. Most of the largest offshore drilling companies, we also haveour rigs were built after 2007, contributing to one of the youngest rig fleetsfleet in our industry, with an average fleet age of approximately 9 years.industry.

ii.Unwavering commitment to safety and the environment
ii.Commitment to safety and the environment
We believe that the combination of quality drilling units and experienced anda highly skilled employeesworkforce allows us to provide our customersCustomers with safe and effectiveefficient operations. Quality assetsWe behave responsibly towards our shared environment and operational expertise allowcontinue to commit resources to improving our environmental programs with a drive to reduce our overall carbon footprint (“B-” ranking awarded by Carbon Disclosure Program (CDP) in 2019, above average compared to our peer group). Nothing is more important to us than the health, safety and security of our workforce and the communities in which we operate. During 2020 we increased resources available to establish, develop and maintain a position as a preferred providerour workforce to look after their mental health in response to the ongoing global COVID-19 pandemic. In several local areas of offshore drilling services foroperations our customers.workforce has contributed in different ways to the local community to help battle COVID-19.
iii.Technologically advanced and young fleet
iii.Technologically advanced fleet
Our drilling units are amongamongst the most technologically advanced in the world, based on the age of our fleet. The majority of our rigs were built after 2007, which is among the lowest averageworld. Our modern fleet age in the industry. Although current offshore drilling demand is weak, new and modern units that offeroffers superior technical capabilities, resulting in high operational flexibility and reliability are preferred by customers and are winning most available opportunities.reliability. We believe, based on our proven operational track record and fleet composition that we will be better placed to secure new drilling contracts than some of our competitors with older, less advanced rig fleets.
iv.
Strong and diverse customer relationships
iv.Trust-based, enduring Customer relationships
We have strong relationships with our customersCustomers that we believe are based on trust in our people, operational track record and the quality and reliability of our fleet.assets. Our customersCustomers are oil and gas exploration and production companies, including integrated oil companies,super-majors, state-owned national oil companies and independent oil and gas companies.
4) Overall Strategy
DuringFrom shallow to ultra-deep water, in both harsh and benign environments, our vision is to set the current challenging period forstandard in offshore drilling, and we deliver this vision through the industry and to maintainfour pillars of our position as a leading offshore driller, our strategy includes being able to deliver in the following key areas:strategy:
i.Best Operations
We are a leading offshore deepwater drilling company and our keyi.Best Operations
Our objective is to deliver the best operations possible - both in terms of utilization and commitment to health, safety and the environment. To do this, we leverage having one of the most modern fleetsrigs in the industry combined with a motivated, highly skilled and our combination of experienced workforce.
ii.Right rigs
We are organized by asset class – Harsh Environment, Jack-Ups and skilled employees across the organization. Using our strong operational record, we intend to maximize opportunities for new drilling contracts and sustain a competitive cost structure, which we have been pursuing through our multi-year savings program, while minimizing chances of contract terminations.
ii.Right rigs
Our business model includes both jack-ups and floaters and we will continue to maintain our presence in both segments.Floaters. Having the right rigs in these two segments allows us to offer a range of assets to suit the diverse needs of our customer needs, to workCustomers, working in various geographies and water depths, and to positionwhilst positioning ourselves for future growth in the industry.
iii.Strongest relationships
iii.Strongest relationships
We have established strong androbust, long-term relationships with key players in the industry and we will seek to deepen and strengthen these relationships as part of our strategy.further. This involves identifying additional value-adding services for our existing customersCustomers and developing long-term, mutually beneficial partnerships. By providingWe strive to provide the best possible service to our customers, we aim to help them unlock energyCustomers and be valued partners in their success.
iv.Leading organization
iv.Leading organization
We are proud of our Seadrill culture and we recognize that our business is built on people. As part of our strategy, we aim to recruit, retain, and develop the best people in the industry and to build ana dynamic organization that continually adapts to ever-evolving business needs.
5) Research and Development
We recognize the significant impact that technology is having on our industry and through adopting new technological advances, improving connectivity and digitizing the way we operate, we have enhanced visibility over monitoring and managing our assets. Innovation remains at the center of our strategy. For instance, research and development has enabled us to implement PLATO, an advanced data analytics platform that monitors rig performance. The ability to draw insight from these large data sets help us to optimize our drilling performance for customers and ensure care and maintenance of our equipment, without compromising on safety.
6) Markets
Our operations are geographically dispersed in oil and gas exploration and development areas throughout the world. We operate in a single, global offshore drilling market, as our drilling rigs are mobile assets and are able to be moved according to prevailing market conditions. We organize our business into the following segments: (i) floaters,harsh environment; (ii) jack-upsfloaters; and (iii) other. You can find an analysisjack-ups. For details of our revenues and fixed assets by operating segment and geography, in refer toNote 67 - "Segment information"to the Consolidated Financial Statements included within this report.herein.
The "floater" and "jack-up" segments are driven by category
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Table of rig as explained in section two above. Our "other" segment predominantly relates to the provision of management services to third parties and related parties, in which we charge a management fee income for such services. Please refer to Note 30 to the Consolidated Financial Statements included within this report for more information on management and administrative services provided to related parties.Contents
6)7) Seasonality
In general, seasonal factors do not have a significant direct effect on our business. However, we have operations in certain parts of the world where weather conditions during parts of the year could adversely impact the operational utilization of the rigs and our ability to relocate rigs between drilling locations, and as such, limit contract opportunities in the short term. Such adverse weather could include the hurricane season and loop currents for our operations in the Gulf of Mexico, the winter season in offshore Norway, West of the Shetlands and Canada, and the monsoon season in Southeast Asia.

7)8) Customers
Our customers areinclude oil and gas exploration and productionsuper-majors, state-owned national oil companies including major integrated oil companies,and independent oil and gas producers and government-owned oil and gas companies. You can findIn addition, we provide management services to certain affiliated entities. For an analysis of our most significant customers, in refer to Note 67 - 'Segment information" to the Consolidated Financial Statements included within this report.herein.
8)9) Drilling contracts
In general, we contract our drilling units to oil and gas companies to provide offshore drilling services at an agreed dayrate for a specifiedfixed contract term.term or on a well completion basis. Dayrates can vary, depending on the type of drilling unit and its capabilities, contract length, geographical location, operating expenses, taxes and other factors such as prevailing economic conditions. We do not provide "turnkey" or other risk-based drilling services to the customer. Instead, we provide a drilling unit and rig crews and charge the customer a fixed amount per day regardless of the number of days needed to drill the well. The customer bears substantially all the ancillary costs of constructing the well and supporting drilling operations, as well as most of the economic risk relative to the success of the well.
Where operations are interrupted or restricted due to equipment breakdown or operational failures, we do not generally receive dayrate compensation for the period of the interruption in excess of contractual allowances. Furthermore, the dayrate we receive can be reduced in instances of interrupted or suspended service due to, among other things, repairs, upgrades, weather, maintenance, force majeure or requested suspension of services by the customer and other operating factors.
However, contracts normally allow for compensation when factors beyond our control, including weather conditions, influence the drilling operations and, in some cases, for compensation when we perform planned maintenance activities. In some of our contracts, we are entitled to cost escalation to compensate for industry specific cost increases as reflected in publicly available cost indexes.
We may receive lump sum or dayrate based fees for the mobilization of equipment and personnel or for capital additions and upgrades prior to the start of drilling services. In some cases, we may also receive lump sum or dayrate based fees for demobilization upon completion of a drilling contract.
Our contracts may generally be terminated by the customer in the event the drilling unit is destroyed or lost or if drilling operations are suspended for an extended period because of a breakdown of major rig equipment, "force majeure" or upon the occurrence of other specified conditions. Some contracts include provisions that allow the customer to terminate the contract without cause for a specified early termination fee.
A drilling unit may be "stacked" if it has no contract in place. Drilling units may be either warm stacked or cold stacked. When a rig is warm stacked, the rig is idle but can deploy quickly if an operator requires its services. Cold stacking a rig involves reducing the crew to either zero or just a few key individuals or removal of the entire crew and storing the rig in a harbor, shipyard or designated area offshore.
9)10) Competition
The offshore drilling industry is highly competitive, with market participants ranging from large multinational companies to small locally-owned companies. The demand for offshore drilling services is driven by oil and gas companies’ exploration and development drilling programs. These drilling programs are affected by oil and gas companies’ expectations regarding oil and gas prices, anticipated production levels, worldwide demand for oil and gas products, the availability of quality drilling prospects, exploration success, availability of qualified rigs and operating personnel, relative production costs, availability and lead time requirements for drilling and production equipment, the stage of reservoir development and political and regulatory environments.
Oil and gas prices are volatile, which has historically led to significant fluctuations in expenditures by our customers for drilling services. Variations in market conditions during cycles impact us in different ways, depending primarily on the length of drilling contracts in different regions.
Offshore drilling contracts are generally awarded on a competitive bid basis.basis or through privately negotiated transactions. In determining which qualified drilling contractor is awarded a contract, the key factors are pricing, rig availability, and sustainability,technical specification, rig location, condition and integrity of equipment, their record of operating integrity,efficiency, safety performance record, crew experience, reputation and industry standing and clientcustomer relations.
Furthermore, competition for offshore drilling rigs is generally on a global basis, as rigs are highly mobile. However, the cost associated with mobilizing rigs between regions is sometimes substantial, as entering a new region could necessitate upgrades of the unit and its equipment to specific regional requirements. In particular, for rigs to operate in harsh environments, such as offshore Norway and Canada, as opposed to benign environments, such as the Gulf of Mexico, West Africa, Brazil and Southeast Asia, more demanding weather conditions would require more costly investment in the outfitting and maintenance of the drilling units.
For further information on current market conditions and global offshore drilling fleet, please see “Itemrefer to Item 5D - Trend Information.”"Trend Information".
10)
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11) Risk of Loss and Insurance
Our operations are subject to hazards inherent in the drilling of oil and gas wells, including blowouts and well fires, which could cause personal injury, suspend drilling operations, or seriously damage or destroy the equipment involved. Offshore drilling contractors are also subject to hazards particular to marine operations, including capsizing, grounding, collision and loss or damage from severe weather. Our rig insurance package policy provides insurance coverage for physical damage to our rigs, loss of hire for our working rigs and third-party liability.

i.Physical Damage Insurance
i.Physical Damage Insurance
We purchase hull and machinery insurance to cover for physical damage to our drilling rigs. We retain the risk, through self-insurance, for the deductibles relating to physical damage insurance on our drilling unit fleet; currently, a maximum of $5 million per occurrence.
ii.Loss of Hire Insurance
ii.Loss of Hire Insurance
We also have insurance to cover loss of revenue for our operational rigs (floaters and harsh environment jack-ups, only)not benign environment jack-ups) in the event of extensive downtime caused by physical damage, where such damage is covered under our physical damage insurance. The loss of hire insurance has a deductible period of up to 60 days after the occurrence of physical damage. Thereafter we are compensated for loss of revenue up to 290 days per event and aggregated per year. The daily indemnity will vary from 75% to 100% of the contracted dayrate. We retain the risk related to loss of hire during the initial up to 60-day period, as well as any loss of hire exceeding the number of days permitted under the insurance policy. If the repair period for any physical damage exceeds the number of days permitted under the loss of hire policy, we will be responsible for the loss of revenue in such a period.
iii.Protection and Indemnity Insurance
iii.Protection and Indemnity Insurance
We also purchase Protection and Indemnity insurance (P&I) and excess liability insurance for personal injury liability for crew claims, non-crew claims and third-party property damage including oil pollution from the drilling rigs to cover claims of up to $500 million and $900$700 million in the United States per event and in the aggregate. We retain the risk for the deductible of up to $25,000 per occurrence relating to protection and indemnity insurance or up to $500,000 for claims made in the United States.
iv.Windstorm Insurance
iv.Windstorm Insurance
We have elected to place an insurance policy for physical damage to rigs and equipment caused by named windstorms in the U.S. Gulf of Mexico with a Combined Single Limit of $100 million in the annual aggregate, which includes loss of hire. We intend to renew our policy to insure a limited part of this windstorm risk for a further period starting May 1, 20192021 through April 30, 2020.2022.
11)12) Environmental and Other Regulations in the Offshore Drilling Industry
Our operations are subject to numerous laws and regulations in the form of international treaties and maritime regimes, flag state requirements, national environmental laws and regulations, navigation and operating permits requirements, local content requirements, and other national, state and local laws and regulations in force in the jurisdictions in which our drilling units operate or are registered, which can significantly affect the ownership and operation of our drilling units. See “Item 3. KeyFor details of environmental laws and regulations affecting our operations, refer to Item 3 - "Key Information – D. Risk Factors – Risks Relating to Our Company and Industry – Governmental laws and regulations, including environmental laws and regulations, may add to our costs, expose to us liability, or limit our drilling activity.”activity".
i.Flag State Requirements
i.Flag State Requirements
All our drilling units are subject to regulatory requirements of the flag state where the drilling unit is registered. The flag state requirements are international maritime requirements and, in some cases, further interpolated by the flag state itself. These include engineering, safety and other requirements related to the maritime industry. In addition, each of our drilling units must be “classed” by a classification society. The classification society certifies that the drilling rig is “in-class,” signifying that such drilling rig has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the flag state and the international conventions of which that country is a member. Maintenance of class certification requires expenditure of substantial sums and can require taking a drilling unit out of service from time to time for repairs or modifications to meet class requirements.  Our drilling units must generally undergo class surveys annually and a classrenewal survey once every five years. In addition, for some of the internationally-required class certifications, such as the Code for the Construction and Equipment of Mobile Offshore Drilling Units (the “MODU Code”) certificate, the classification society will act on a flag state’s behalf. The Classification Society can also act on behalf of the Flag State for survey and issue of International Certification. Port States can also impose stricter regimes than the Flag State when the drilling unit is operating in their territorial waters.
ii.International Maritime Regimes
ii.International Maritime Regimes
Applicable international maritime regime requirements include, but are not limited to, the International Convention for the Prevention of Pollution from Ships (“MARPOL”), the International Convention on Civil Liability for Oil Pollution Damage of 1969 (the “CLC”), the International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001 (ratified in 2008), or the Bunker Convention, the International Convention for the Safety of Life at Sea of 1974 (“SOLAS”), the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or the ISM Code, MODU Code, and the International Convention for the Control and Management of Ships’ Ballast Water and Sediments in February 2004 (the “BWM Convention”).  These various conventions regulate air emissions and other discharges to the environment from our drilling units worldwide, and we may incur costs to comply with these regimes and continue to comply with these regimes as they may be amended in the future. In addition, these conventions impose liability for certain discharges,
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including strict liability in some cases. SeeFor details of these laws and regulations, refer to Item 3 “Key- "Key Information - D. Risk Factors - Risks Relating to Our Company and Industry - We are subject to complex environmental laws and regulations that can adversely affect the cost, manner or feasibility of doing business.”

Annex VI to MARPOL sets limits on sulfur dioxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances. Annex VI applies to all ships and, among other things, imposes a global cap on the sulfur content of fuel oil and allows for specialized areas to be established internationally with even more stringent controls on sulfur emissions. For vessels 400 gross tons and greater, platforms and drilling rigs, Annex VI imposes various survey and certification requirements. Moreover, amendments to Annex VI require the imposition of progressively stricter limitations on sulfur emissions from ships. Since January 1, 2015, these limitations have required that fuels of vessels in covered Emission Control Areas (“ECAs”) contain no more than 0.1% sulfur, including the Baltic Sea, North Sea, North America and United States Sea ECAs. For non-ECA areas, the sulfur limit in marine fuel is currently capped at 3.5%, which will then decrease to 0.5% on January 1, 2020, but this was subject to a feasibility review.
At MEPC 73 in October 2018, it was confirmed that there will be no change to the 1 January 2020 0.50% SOx limit and a ban was adopted on the carriage of fuel with sulphur content above the limit for ships without an approved alternative means, such as a scrubber.  This will enter into force on 1 Mar 2020, because this is the earliest possible date for a MARPOL amendment to enter into force - it does not change the underlying 1 Jan 2020 limit change.  There are related IMO regulations concerning the discharge of scrubber washwater, but some coastal states and ports have implemented local regulations with more stringent requirements that restrict, or completely prohibit, the discharge of washwater from open loop scrubbers or prohibit the use of scrubbers.  This is an issue in several European countries, California, Hawaii & Connecticut in USA, UAE, India, Singapore and China.  Annex VI also requires tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. All our rigs are in compliance with these requirements. Tier III engines are already required in the North American and US Caribbean ECAs, and vessels built after 1 January 2021 will require such engines to enter the North Sea and Baltic ECA.  As part of IMO data gathering related to Green House Gas (GHG) emissions, Annex VI also requires data collection for fuel oil consumption and reporting of this to the flag state. business".
The BWM Convention calls for a phased introduction of mandatory ballast water exchange requirements (beginning in 2009), to be replaced in time with a requirement for mandatory ballast water treatment. The BWM Convention entered into force on September 8, 2017. Under its requirements, for units with ballast water capacity more than 5,000 cubic meters that were constructed in 2011 or before, only ballast water treatment will be accepted byfrom the BWM Convention.next International Oil Pollution Prevention renewal survey (after September 8, 2019). All Seadrill units considered in operational status are in full compliance with the staged implementation of the BWM Convention by International Maritime Organization guidelines.
iii.Environmental Laws and Regulations
As of January 1, 2020, MARPOL Annex VI, Regulation 14, requires the sulphur content of any fuel used on board ships to be limited to 0.5% m/m (percent by mass). The fuel we use is compliant to these regulations. Ships must either burn compliant fuel, or use an exhaust gas cleaning system, which have fitting and upkeep costs.
iii.Environmental Laws and Regulations
Applicable environmental laws and regulations include the U.S. Oil Pollution Act of 1990, ("OPA"), the Comprehensive Environmental Response, Compensation and Liability Act, ("CERCLA"), the U.S. Clean Water Act, ("CWA"), the U.S. Clean Air Act, ("CAA"), the U.S. Outer Continental Shelf Lands Act ("OCSLA"), the U.S. Maritime Transportation Security Act of 2002, (“MTSA"), European Union regulations, including the EU Directive 2013/30 on the Safety of Offshore Oil and Gas Operations, and Brazil’s National Environmental Policy Law (6938/81), Environmental Crimes Law (9605/98) and Federal Law (9966/2000) relating to pollution in Brazilian waters. These laws govern the discharge of materials into the environment or otherwise relate to environmental protection. In certain circumstances, these laws may impose strict liability, rendering us liable for environmental and natural resource damages without regard to negligence or fault on our part. Implementation of new environmental laws or regulations that may apply to ultra-deepwater drilling units may subject us to increased costs or limit the operational capabilities of our drilling units and could materially and adversely affect our operations and financial condition. SeeFor details of these laws and regulations, refer to Item 3 “Key- "Key Information - D. Risk Factors - Risks Relating to Our Company and Industry - We are subject to complex environmental laws and regulations that can adversely affect the cost, manner or feasibility of doing business.”business".
iv.Safety Requirements
iv.Safety Requirements
Our operations are subject to special safety regulations relating to drilling and to the oil and gas industry in many of the countries where we operate. The United States undertook substantial revision of safety regulations applicable to our industry following the 2010 Deepwater Horizon Incident, in which we were not involved. Other countries also have undertaken or are undertaking a review of their safety regulations related to our industry. These safety regulations may impact our operations and financial results by adding to the costs of exploring for, developing and producing oil and gas in offshore settings. For instance, in 2016, the BSEE published a final rule that sets more stringent design requirements and operational procedures for critical well control equipment used in offshore oil and gas drilling and separately announced a risk-based inspection program for offshore facilities. Also, in 2016, BOEM issued a final Notice to Lessees and Operators imposing more stringent supplemental bonding procedures for the decommissioning of offshore wells, platforms and pipelines. These regulations, which may result in additional costs for us, have since become the subject of additional review and possible revision by BSEE and BOEM and, as a result, we cannot predict their impact on our future operations. The EU also has undertaken a significant revision of its safety requirements for offshore oil and gas activities through the issue of the EU Directive 2013/30 on the Safety of Offshore Oil and Gas Operations. These other future safety and environmental laws and regulations regarding offshore oil and gas exploration and development may increase the cost of our operations, lead our customers to not pursue certain offshore opportunities and result in additional downtime for our drilling units. In addition, if material spill events similar to the Deepwater Horizon Incident were to occur in the future, or if other environmental or safety issues were to cause significant public concern, the United States or other countries could elect to, again, issue directives to cease drilling activities in certain geographic areas for lengthy periods of time.
v.Navigation and Operating Permit Requirements
v.Navigation and Operating Permit Requirements
Numerous governmental agencies issue regulations to implement and enforce the laws of the applicable jurisdiction, which often involve lengthy permitting procedures, impose difficult and costly compliance measures, particularly in ecologically sensitive areas, and subject operators to substantial administrative, civil and criminal penalties or may result in injunctive relief for failure to comply. Some of these laws contain criminal sanctions in addition to civil penalties.

vi.Local Content Requirements
vi.Local Content Requirements
Governments in some countries have become increasingly active in local content requirements on the ownership of drilling companies, local content requirements for equipment utilized in our operations, and other aspects of the oil and gas industries in their countries. These regulations include requirements for participation of local investors in our local operating subsidiaries in countries such as Angola and Nigeria. There are currently also local content requirements in relation to drilling unit contracts in which we are participating in Brazil, although Brazil recently lessened local content requirements for future projects. Although these requirements have not had a material impact on our operations in the past, they could have a material impact on our earnings, operations and financial condition in the future.
vii.Other Laws and Regulations
vii.Other Laws and Regulations
In addition to the requirements described above, our international operations in the offshore drilling segment are subject to various other international conventions and laws and regulations in countries in which we operate, including laws and regulations relating to the importation of, and operation of, drilling units and equipment, currency conversions and repatriation, oil and gas exploration and development, taxation of offshore earnings and earnings of expatriate personnel, the use of local employees and suppliers by foreign
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contractors and duties on the importation and exportation of drilling units and other equipment. There is no assurance that compliance with current laws and regulations or amended or newly adopted laws and regulations can be maintained in the future or that future expenditures required to comply with all such laws and regulations in the future will not be material.


C.ORGANIZATIONAL STRUCTURE

C.ORGANIZATIONAL STRUCTURE

1) Consolidated Subsidiaries
A full list of our significant management, operating and rig-owning subsidiaries is shown in Exhibit 8.1. All subsidiaries are, indirectly or directly, wholly-owned by us, except as follows:
i.
Asia Offshore Drilling ("AOD")
We haveSeadrill Nigeria Operations Limited
HH Global Alliance Investments Limited ("Heirs Holdings"), an unrelated party registered in Nigeria, owns a 66.24%non-controlling interest in Asia Offshore Rig 1 Ltd, Asia Offshore Rig 2 Ltd, and Asia Offshore Rig 3 Ltd which own the benign environment jack-up rigs AOD 1, AOD 2 and AOD 3. The remaining 33.76% interest is owned by Mermaid Maritime Public Company Limited ("Mermaid").
ii.Ship Finance Variable Interest Entities
Between 2007 and 2013 we entered into sale and leaseback arrangements for the semi-submersible rigs West Taurus and West Hercules and the jack-up rig West Linus. The counterparty to these arrangements was Ship Finance International Ltd ("Ship Finance"), who is a related party becauseone of our largest shareholder, Hemen, has a significant interest in both us and Ship Finance. Ship Finance incorporated SFL Deepwater Ltd, SFL Hercules Ltd, and SFL Linus Ltd for the sole purpose of owning and leasing the drilling units. Whilst these companies are wholly-owned subsidiaries, of Ship Finance, we consolidate them under the variable interest entity model because we are the primary beneficiary of the entities.
iii.Seadrill Nigeria Operations Limited
We have a controlling interest in Seadrill Nigeria Operations Limited, which holds a service company that supports the operations of10% interest in our drillship West Jupiter on its and previously supported the West Jupiter's operations whilst it was under contract with Total in Nigeria. TheIn February 2020, we paid $11 million to Heirs Holdings for an option to buy the non-controlling interest is owned by HH Global Alliance Investments Limited, an unrelated party.at any point in the future for a $1 purchase price.
2) Investments in Non-Consolidated Entities
In addition to owning and operating our offshore drilling units through our subsidiaries, we also, from time to time, make investments in other offshore drilling and oil services companies. We currently have the following significant equity investments:
i.Seadrill Partners
i.Seadrill Partners
Seadrill Partners is a Marshall Islands limited liability company that owns four drillships, four semi-submersible rigs and three tender rigs. Seadrill Partners focuses on owning and operating offshore drilling rigs under long-term contracts with major oil companies. As of February 28, 2019,2021, we own 46.6% of the outstanding limited liability interests of Seadrill Partners, which includes 35% of the outstanding common units and 100% of its subordinated units. We also own significant non-controlling interests in most of the operating and rig-owning subsidiaries of Seadrill Partners. Seadrill Partners’ common units tradewere traded on the NYSE under the symbol “SDLP”., before being suspended from trading on the exchange in August 2019 as the market capitalization decreased below $15 million for a period of 30 consecutive days. On December 23, 2019, the common units were delisted from the NYSE.
ii.SeaMex
On December 1, 2020 Seadrill Partners voluntarily entered into Chapter 11 proceedings. This resulted in a loss of significant influence and therefore this investment is no longer accounted for as an equity method investment - see Note 20 - "Investment in associated companies" to the Consolidated Financial Statements included herein.
ii.SeaMex
SeaMex is a joint venture that owns and operates five jack-up drilling units located in Mexico under contract with Pemex. As of February 28, 2019,2021, we have a 50% ownership stake in SeaMex. The remaining 50% interest is owned by an investment fund controlled by Fintech Advisory Inc.,Investment Limited, ("Fintech").
iii.Archer
iii.Archer
Archer is a global oilfield service company that specializes in drilling and well services. As of February 28, 20192021 we own 15.7% of the outstanding common shares of Archer.Archer. We also own a $45 million convertible loan note that has a conversion right into equity of Archer in 2021.Archer.

iv.Seabras Sapura
iv.Seabras Sapura
Seabras Sapura is a group of related companies that own and operate six pipe-laying service vessels in Brazil. As of February 28, 2019,2021, we have a 50% ownership stake in each of these companies. The remaining 50% interest is owned by Sapura Energy Berhad ("SapuraEnergySapura Energy").
You can findv. Gulfdrill
Gulfdrill is a joint venture that manages and operates five premium jack-ups in Qatar with Qatargas. As of February 28, 2021, we have a 50% ownership stake in Gulfdrill. The remaining 50% interest is owned by Gulf Drilling International ("GDI"). We lease three of our jack-up rigs to the joint venture, with the additional two units being leased from a third party shipyard.

vi. Sonadrill

Sonadrill is a joint venture that will operate four drillships focusing on opportunities in Angolan waters. As of February 28, 2021, we have a 50% ownership stake in Sonadrill. The remaining 50% interest is owned by Sonangol EP ("Sonangol"). Both Seadrill and Sonangol will bareboat two units into the joint venture. On October 1, 2019, the first bareboat and management agreements for the Sonangol drilling unit, Libongos, became effective. The rig commenced its first drilling contract on October 10, 2019.
For further information on our investments in non-consolidated entities, refer to Note 20 - "Investment in Note 18associated companies" to the Consolidated Financial Statements included in this report.herein.

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D.PROPERTY, PLANT AND EQUIPMENT
D.PROPERTY, PLANT AND EQUIPMENT
 
In this section, we provide details of our major categories of property, plant and equipment. We have categorized our assets as (i) drilling units, (ii) newbuildings and (iii) office and equipment. You can find further information in the notes to the Consolidated Financial Statements included in this report. Please refer to Note 19 for information on newbuildings, Note 20 for informationFor details on drilling units and equipment refer to Note 21 for information on office - "Drilling units"and equipment.Note 22 - "Equipment", respectively, to the Consolidated Financial Statements included herein.
1) Drilling units
The following tables, presented as of February 28, 2019,at December 31, 2020, provide certain specifications for our operational drilling rigs. Unless otherwise noted, the stated location of each rig indicates either the current drilling location, if the rig is operating, or the next operating location, if the rig is mobilizing for a new contract.
a) Drillships
Harsh Environment
Harsh Environment Semi-submersible rigs (6)
UnitYear builtWater depth (feet)Drilling depth (feet)Location as at December 31, 2020Estimated month of rig availability
West Alpha19862,000 23,000 Norwayavailable
West Venture20002,600 30,000 Norwayavailable
West Navigator20007,500 35,000 Norwayavailable
West Hercules (i)
200810,000 35,000 NorwayJune 2021
West Phoenix200810,000 30,000 NorwaySeptember 2023
West Eminence200910,000 30,000 Spainavailable
Harsh Environment Jack-up Rigs (2)
UnitYear builtWater depth (feet)Drilling depth (feet)Location as at December 31, 2020Estimated month of rig availability
West Elara2011450 40,000 NorwayApril 2028
West Linus (i)
2014450 40,000 NorwayJanuary 2029

Floaters
Benign Environment Semi-submersible rigs (7)
UnitYear builtWater depth (feet)Drilling depth (feet)Location as at December 31, 2020Estimated month of rig availability
West Taurus (i)
200810,000 35,000 Norwayavailable
Sevan Driller200910,000 40,000 Indonesiaavailable
West Orion201010,000 35,000 Malaysiaavailable
West Pegasus201110,000 35,000 Norwayavailable
West Eclipse201110,000 40,000 Namibiaavailable
Sevan Brasil201210,000 40,000 Arubaavailable
Sevan Louisiana201310,000 40,000 USAMarch 2021

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UnitYear built Water depth (feet) Drilling depth (feet) Area of location Estimated month of rig availability
West Navigator2000 7,500 35,000 Norway available
West Gemini2010 10,000 35,000 Angola May 2019
West Tellus2013 12,000 40,000 Brazil October 2019
West Neptune2014 12,000 40,000 USA December 2019
West Jupiter2014 12,000 40,000 Nigeria December 2019
West Saturn2014 12,000 40,000 Brazil September 2019
West Carina2015 12,000 40,000 Malaysia June 2019
Drillships (6)
b) Semi-submersible Rigs (12)
UnitYear builtWater depth (feet)Drilling depth (feet)Location as at December 31, 2020Estimated month of rig availability
West Gemini201010,000 35,000 Angolaavailable
West Tellus201312,000 40,000 BrazilDecember 2021
West Neptune201412,000 40,000 USAMarch 2021
West Jupiter201412,000 40,000 Spainavailable
West Saturn201412,000 40,000 BrazilJuly 2021
West Carina201512,000 40,000 Malaysiaavailable
Jack-ups
UnitYear built Water depth (feet) Drilling depth (feet) Area of location Estimated month of rig availability
West Alpha1986 2,000 23,000 Norway available
West Venture2000 2,600 30,000 Norway available
West Phoenix2008 10,000 30,000 Norway January 2021
West Hercules (i)
2008 10,000 35,000 Norway November 2019
West Taurus (i)
2008 10,000 35,000 Spain available
West Eminence2009 10,000 30,000 Spain available
West Orion2010 10,000 35,000 Malaysia available
West Pegasus2011 10,000 35,000 Norway available
West Eclipse2011 10,000 40,000 Namibia available
Sevan Driller2009 10,000 40,000 Malaysia available
Sevan Brasil2012 10,000 40,000 Aruba available
Sevan Louisiana2013 10,000 40,000 USA May 2019

c)Benign Environment Jack-up Rigs (16)(13)
UnitYear builtWater depth (feet)Drilling depth (feet)Location as at December 31, 2020Estimated month of rig availability
West Prospero2007400 30,000 Malaysiaavailable
West Vigilant2008350 30,000 Malaysiaavailable
West Ariel2008400 30,000 United Arab Emiratesavailable
West Cressida2009375 30,000 Thailandavailable
West Freedom2009350 30,000 Colombiaavailable
West Callisto2010400 30,000 Saudi ArabiaDecember 2022
West Leda2010375 30,000 Malaysiaavailable
AOD I2013400 30,000 Saudi ArabiaJuly 2022
AOD II2013400 30,000 Saudi ArabiaMay 2023
AOD III2013400 30,000 Saudi ArabiaJanuary 2023
West Castor2013400 30,000 QatarSeptember 2023
West Tucana2013400 30,000 QatarMay 2024
West Telesto2013400 30,000 QatarFebruary 2023
UnitYear built Water depth (feet) Drilling depth (feet) Area of location Estimated month of rig availability
          
Jack-up rigs         
West Epsilon1993 400 30,000 Norway available
West Prospero2007 400 30,000 Malaysia available
West Vigilant2008 350 30,000 Malaysia available
West Ariel2008 400 30,000 United Arab Emirates available
West Freedom2009 350 30,000 Colombia available
West Cressida2009 375 30,000 Thailand January 2020
West Callisto2010 400 30,000 Saudi Arabia June 2019
West Leda2010 375 30,000 Malaysia available
West Elara2011 450 40,000 Norway September 2027
West Castor2013 400 30,000 Suriname January 2020
West Telesto2013 400 30,000 India March 2019
West Tucana2013 400 30,000 Qatar December 2019
AOD I (ii)
2013 400 30,000 Saudi Arabia June 2019
AOD II (ii)
2013 400 30,000 Saudi Arabia July 2019
AOD III (ii)
2013 400 30,000 Saudi Arabia December 2019
West Linus (i)
2014 450 40,000 Norway December 2028

OurFor detail on our drilling units which have been pledged as collateral for our borrowing facilities. Pleasefacilities refer to Note 2223 - "Debt" to the Consolidated Financial Statements included in this report for further details.herein.
(i) As of February 28, 2019,December 31, 2020, we wholly-owned all the drilling rigs in our fleet notedshown in the tables above, except for the jack-up rig West Linus and the harsh-environment floater West Hercules, andsemi-submersible rig West Taurus whichare owned by subsidiaries of SFL Corporation Limited ("Ship Finance SPVs") and leased to us under capital leases. We previously consolidated the Ship Finance SPVs under the variable interest model, although as follows:of December 31, 2020 we have deconsolidated these entities. Please see Note 36 - "Variable Interest Entities" to the Consolidated Financial Statements included herein.
i.
The jack-up rig West Linus and the semi-submersible rigs West Hercules and West Taurus are owned by wholly-owned subsidiaries of Ship Finance and leased to us under capital leases. We consolidate the Ship Finance rig owning entities for these rigs under the variable interest model. Please see Note 35 to the Consolidated Financial Statements included in this report for further details of these arrangements.
ii.
We own a 66.23% interest in the jack-up rigs AOD I, AOD II and AOD III. Please see ITEM 4C "Organizational Structure" for further details.
2) Newbuildings
In addition to the drilling units above, we haveWe previously had an option to acquire the semi-submersible rig Sevan Developer. The following table sets out details of this rig.
UnitRig type Water depth (feet) Drilling depth (feet) Area of location Status
Sevan DeveloperSemi-submersible 10,000 40,000 Cosco Shipyard (China) Under construction
In July 2017, we agreed with Cosco to defer the Sevan Developer delivery period untiloption expired on June 30, 2020. The rig will remain in China at the Cosco Shipyard during which time we retain the right to market the rig and acquire the rig at the original contracted amount. The termination agreement also gives Cosco a right to terminate the contract.
We previously had newbuild contracts for eight jack-up rigs with the Dalian shipyard. Please see the "capital commitments" section within ITEM 5B and Note 33 - Commitments and Contingencies for further details.
3) Office and Equipment
We lease offices and other properties in several locations including Stavanger and Oslo in Norway, Singapore, Houston in the United States, Rio de Janeiro in Brazil, Dubai in the United Arab Emirates and Aberdeen, Liverpool and London in the United Kingdom. Our Consolidated Balance Sheet includes office equipment, IT equipment and leasehold improvements held in these locations.

In March, 2020, Seadrill was awarded a contract to provide drilling services for 10 firm wells and 4 optional wells. To fulfill this contract Seadrill entered a charter agreement to lease the West Bollsta rig from Northern Ocean. The rig was mobilized and commenced operations in early October 2020 after being available at the drill location in September 2020. This operating lease arrangement has resulted in the recognition of a lease liability and offsetting right of use asset.


ITEM 4A.UNRESOLVED STAFF COMMENTS

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ITEM 4A.UNRESOLVED STAFF COMMENTS
None.



ITEM 5.OPERATING AND FINANCIAL REVIEW

ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS
In this section, we present management’s discussion and analysis of results of operations and financial condition. It should be read in conjunction with our Consolidated Financial Statements and accompanying notes thereto included herein. You should also carefully read the following sections of this annual report entitled “Cautionary Statement Regarding Forward-Looking Statements,” Item 3 - "Key Information—Information - A. Selected Financial Data", Item 3 - "Key Information—Information - D. Risk Factors” and Item 4 - "Information on the Company”Company".
Our Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and are presented in U.S. dollars unless otherwise indicated. We refer you to the notes to ourthe Consolidated Financial Statements for a discussion of the basis on which ourthe Consolidated Financial Statements are prepared.
1) Introduction
We are an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. For a detailed description of our business please read ITEMItem 4B - "Business Overview".
2) Previous Chapter 11 Reorganization and Application of Fresh Start Accounting
In this section we have provided a summarized description of our previous Chapter 11 Reorganization below, together with an overview of Fresh Start Accounting which we applied on emergence from Chapter 11. Please read ITEM 4A - "History and Development of the Company" for a detailed description of thePredecessor Company from Chapter 11 Reorganization.on July 2, 2018. Note also that the Successor Company filed for Chapter 11 post year-end. Please refer to Note 38 - "Subsequent Events" to the Consolidated Financial Statements included herein for further details.
i.Chapter 11 Reorganization
i.Previous Chapter 11 Reorganization
Prior to the filing of the Previous Chapter 11 Proceedings (as defined below), we were engaged in extensive discussions with our secured lenders, certain holders of our unsecured bonds and potential new money investors regarding the terms of a comprehensive restructuring. The objectives of the restructuring were to build a bridge to a recovery and achieve a sustainable capital structure. To achieve this, we had proposed an extension to our bank maturities, reduced debt amortization payments, amendments to financial covenants and raising of new capital.
On September 12, 2017, Old Seadrill Limited, certain of its subsidiaries (together "the Company Parties") and certain Ship Finance companies entered into a restructuring support and lock-up agreement ("RSA") with a group of bank lenders, bondholders, certain other stakeholders, and new-money providers. In connection with the RSA, the Company Parties entered into an "Investment Agreement" under which Hemen Investments Limited, an affiliate of Old Seadrill Limited's largest shareholder Hemen Holding Ltd. and certain other commitment parties, committed to provide $1.06 billion in new cash commitments, subject to certain terms and conditions (the "Capital Commitment").
On September 12, 2017, to implement the transactions contemplated by the RSA and Investment Agreement, Old Seadrill Limited and certain of its subsidiaries (the "Debtors") commenced prearranged reorganization proceedings (the "PreviousChapter 11 Proceedings") under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas Victoria Division. During the bankruptcy proceedings, the Debtors continued to operate the business as debtors in possession.
After September 12, 2017, the Debtors negotiated with their various creditors and on February 26, 2018 announced a "Global Settlement", following which there were amendments to the RSA and Investment Agreement. These amendments provided for, amongst other things, the inclusion of certain other creditors as Commitment Parties, an increase of the Capital Commitment to $1.08 billion, increased recoveries for general unsecured creditors under the Plan and an agreement regarding allowed claims from certain newbuild shipyards.
On February 26, 2018, the Debtors filed a proposed Second Amended Joint Chapter 11 Plan of Reorganization (the "Plan") with the Bankruptcy Court. The Plan was confirmed by the Bankruptcy Court on April 17, 2018. The Plan became effective and the Debtors emerged from the Previous Chapter 11 Proceedings on July 2, 2018 (the "Effective Date").
The Plan extinguished approximately $2.4 billion in unsecured bond obligations, more than $1.0 billion in contingent newbuild obligations, substantial unliquidated guarantee obligations, and approximately $250 million in unsecured interest rate and currency swap claims, while extending near term debt maturities, providing Seadrill with over $1.0 billion in new capital and leaving employee, customer and ordinary trade claims largely unimpaired.
ii.Application of Fresh Start Accounting
ii.Application of Fresh Start Accounting
Upon emergence from the Previous Chapter 11 bankruptcy,Proceedings on July 2, 2018, we adopted fresh start accounting in accordance with the provisions set forth in ASC 852, Reorganizations. Adopting fresh start accounting resultsresulted in a new financial reporting entity with no retained earnings or deficits brought forward. Upon the adoption of fresh start accounting, our assets and liabilities were recorded at their fair values which differ materially from the recorded values of our assets and liabilities as reflected in the Predecessor historical Consolidated Balance Sheets. The effects of the Plan and the application of fresh start accounting were applied as of July 2, 2018 and the new basis of our assets and
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liabilities are reflected in our Consolidated Balance Sheet as of December 31, 2018 and the related adjustments thereto were recorded in the Consolidated Statement of Operations of the Predecessor as "Reorganization items" during the 2018 Predecessor period.

Accordingly, our Consolidated Financial Statements for periods after July 2, 2018 are not and will not be comparable to the Predecessor Consolidated Financial Statements prior to July 1, 2018. Our Consolidated Financial Statements and related footnotes are presented with a black line division which delineates the lack of comparability between amounts presented on July 2, 2018 and dates prior. Our financial results for future periods following the application of fresh start accounting will be different from historical trends and the differences may be material.

Refer to Note 5Fresh"Fresh Start AccountingAccounting"to ourthe Consolidated Financial Statements included herein.
3) Changes to our fleet
The below table shows the number of operational drilling units included in our fleet for each of the periods covered by this report.
Successor
Drilling unitsDecember 31, 2020December 31, 2019December 31, 2018
Harsh environment floaters666
Harsh environment jack-up rigs233
Total harsh environment rigs899
Drillships666
Semi-submersible rigs777
Total floaters131313
Jack-up rigs131313
Total drilling units343535
  Successor Predecessor
Operational drilling units December 31, 2018 December 31, 2017 December 31, 2016
Drillships 7 7 7
Semi-submersible rigs 12 12 12
Total floaters 19 19 19
Jack-up rigs 16 16 19
Total operational units 35 35 38
In 2017, wethe year ended December 31, 2020 the West Epsilon, one of our harsh environment jack-up rigs,was sold three jack-ups, West Triton, West Mischief for $12 million. The rig was built in 1993 and West Resolute, to Shelf Drilling for an aggregate consideration of $225 million and recorded a loss on disposal of $166 million.had been cold-stacked since 2016.
The below table shows the number of newbuildings for each of the periods covered by this report.
Successor
Number of unitsDecember 31, 2020December 31, 2019December 31, 2018
Harsh environment semi-submersible rigs
Harsh environment jack-up rigs
Total harsh environment rigs
Drillships
Semi-submersible rigs11
Total floaters11
Jack-up rigs2
Total operational units13
  Successor Predecessor
Number of units December 31, 2018
 December 31, 2017 December 31, 2016
Drillships 
 4 4
Semi-submersible rigs 1 2 3
Total floaters 1 6 7
Jack-up rigs 2 8 8
Total operational units 3 14 15
Drillships decreased by four during 2018 due to the rejection and termination of the newbuild contracts for the West Dorado, West Draco, West Aquila and the West Libra in accordance with the Global Settlement (described above). In return, the counterparties to these contracts, Samsung Heavy Industries Co., Ltd. ("Samsung") and Daewoo Shipbuilding & Marine Engineering Co., Ltd ("DSME"), received an allowed claim and became Commitment Parties to the Investment Agreement. At December 2017, we recorded a liability of $1,064 million for the allowed claim and impairment of $696 million against the newbuild assets we had previously recorded for those rigs.
Semi-submersible newbuild rigs decreased by one during 2017 relating to a settlement agreement reached with Hyundai Samho Heavy Industries Co Ltd. ("HSHI") for the West Mira. A cash payment of $170 million was received in March 2017 as full settlement of the dispute. We recorded a $31 million impairment and $13 million reversal of interest income in December 31, 2016 in relation to this transaction.
On May 9, 2018, the semi-submersible newbuild, West Rigel, was sold by Jurong Shipyard Pte Ltd. ("Jurong") and we received a share of proceeds totaling $126 million. We recorded a $2 million loss on disposal for this transaction at December 31, 2017.
Jack-up newbuild rigs decreased by six during 2018 due to terminations of Newbuild contracts between us and the Dalian Shipyard. Please referThe contracts for the remaining two jack-up rigs from the Dalian shipyard, the West Dione and West Mimas, were terminated in February 2019 and April 2019, respectively.
We had an option to Note 33 - Commitmentsacquire the semi-submersible rig Sevan Developer. The option to purchase the Sevan Developer expired on June 30, 2020 and Contingencies for further details.was not exercised.
Please read "ITEM 4D.Item 4D - Property,"Property, Plant and Equipment" for further information on our operational drilling units and newbuilds at December 31, 2018.

2020.
4) Contract backlog
We define contractContract backlog asincludes all firm contracts at the maximum contractual operating dayrate multiplied by the number of days remaining in the firm contract period, excludingperiod. For contracts which include a market indexed rate mechanism we utilize the current applicable dayrate multiplied by the number of days remaining in the firm contract period. Contract backlog excludes revenues for mobilization, demobilization and contract preparation or other incentive provisions.provisions and excludes backlog relating to non-consolidated entities. Contract backlog excludes management contract revenue from Seadrill Partners, SeaMex, Sonadrill and Northern Ocean, some of which are on rolling contracts.

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The contract backlog for our fleet was as follows as at the dates specified:
(In $ millions) Successor Predecessor(In $ millions)Successor
Contract backlog February 28, 2019
 March 31, 2018
 February 24, 2017
Contract backlogDecember 31, 2020December 31, 2019December 31, 2018
Harsh environmentHarsh environment1,476 1,805 1,505 
Floaters 565
 802
 1,752
Floaters132 364 451 
Jack-ups 1,362
 1,628
 785
Jack-ups249 375 131 
Total 1,927
 2,430
 2,537
Total1,857 2,544 2,087 
Our contract backlog includes only firm commitments represented by signed drilling contracts. The full contractual operating dayrate may differ to the actual dayrate we ultimately receive. For example, an alternative contractual dayrate, such as a waiting‑on‑weather rate, repair rate, standby rate or force majeure rate, may apply under certain circumstances. The contractual operating dayrate may also differ to the actual dayrate we ultimately receive because of several other factors, including rig downtime or suspension of operations. In certain contracts, the dayrate may be reduced to zero if, for example, repairs extend beyond a stated period.
We project our February 28, 2019December 31, 2020 contract backlog to unwind over the following periods.
(In $ millions)   For the years ending December 31,(In $ millions)Successor
Contract backlog Total
 2019
 2020
 2021
 Thereafter
Contract backlogTotal202120222023Thereafter
Harsh environmentHarsh environment1,476 271 280 238 687 
Floaters 565
 472
 93
 
 
Floaters132 132 — — — 
Jack-ups 1,362
 177
 144
 141
 900
Jack-ups249 101 106 33 
Total 1,927
 649
 237
 141
 900
Total1,857 504 386 271 696 
The actual amounts of revenues earned and the actual periods during which revenues are earned will differ from the amounts and periods shown in the tables above due to various factors, including shipyard and maintenance projects, unplanned downtime and other factors that result in lower applicable dayrates than the full contractual operating dayrate. Additional factors that could affect the amount and timing of actual revenue to be recognized include customer liquidity issues and contract terminations, which are available to our customers under certain circumstances.

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A.RESULTS OF OPERATIONS

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A.RESULTS OF OPERATIONS
The year ended 2020, 2019, the 2018 Successor period and the 2018 Predecessor period and the year ended 2017
The tables included below set out financial information for the periods presented. The 2018 Successor period and the 2018 Predecessor period are distinct reporting periods because of the application of fresh start accounting upon emergence from the Previous Chapter 11 bankruptcyProceedings on July 2, 2018. These periods may not be comparable to each other or prior periods. We have therefore not made comparisons between accounting measures in non-comparable periods. We have made comparisons for non-accounting driven performance indicators, where applicable.
 Successor PredecessorSuccessorPredecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Operating revenues 541
 712
 2,088
Operating revenues1,059 1,388 541 712 
Operating expenses (737) (918) (1,902)Operating expenses(1,457)(1,722)(737)(918)
Other operating items 21
 (407) (914)Other operating items(4,084)39 21 (407)
Operating loss (175) (613) (728)Operating loss(4,482)(295)(175)(613)
Interest expense (261) (38) (285)Interest expense(469)(487)(261)(38)
Reorganization items (9) (3,365) (1,337)Reorganization items— — (9)(3,365)
Other income and expense (152) 161
 (686)
Other financial and non-operating itemsOther financial and non-operating items293 (479)(152)161 
Loss before income taxes (597) (3,855) (3,036)Loss before income taxes(4,658)(1,261)(597)(3,855)
Income tax expense (8) (30) (66)
Income tax (expense)/benefitIncome tax (expense)/benefit(5)39 (8)(30)
Net loss (605) (3,885) (3,102)Net loss(4,663)(1,222)(605)(3,885)
1) Operating revenues
Total operating revenues consist of contract revenues, reimbursable revenues, management contract revenues and other revenues. We have analyzed operating revenues between these categories in the table below:
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Contract revenues703 997 469 619 
Reimbursable revenues37 41 16 21 
Management contract revenue289 338 56 38 
Other revenues30 12 — 34 
Total operating revenues1,059 1,388 541 712 
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  Successor Predecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Contract revenues 469
 619
 1,888
Reimbursable revenues 26
 21
 38
Other revenues 46
 72
 162
Operating revenues 541
 712
 2,088
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a) Contract revenues
Contract revenues represent the revenues that we earn from contracting our drilling units to customers, primarily on a dayrate basis. We have analyzed contract revenues by segment in the table below.
 Successor PredecessorSuccessorPredecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environmentHarsh environment376 313 129 95 
Floaters 307
 437
 1,283
Floaters210 477 245 411 
Jack-ups 162
 182
 605
Jack-ups117 207 95 113 
Contract revenues 469
 619
 1,888
Contract revenues703 997 469 619 
Contract revenues are primarily driven by the average number of rigs under contract during a period, the average dayrates earned and economic utilization achieved by those rigs under contract. We have set out movements in these key indicators of performance in the sections below.

i.Average number of rigs on contract
i.Average number of rigs on contract
We calculate the average number of rigs on contract by dividing the aggregate days our rigs were on contract during the reporting period by the number of days in that reporting period. The average number of rigs on contract for the periods covered is set out in the below table:
SuccessorPredecessor
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment
Floaters
Jack-ups
Average number of rigs on contract10 16 15 18 
  Successor Predecessor
(Number) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Floaters 7
 10
 8
Jack-ups 8
 8
 11
Average number of rigs on contract 15
 18
 19
Harsh Environment
There has been no change in the average number of harsh environment rigs on contract in the periods presented.
Floaters
The average number of floaters on contract increaseddecreased by two between the year ended 20172020 and the 2018 Predecessor period2019 primarily due to the reactivationWest Jupiter and West Saturn completing their contracts in 2019.
The average number of floaters on contract for the year ended 2019 was the same as for the 2018 Successor period. The West Hercules which started workCarina and Sevan Louisiana both operated in 2019 after periods of being idle. This was offset by the North Sea in April 2018West Gemini being idle between August and October 2019 and the West Saturn commencing a new completing its contract with Equinor in Brazil in February 2018.October 2019.
The average number of floaters on contract decreased by three between the 2018 Predecessor period and the 2018 Successor period primarily due to the West Carina and Sevan Brazil completing their contracts with Petrobras in Brazil and the West Eclipse completing its contract with ExxonMobil in Angola.
Jack-ups
The average number of jack-ups on contract decreased by threefour between the year ended 20172020 and the 2018 Predecessor period2019 primarily due to the West Tucana,Telesto and West Cressida and West ArielCastor completing their contracts in 20172019 and earlybeing leased to Gulfdrill in 2020, the suspension of the AOD II contract with Saudi Aramco in 2020 and the West Tucana completing its contract in 2020.
The average number of jack-ups on contract increased by one between the year ended 2019 and the 2018 Successor period. The West Castor returned to operations in March 2019 after being warm stacked since July 2018 and the West Tucana had a full year of operations after its reactivation in October 2018. This was offset by a period of idle time on the West Cressida during the first half of 2019.
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The average number of jack-ups on contract was unchanged between the 2018 Predecessor period and the 2018 Successor period as the West Cressida and West Tucana started work on new contracts in July 2018 and October 2018 which was offset by West Castor completing its contract in June 2018.
ii.Average contractual dayrates
ii.Average contractual dayrates
We calculate the average contractual dayrate by dividing the aggregate contractual dayrates during a reporting period by the aggregate number of days for the reporting period. We have set out the average contractual dayrates for the periods presented in the below table:
SuccessorPredecessor
(In $ thousands)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment242 215 167 178 
Floaters196 247 249 301 
Jack-ups80 79 85 103 
  Successor Predecessor
(In $ thousands) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Floaters 231
 279
 395
Jack-ups 106
 131
 150
Harsh Environment
The average contractual dayrate for harsh environment rigs increased by $27k per day between the years ended December 31, 2020 and 2019 and $48k per day between the year ended December 31, 2019 and 2018 Successor period. This was primarily due to the West Phoenix operating at higher dayrates and due to the West Linus and West Elara earning higher market-indexed rates on their long-term contracts with ConocoPhillips.
The average contractual dayrate for harsh environment rigs decreased by $11k per day between the 2018 Successor and 2018 Predecessor period primarily due to the West Linus and West Elara operating at higher dayrates in 2018 Predecessor period compared to 2018 Successor period offset by the West Hercules only being on contract for part of 2018 Predecessor period.
Floaters
The average contractual dayrate for floaters decreased by $116k$51k per day between the years ended December 31, 2020 and 2019. This was primarily due to the West Jupiter completinga legacy dayrate contract at the end of 2019. This was partly offset by the Sevan Louisiana operating at a higher dayrate in 2020 compared to 2019.
The average contractual dayrate for floaters decreased by $2k per day between the year ended 2017December 31, 2019 and the 2018 Predecessor periodSuccessor period. This was primarily due to the completion of legacy contracts on the West Neptune and West Gemini which were replaced with lower dayrate contracts.Sevan Brasil operating at higher dayrates in 2018 compared to 2019.
The average contractual dayrate for floaters decreased by $48k$52k per day between the 2018 Predecessor and 2018 Successor periods primarily due to the West Carina and West Eclipse completing legacy contracts for Petrobras and ExxonMobil, respectively in July 2018.
Jack-ups
The average contractual dayrate for jack-ups increased by $1k per day between the years ended December 31, 2020 and 2019. This was primarily due to two rigs on lower rates being stacked in 2020 and the West Callisto being on higher day rates in 2020. This was off-set by the suspension of the AOD II's contract in 2020 and AOD III operating on a higher dayrate in 2019 compared to 2020 after it secured a long-term extension at a lower dayrate with Saudi Aramco.
The average contractual dayrate for jack-ups decreased by $19k$6k per day between the year ended 2017December 31, 2019 and the 2018 Predecessor periodSuccessor period. This was primarily due to the West Elara movingCallisto and AOD 1 securing long-term extensions at lower dayrates with Saudi Aramco offset by the West Telesto operating at a higher dayrate in 2019 compared to a lower dayrate as part of securing a long term contract with ConocoPhillips in Norway and the West Tucana and West Ariel completing legacy contracts.2018 Successor period.
The average contractual dayrate for jack-ups decreased by $25k$18k per day between 2018 Predecessor and 2018 Successor periods due to the West Elara and West Linus moving to lower dayrates as part of securing long term contracts with ConocoPhillips and the West Castor and West Ariel completing its contract.their contracts.

iii.Economic utilization for rigs on contract
iii.Economic utilization for rigs on contract
We define economic utilization as dayrate revenue earned during the period, excluding bonuses, divided by the contractual operating dayrate multiplied by the number of days on contract in the period. If a drilling unit earns its full operating dayrate throughout a reporting period, its
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economic utilization would be 100%. However, there are many situations that give rise to a dayrate being earned that is less than contractual operating rate.rate, such as planned downtime for maintenance. In such situations, economic utilization reduces below 100%.
AsEconomic utilization for each of the periods presented in this report is set out in the below table,table:
SuccessorPredecessor
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment92 %90 %97 %89 %
Floaters88 %92 %94 %91 %
Jack-ups98 %96 %99 %96 %
The economic utilization has remained for harsh environment rigs was largely consistent between December 31, 2020 and December 31, 2019. The economic utilization decreased by 7% between the year ended December 31, 2019 and the 2018 Successor periods primarily due to downtime for the West Phoenix, West Saturn and West Hercules in the range of 95%year ended 2019. The economic utilization increased between 2018 Successor and 2018 Predecessor due to 99%downtime on the West Jupiter, West Saturn and West Hercules in the 2018 Predecessor period.
The economic utilization for each ofharsh environment rigs increased by 8% between the 2018 Predecessor and 2018 Successor periods presented.primarily due to downtime for the West Elara and West Hercules in the 2018 Predecessor period.
The economic utilization for jack-ups increased by 3% between the 2018 Predecessor and 2018 Successor periods primarily due to downtime for the West Cressida, West Castor and West Telesto in the 2018 Predecessor period.
  Successor Predecessor
(Percentage) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Floaters 95% 95% 97%
Jack-ups 99% 98% 98%
b) Reimbursable revenues
We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel and other services provided at their request in accordance with a drilling contract. We classify such revenues as reimbursable revenues.
c) Management contract revenue
During the year ended December 31, 2019, we entered into new management contract arrangements with Sonadrill and Northern Ocean which increased the volume of activity where we are managing rigs on behalf of other parties (until 2019 we managed rigs for Seadrill Partners and Seamex only). We have therefore separately presented the revenues earned under arrangements where we provide management or operational services to other parties. We have analyzed management contract revenues by segment in the table below.

SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment129 184 18 
Floaters126 119 19 22 
Jack-ups17 13 
Other17 22 11 
Management contract revenue289 338 56 38 
Management contract revenues decreased between the years ended December 31, 2020 and 2019 due to lower recharges to Northern Ocean relating to the harsh environment rigs the West Mira and West Bollsta and lower billings to non-consolidated entities partially offset by higher management fees charged to Sonangol relating to the Libongos.

Management contract revenues increased between the year ended December 31, 2019 and 2018 successor period due to Seadrill entering into management contract arrangements with Sonadrill and Northern Ocean.
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d) Other revenues
Other revenues include the following:
 Successor PredecessorSuccessorPredecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Related party revenues (i)
 46
 43
 110
Amortization of unfavorable contracts (ii)
 
 21
 43
Other (iii)
 
 8
 9
Leasing revenues (i)
Leasing revenues (i)
19 — — 
Amortization of unfavorable contracts (ii)
Amortization of unfavorable contracts (ii)
— — — 21 
Early termination fees (iii)
Early termination fees (iii)
11 11 — 13 
Other revenues 46
 72
 162
Other revenues30 12  34 
i.
Related party revenues
Related partyi.Leasing revenues represent income from management
Revenue earned on the charter of the West Castor, West Telesto and technical support services providedWest Tucana to Seadrill Partners, SeaMex and Northern Drilling.Gulfdrill.
ii.Amortization of unfavorable contracts
ii.Amortization of unfavorable contracts
We recognize an intangible asset or liability if we acquire a drilling contract in a business combination and the contract had a dayrate that was above or below market rates at the time of the business combination. For the periods before emergence from the Previous Chapter 11 Proceedings, we classified the amortization of these intangible assets or liabilities within other revenues. Post-emergence and after the application of fresh start accounting, we have applied a new accounting policy which classifies amortization of these intangible assets and liabilities within operating expenses.
iii.Other
Other revenues for The unfavorable contract values in the 2018 Predecessor period andarose from our acquisition of Sevan Drilling Limited.
iii.Early termination fees
The termination fee revenue in the year ended 2017 included early termination fee revenueDecember 31, 2020 relates to the West Gemini, the year ended December 31, 2019 relates to the fees recognized for the West Jupiter and West Castor, and the period from January 1, 2018 through July 1, 2018 relates to the fees recognized for the West Pegasus and West Hercules, respectively.

.
2) Operating expenses
Total operating expenses include vessel and rig operating expenses, amortization of favorable and unfavorable contracts,intangibles, reimbursable expenses, management contract expense, depreciation of drilling units and equipment, and selling, general and administrative expenses. We have analyzed operating expenses between these categories in the table below:
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Vessel and rig operating expenses (i)
(606)(726)(341)(417)
Depreciation (ii)
(346)(426)(236)(391)
Amortization of intangibles (iii)
(1)(134)(58)— 
Reimbursable expenses(34)(39)(15)(18)
Selling, general and administrative expenses (iv)
(80)(95)(43)(47)
Management contract expense (v)
(390)(302)(44)(45)
Operating expenses(1,457)(1,722)(737)(918)
  Successor Predecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Vessel and rig operating expenses (357) (407) (792)
Depreciation (236) (391) (798)
Amortization of intangibles (58) 
 
Reimbursable expenses (24) (20) (35)
General and administrative expenses (62) (100) (277)
Operating expenses (737) (918) (1,902)
i.Vessel and rig operating expenses
i.Vessel and rig operating expenses
Vessel and rig operating expenses represent the costs we incur to operate a drilling unit that is either in operation or stacked. This includes the remuneration of offshore crews, rig supplies, expenses for repair and maintenance and onshore support costs.
For periods prior to emergence from the Previous Chapter 11 Proceedings, we classified certain operational support and information technology related costs incurred by our support functions within selling, general and administrative expenses. As part of fresh start
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accounting and for periods after emergence we classified these costs within vessel and rig operating expenses. Vessel and rig operating expenses for the 2018 Predecessor and Successor periods presented include several significant one-time items as follows:are therefore not comparable.
We have analyzed vessel and rig operating expenses by segment in the table below:
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment250 243 111 97 
Floaters272 342 165 203 
Jack-ups84 141 65 117 
Vessel and rig operating expenses606 726 341 417 
Vessel and rig expenses for jack-ups in the 2018 Predecessor period included a bad debt expense of $48 million relating to an overdue receivable. This receivable was not recognized as part of fresh start accounting in the 2018 Successor period. We subsequently recovered $21 million on November 27, 2018 and a further $26 million on January 10, 2019 which is recognizable on receipt within "other operating income"items" (see section 3 below).
For periods prior to emergence from Chapter 11 we classified certain operational support and information technology related costs incurred by our support functions within general and administrative expenses. As part of fresh start accounting and for periods after emergence we classified these costs within vessel and rig operating expenses. Vessel and rig operating expenses for the 2018 Predecessor and Successor periods are therefore not comparable.
We have analyzed vessel and rig operating expenses by segment in the table below.
  Successor Predecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Floaters 223
 239
 480
Jack-ups 119
 158
 286
Other 15
 10
 26
Vessel and rig operating expenses 357
 407
 792
Excluding the effect of the one-time itemsitem discussed above, vessel and rig operating expenses are mainly driven by rig activity. On average, we incur higher vessel and rig operating expenses when a rig is operating compared to when it is stacked. For stacked rigs we incur higher vessel and rig expenses for warm stacked rigs compared to cold stacked rigs. We incur one-time costs for activities such as preservation and severance when we cold stack a rig. We also incur significant costs when re-activating a rig from cold stack, a proportion of which is expensed as incurred.
As set out in the revenue section above for In the year ended 2017,December 31, 2020, we had anleased the West Telesto, West Tucana and West Castor to Gulfdrill. We incur minimal opex for these leased rigs which has reduced vessel and rig operating expenses for the jack-up segment this year.
We have analyzed the average number of 19rigs by status and segment over the reporting period in the table below:
SuccessorPredecessor
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment
Operating
Cold stacked
Average number of harsh environment rigs8 9 9 9 
Floaters
Operating
Warm stacked or suspended— 
Cold stacked
Average number of floaters13 13 13 13 
Jack ups
Operating
Leased to Gulfdrill— — — 
Warm stacked or suspended
Cold stacked
Average number of jack-ups13 13 13 13 
For detail on the movement in operating rigs in operation, nineeach period presented, please refer to section 2 - "i. Average number of rigs on contract".
The number of cold stacked harsh environment rigs decreased by one in the year ended December 31, 2020, due to the sale of the West Epsilon.
The number of cold stacked floaters one warm stacked floater, four cold stacked jack ups and two warm stacked jack ups.
Inwas consistent in the year ended December 31, 2020, December 31, 2019, the 2018 Predecessor period and the 2018 Successor period.
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The number of operating jack-up rigs decreased by four between the years ended December 31, 2020 and 2019. In the year ended December 31, 2020 we reactivated one floater,leased the West Hercules, as it returned Tucana, West Telesto and West Castor to work. InGulfdrill. However, the West Tucana was warm stacked for the majority of 2020. All of these three rigs were operating in the year ended December 31, 2019. Furthermore, in the year ended December 31, 2020, theWest Cressida completed its contract with Medco and was cold stacked and the AOD II contract with Saudi Aramco was suspended for half the year.
The number of cold stacked jack-up rigs increased by two between the 2018 Successor period and 2018 Predecessor period. During the 2018 Successor period the Sevan Driller wasWest Ariel and West Freedom went from warm stack to cold stackedstack.
ii.Depreciation of drilling units and the West Carina and West Eclipse were warm stacked following completion of their contracts. This was offset by the Sevan Louisiana returning to operations and more days in operation for the West Phoenix and West Hercules.equipment
In the 2018 Predecessor period, we cold stacked the West Ariel which was offset by the West Telesto starting its contract in April 2018. In the 2018 Successor period, the West Tucana and West Cressida started operations, offset by the West Castor becoming warm stacked after completion of its contract.

ii.Depreciation of drilling units and equipment
We record depreciation expense to reduce the carrying value of drilling unit and equipment balances to their residual value over their expected remaining useful economic lives.
In the year ended December 31, 2020, we reduced the carrying value of drilling unit and equipment balances when we recorded long-lived asset impairments against all long-term cold stacked units in full and all other drillships and benign environment semi-submersible rigs have been written down to their estimated fair market value in March and December 2020. The depreciation expense for the year ended December 31, 2020 is therefore based on lower carrying values of drilling units and equipment after the impairment in March 2020 and has, therefore, reduced in comparison to the year ended December 31, 2019.
We reduced the carrying value of drilling unit and equipment balances when we (i) applied fresh start accounting on emergence from the Previous Chapter 11 Proceedings and (ii) recorded long-lived asset impairments against the West Alpha, West Navigator and West Epsilon as at June 30, 2018. The depreciation expense for the 2018 Successor period is therefore based on lower carrying values of drilling units and equipment and is not comparable to the level of depreciation expense recorded in the Predecessor periods.
iii.Amortization of intangibles
iii.Amortization of intangibles
For periods before emergence from the Previous Chapter 11 Proceedings we recognized intangible assets or liabilities only where we acquired a drilling contract in a business combination. The accounting policy we applied in the Predecessor periods was to classify amortization for such contracts within other revenues. On emergence from the Previous Chapter 11 Proceedings and application of fresh start accounting, we recognized intangible assets and liabilities for favorable and unfavorable drilling contracts at fair value. We amortize these assets and liabilities over the remaining contract period and classify the amortization under operating expenses.
iv.General and administrative expenses
GeneralAmortization reduced in the year ended December 31, 2020, after completion of favorable contracts and an impairment recognized against the Seadrill Partners management contracts in 2020. See Note 19 - "Other assets" to the Consolidated Financial Statements included herein for more information.
iv.Selling, general and administrative expenses
Selling, general and administrative expenses include the cost of our corporate and regional offices, certain legal and professional fees as well as the remuneration and other compensation of our officers, directors and employees engaged in central management and administration activities. Legal and professional fees incurred for our Chapter 11 reorganization post-petition were classified under reorganization items.
As discussed in section 2 above, we changed the classification of certain support function costs for periods after emergence. Generalemergence from the Previous Chapter 11. Selling, general and administrative expenses for the 2018 Successor periodsuccessor periods is therefore not comparable to the level of expense recorded in the Predecessor.predecessor periods.
Selling, general and administrative expenses decreased for the year ended December 31, 2020 in comparison to the year ended December 31, 2019, primarily due to lower legal and consultancy fees and a reduction in corporate office expenses.
v.Management contract expense
During the year ended December 31, 2019, we entered into management contract arrangements with Sonadrill and Northern Ocean which increased the volume of activity where we are managing rigs on behalf of other parties. We have therefore separately presented expenses earned under arrangements where we provide management or operational services to other parties.
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We have analyzed management contract expenses in the table below:

SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Management contract expense(92)(79)(32)(44)
Reimbursable expenses(156)(223)(12)(1)
Expected credit losses(142)— — — 
Total management contract expense(390)(302)(44)(45)
The movement in management contract expense between the years ended December 31, 2020 and 2019 is due an increase in management contract expense relating to an increase inmanagement fees charged to Sonadrill for the Libongos offset by a decrease in reimbursable expenses relating to a reduction in recharges from Northern Ocean and lower billings to Sonangol. Refer to Note 6 – "Current expected credit losses" to the Consolidated Financial Statements included herein for the recognition of expected credit losses for the year ended December 31, 2020.
The movement in management contract expenses between the year ended December 31, 2019 and 2018 Successor period is due to the entering into of the Northern Ocean and Sonadrill management contract arrangement.
3) Other operating items
Other operating items include impairmentsloss on impairment of long-lived assets and intangibles, loss on sale of assets and other operating income. We have analyzed other operating items between these categories in the below table:
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Loss on impairment of long-lived assets (i)
(4,087)— — (414)
Loss on impairment of intangible (ii)
(21)— — — 
Gain on sale of assets (iii)
15 — — — 
Other operating income (iv)
39 21 
Other operating items(4,084)39 21 (407)
  Successor Predecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Loss on impairment of long-lived assets 
 (414) (696)
Loss on sale of assets 
 
 (245)
Other operating income 21
 7
 27
Other operating items 21
 (407) (914)
i.i.Impairment of long-lived assets
In the year ended 2017, as part of the Chapter 11 re-organization, we terminated the newbuild contracts for the drillships West Draco, West Dorado, West Aquila and West Libra and the shipyards, Samsung and DSME, received an allowed claim. As a result, we recorded a $696 million non-cash impairment charge against the newbuildlong-lived assets for these rigs. We also recorded a reorganization expense of $1,064 million for the allowed claim (see section 5 below).
In the 2018 Predecessor period, we determined that the continuing downturn in the offshore drilling market was an indicator of impairment on certain assets. Following an assessment of recoverability, we recorded an impairment charge of $414 million against three of our older rigs.
ii.Loss on sale of assets
In the year ended 2020, impairment charges of $4.1 billion were booked against our rigs, reflecting our view that challenging market conditions are likely to persist for a sustained period and that certain of our cold stacked units are unlikely to return to the working fleet. We have now impaired all long-term cold stacked units in full and all other drillships and benign environment semi-submersible rigs have been written down to their estimated fair market value.
ii. Impairment of intangible
Relates to the impairment of Seadrill Partners management contracts after Seadrill Partners voluntarily entered into Chapter 11 on December 1, 2020.
iii. Gain on sale of assets
The lossgain on sale of assets for the year ended 20172020 was due to the sale of the West Triton, West Mischief and West Resolute to Shelf Drilling, recognizing a loss on disposal of $166 million,Epsilon and the derecognitionsale of spare parts contained on the Sevan Developer, following renegotiated terms with Cosco which deemed us West Telesto to have lost controlour Gulfdrill joint venture partner.
iv. Other operating income
The below table summarizes the main components of the asset, resulting in a $75 million loss.
iii.Other income
Otherother operating income for the year ended 2017 andperiods presented.
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SuccessorPredecessor
 (In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Loss of hire insurance settlement (i)
10 — — 
Receipt of overdue receivable (ii)
— 26 21 — 
Contingent consideration (iii)
— — — 
Settlement with shipyard— — — 
Other operating income9 39 21 7 
i. Loss of hire insurance settlement
Settlement of a claim on our loss of hire insurance policy following an incident on the 2018 Predecessor period represents amountsSevan Louisiana.
ii. Receipt of overdue receivable
Receipt of overdue receivables which had not been recognized as an asset as part of fresh start accounting.
iii. Contingent consideration
Amounts recognized for contingent consideration from the sales of the West Vela and West Polaris to Seadrill Partners in 2014 and 2015. On emergence from the Previous Chapter 11 we recognized receivables equal to the fair value of expected future cash flows under these arrangements and have therefore not recognized further income in the 2018 Successor period.
Other income for the 2018 Successor period relates to a $21 million overdue receivable that was collected in the quarter which had not been recognized as an asset as part of fresh start accounting. We recovered a further $26 million on January 10, 2019. We determined that the second receipt was a non-adjusting subsequent event and will recognize the income in 2019.

year ended December 31,2019.
4) Interest expense
We have analyzed interest expense into the following components:
SuccessorPredecessor
 (In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Cash and payment-in-kind interest on debt facilities (i)
(338)(440)(237)(37)
Unwind of discount debt (ii)
(44)(47)(24)— 
Write off discount debt (iii)
(87)— — — 
Loan fee amortization (iv)
— — — (1)
Interest expense(469)(487)(261)(38)
  Successor Predecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Cash and payment-in-kind interest on debt facilities (237) (37) (286)
Unwind of discount on debt (24) 
 
Loan fee amortization 
 (1) (27)
Capitalized interest 
 
 28
Interest expense (261) (38) (285)
i.Cash and payment-in-kind interest on debt facilities
i.Cash and payment-in-kind interest on debt facilities
We incur cash and payment-in-kind interest on our debt facilities. This is summarized in the table below.
SuccessorPredecessor
 (In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Senior credit facilities and unsecured bonds(239)(327)(162)(116)
Less: adequate protection payments— — — 104 
Senior Secured Notes(60)(66)(50)— 
Debt of consolidated Variable Interest Entities(39)(47)(25)(25)
Cash and payment-in-kind interest on debt facilities(338)(440)(237)(37)
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  Successor Predecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Senior credit facilities and unsecured bonds (162) (116) (320)
Less: adequate protection payments 
 104
 81
New secured notes (50) 
 
Debt of consolidated variable interest entities (25) (25) (47)
Cash and payment-in-kind interest (237) (37) (286)
We are charged interest on our senior credit facilities at LIBOR plus a margin. ThisFor periods after July 2, 2018, this margin increased by one percentage point when we emergedfollowing the emergence from Chapter 11, under the terms of the Plan.11. There has also been an increase in LIBOR rates, overwhich when combined with the second half of 2018. Both factorsadditional post-emergence margin, has led to an increased the effective interest rate on our senior credit facilities in the year ended 2019. In the year ended 2020, there has been a decrease in LIBOR rates, which has led to a decreased effective interest rate on our senior credit facilities.
During the period we were in the Previous Chapter 11 Proceedings (September 12, 2017 to July 1, 2018), we recorded contractual interest payments against debt held as subject to compromise ("adequate protection payments") as a reduction to debt in the Consolidated Balance Sheet and not as an expense to the Consolidated Statement of Operations. We then expensed the adequate protection payments on emergence from the Previous Chapter 11 Proceedings (classified under reorganization items - see section 5 below).
On emergence from the Previous Chapter 11 Proceedings we issued $880 million of NewSenior Secured Notes. We incur 4% cash interest and 8% payment-in-kind interest on these notes. On November 14, 2018 and April 10, 2019 there were two redemptions. After the two redemptions there was a remaining $476 million principal outstanding on the notes, which includes $18 million of accrued payment-in-kind interest on our Senior Secured Notes which was compounded on July 15, 2019 and additional notes were issued. During 2020, a further $39 million of accrued payment-in-kind interest on our senior secured notes was compounded and additional notes were issued leaving $515 million principal outstanding on the notes as at December 31, 2020.
Our Consolidated Balance Sheet includespreviously included approximately $1$0.6 billion of debt facilities held by subsidiaries of Ship Finance that we consolidate as variable interest entities.SPVs (defined below). Our interest expense includesincluded the interest incurred by these entities on those facilities. In the fourth quarter of 2020, we deconsolidated these variable interest entities as we are no longer primary beneficiaries of the variable interest entities. As a result we no longer include these debt facilities in our Consolidated Balance Sheet and no longer incur interest on these facilities.
ii.Unwind of discount on debt
ii.Unwind of discount on debt
On emergence from the Previous Chapter 11 Proceedings and application of fresh start accounting, we recorded a discount against our debt to reduce its carrying value to equal its fair value. The debt discount iswas due to be unwound over the remaining terms of the debt facilities.
iii.Loan fee amortization
iii.Write off discount debt
In September 2020 and December 2020, there were non-payments of interest on our secured credit facilities that constituted an event of cross-default. The event of default resulted in the expense of unamortized debt discount of $87 million.
iv.Loan fee amortization
We amortize loan issuance costs over the expected term of the associated debt facility. We expensed capitalized loan issuance costs for debt subject to compromise when we filed for Chapter 11 on September 12, 2017. Loan fee amortization expense is therefore not comparable between these periods.
iv.Capitalized interest
We capitalizeNo new debt facilities have been entered into since emerging from the interest cost incurred to finance Newbuilds. We ceased capitalization of interest on Newbuilds when we filed forPrevious Chapter 11 on September 12, 2017.

Proceedings.
5) Reorganization items
We have analyzed reorganization items into the following components:
 Successor PredecessorSuccessorPredecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 December 31, 2017
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Professional and advisory fees (9) (187) (66)Professional and advisory fees— — (9)(187)
New investor commitment fees 
 
 (53)
Gain on liabilities subject to compromise 
 2,958
 
Gain on liabilities subject to compromise— — — 2,958 
Fresh start valuation adjustments 
 (6,142) 
Fresh start valuation adjustments— — — (6,142)
Loss on Newbuilding global settlement claim 
 
 (1,064)
Loss on other pre-petition allowed claims 
 
 (3)
Write-off of debt issuance costs 
   (66)
Reversal of credit risk on derivatives 
 
 (89)
Interest income on surplus cash invested 
 6
 4
Interest income on surplus cash invested— — — 
Total reorganization items, net (9) (3,365) (1,337)Total reorganization items, net  (9)(3,365)
Prior to emergence from the Previous Chapter 11 Proceedings, reorganization items included professional and advisory fees for post-petition Chapter 11 expenses, adjustments to the carrying value of liabilities subject to compromise to their estimated allowed claims amount, gains on liabilities subject to compromise, fresh start adjustments and interest income generated from surplus cash invested. We have also classified professional and advisory fees that we incurred post-emergence, but relate to ourthe Previous Chapter 11 filing,Proceedings, within reorganization items.
You can find additional detail on reorganization items in Note 4 - "Previous Chapter 11 Proceedings" to the Consolidated Financial Statements included within this report.herein.
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6) Other incomefinancial and expensenon-operating items
We have analyzed other income and expense into the following components:
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Interest income (i)
34 69 40 19 
Share in results from associated companies (net of tax) (ii)
(77)(115)(90)149 
Loss on impairment of investments (iii)
(47)(302)— — 
Loss on derivative financial instruments (iv)
— (37)(31)(4)
Net loss on debt extinguishment (v)
— (22)— — 
Fair value measurement on deconsolidation of VIE (vi)
509 — — — 
Loss on impairment of convertible bond from related party (vii)
(29)(11)— — 
Foreign exchange loss (viii)
(23)(11)(4)— 
Loss on marketable securities (ix)
(3)(46)(64)(3)
Other financial items (x)
(71)(4)(3)— 
Other financial and non-operating items293 (479)(152)161 
  Successor Predecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 December 31, 2017
Interest income 40
 19
 60
Share in results from associated companies (90) 149
 174
Impairment of investments 
 
 (841)
(Loss) / gain on derivative financial instruments (31) (4) 11
Gain on debt extinguishment 
 
 19
Foreign exchange loss (4) 
 (65)
Loss on marketable securities (64) (3) 
Other financial items (3) 
 (44)
Other income and expense (152) 161
 (686)
i.Interest Income
i.Interest Income
Interest income relates to interest earned on cash deposits and other financial assets. Interest income decreased between the year ended December 31, 2020 and December 31, 2019 due to a decrease in cash deposits and a fall in interest rates. During the period we were in the Previous Chapter 11 Proceedings (September 12, 2017 to July 1, 2018), we classified interest income on cash held by filed entities within reorganization items. This totaled $6 million in the 2018 Predecessor period and $4 million for the year ended 2017.period.

ii.Share of results in associated companies (net of tax)
ii.Share of results in associated companies
Share of results in associated companies represents our share of earnings or losses in our investments accounted under the equity method. We reduced the carrying value of our equity method investments when we applied fresh start accounting on emergence from the Previous Chapter 11. This led to the recognition of basis differences between the book value of the drilling unit or pipe laying service vessel and contract intangible balances recorded in the balance sheets of our equity method investees and the implied value of those assets reflected in the equity method investments recorded in our Consolidated Balance Sheet.Sheets. We unwind these basis differences over the lives of the associated assets and liabilities when calculating our share of results of the equity method investments. Therefore, the share of results in associated companies for the 2018 Successor periodis not comparable to the share of results in associated companies recorded in the Predecessor company.
We have analyzed our share of results in associated companies by equity method investment below:
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Seadrill Partners(75)(124)(102)99
Seamex(22)(19)(12)
Sonadrill(2)(1)— — 
Seabras Sapura20 29 24 46 
Gulfdrill— — — 
Share of results from associated companies (net of tax)(77)(115)(90)149 
The share of results from associated companies for the year ended December 31, 2020 reflects a share in after-tax profits of our investments in Seabras Sapura joint venture and Gulfdrill joint venture offset by a share of losses in our investments in Seadrill Partners, SeaMex and Sonadrill. Note for Seadrill Partners the share of the results only relating to the first quarter of 2020 until the carrying value of the investment was fully impaired, which amounted to our share of losses $427m off-set by a $352m basis difference. Refer to Note 20 - 'Investment in associated companies' in the consolidated financial statements included herein for further details.
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  Successor Predecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 December 31, 2017
Seadrill Partners (102) 99
 104
Seamex (12) 4
 
Seabras Sapura 24
 46
 80
Archer 
 
 (10)
Share of results from associated companies (90) 149
 174
The share of results from associated companies for the year ended December 31, 2019 reflects a share in after-tax profits of our investments in Seabras Sapura joint venture offset by a share of losses in our investments in Seadrill Partners, SeaMex and Sonadrill. This includes a net expense for the unwind of basis differences of $71 million. The results of Seadrill Partners included an income tax benefit of $36 million, which was primarily due to the release of an uncertain tax position related to US tax reform.
The share in after tax loss of associated companies for the 2018 Successor period reflects a share in after-tax profits of our investments in Seabras Sapura joint venture offset by a share of losses in our investments in Seadrill Partners and SeaMex. This includes a net expense for the unwind of basis differences of $57 million. The results of Seadrill Partners included an income tax expense of $87 million, which was primarily due to an uncertain tax position related to US tax reform.

The share in after-tax profit for 2018 Predecessor period reflected our share of the after-tax profit of each of our equity method investments. Our share in the after-tax profit of Seadrill Partners included the benefit of a litigation ruling in the favor of Seadrill Partners. Seadrill Partners recorded net income totaling approximately $220 million in June 2018 for this ruling.
The shareiii. Loss on impairment of resultsinvestments
On September 6, 2019, Seadrill Partners announced its suspension from associated companies fortrading on the year ended 2017 reflected our shareNYSE. This was considered an other than temporary impairment indicator which led to an impairment review being performed in respect of the net income fromSeadrill investment in Seadrill Partners. The result of this exercise was a total impairment charge of $302 million across the investments we hold in Seadrill Partners.
During the first quarter of 2020 the impact of COVID-19 on the global economy had a negative impact on our industry. As global oil demand has fallen, we have also seen an increase in oil supply, leading to a surplus of reserves and a decline in the oil price. This has led to reduced forecasted dayrates and utilization for 2020, and an extended time for these to recover in future years as market supply and demand re-balance. This was considered an other-than-temporary impairment indicator which led to an impairment review being performed in respect of the Seadrill investment in Seadrill Partners. The result of this exercise was a total impairment charge of $47 million across the investments we hold in Seadrill Partners. This resulted in the investment being fully impaired. In addition to having been fully impaired, Seadrill Partners and Seabras Sapura, offset by our share of the loss of Archer. From April 2017 onwards, we reclassified our investment in Archer fromis no longer accounted for as an equity method investment as a result of it entering Chapter 11. Financial and operating decisions are now court controlled, which effectively removes our significant influence from our board representation.
iv. Loss on derivative financial instruments
On May 11, 2018, we bought an interest rate cap from Citigroup for $68 million. The interest rate cap mitigates our exposure to an investmentfuture increases in marketable security. Please seeNote 15LIBOR over 2.87% from our floating bank debt. We also have a conversion option on a bond issued to us by Archer Limited (Refer to vii. below). We record both of these assets at fair value.
The loss on derivatives in the enclosed financial statements for further details on this transaction.
iii.Impairment of investments
As atyear ended December 31, 2017, the carrying value2020 of the Seadrill Partners subordinated units was found to exceed thenil comprised a fair value loss of $3 million on our interest cap derivatives offset by $82a $3 million and the carrying value of the direct ownership interests in Seadrill Partners was found to exceed the fair value by $723 million. Additionally,gain on the carrying value of the investmentconversion option associated with a convertible bond we hold in SeaMex was found to exceed the fair value by $36 million.Archer. The fair value loss on the interest rate cap was derived usingcaused by a discounted cash flow model. We recorded these impairments within “Lossdecrease in forward interest rates. The fair value gain on impairment of investments”the Archer conversion option was caused by an increase in Archer's share price.
The loss on derivatives in the Consolidated Statementyear ended December 31, 2019 of Operations.

The assumptions used$37 million comprised a fair value loss on our interest rate cap derivatives due to a decrease in the DCF model were derived from significant unobservable inputs (representative of Level 3 inputs for Fair Value Measurement) and are based on management’s judgments and assumptions available at the time of performing the impairment test.forward interest rates.
iv.(Loss) gain on derivative financial instruments
The loss on derivatives in the 2018 Successor period of $31 million comprised a fair value loss of $22 million on our interest rate cap derivatives and a $9 million fair value loss on the conversion option associated with a convertible bond we hold in Archer. The fair value loss on the interest rate cap was caused by a decrease in forward interest rates. The fair value loss on the Archer conversion option was caused by a decrease in Archer's share price.
The loss on derivatives in the 2018 Predecessor period of $4 million comprised a fair value loss of $6 million on our interest rate cap derivatives offset by a $2 million fair value gain on the conversationconversion option on the Archer convertible bond.
v. Net loss on debt extinguishment
On April 10, 2019, we repurchased $311 million of the Senior Secured Notes issued on emergence at a 7% premium. The gainpremium paid was recognized as a loss on derivatives indebt extinguishment.
vi. Fair value measurement on deconsolidation of VIE
In the year ended 2017December 31, 2020 a non-cash gain of $11$509 million which arose following the deconsolidation of three subsidiaries of SFL Corporation Ltd ("Ship Finance SPVs"), which were previously consolidated by Seadrill under the variable interest model. The Ship Finance SPVs are the legal owners of the West Taurus, West Hercules, and West Linus, which are leased to Seadrill under capital lease arrangements. Following certain events in the period, Seadrill removed the assets and liabilities of the Ship Finance SPVs from the Company's consolidated balance sheet and recorded liabilities in respect of the three leases in their place. As the fair value of the lease liabilities was lower than the carrying values of the liabilities, this resulted in a large non-cash gain.
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vii. Loss on impairment of convertible bond from related to net gains on the interest rate swap and cross currency swap agreements thatparty
As at December 31, 2019, we previously used to mitigate exposures to interest rate risk and foreign exchange risk on our debt prior to filing for Chapter 11.
v.Gain on debt extinguishment
On April 26, 2017, we converted $146 million, including accrued interest and fees, in subordinated loans provided to Archer into a $45 million subordinated convertible loan. We recognized a gain on debt extinguishment equal to the difference betweenre-assessed the fair value of the convertible loan we received andbond issued to us by Archer, who were in the previous carrying valueprocess of refinancing their debt facilities. For the purposes of the valuation, we assumed that the maturity date of the bond would be pushed out to 2024, as we anticipated this would be required in order for Archer to refinance their bank borrowings to which the Seadrill bond is subordinate. The extension of the maturity date on the bond led to a significant decrease in the bond’s fair value, which resulted in an other-than-temporary impairment against our investment in the bond. In March 2020 the refinancing was completed and included agreed renegotiated terms on the convertible loan. The renegotiated terms included a reduction in the loan accrued interestbalance and fees that were extinguished. This wasan increase in the discount rate which led to a gain of $19 million.significant decrease in the bond's fair value, which resulted in a further other-than-temporary impairment against our investment in the bond.

viii. Foreign exchange loss
vi.Foreign exchange loss
Foreign exchange gains and losses relate to exchange differences on the settlement or revaluation of monetary balances denominated in currencies other than the US Dollar. Prior to filing for Chapter 11 on September 12, 2017, ourU.S. dollar.
The foreign exchange exposure wasmovement is primarily driven by NOK and SEK denominated unsecured bonds. These bonds were no longer revalued after we filed for Chapter 11 and were extinguished through the Chapter 11 restructuring.collateral placed with BTG Pactual in May 2019, under a letter of credit arrangement, of 330 million Brazilian Reais.
vii.Loss on marketable securities
ix. Loss on marketable securities
The loss on marketable securities in the 2018 Successor and 2018 Predecessor periods reflect the changes in mark to market movements in our investments in Seadrill Partners common units and our Archer shares.
We did not record a gain or loss on our investments in marketable securities, within income and expense, for the year-ended 2017. This was because, for all periods before we adopted ASU 2016-10 on January 1, 2018, we recorded fair value gains and losses on marketable securities in other comprehensive income until they were realized.
viii.x. Other financial items
Other financial items for the 2018 Successor period of$3 million included several minor items of expense including rig postponement costs and legal and advisory expenses connected to financing transactions.
We did not incur significant other financial items for the 2018 Predecessor period.
Other financial items for the year ended 2017December 31, 2020 primarily comprised pre-petition professional and advisory fees related to our reorganization (after filingcomprehensive restructuring and provisions for Chapter 11 we classified such costs as reorganization items - see section 5 above).expected credit losses against loans receivable.
7) Income tax expenseexpense/benefit
Income tax expenseexpense/benefit consists of taxes currently payable and changes in deferred tax assets and liabilities related to our ownership and operation of drilling units and may vary significantly depending on jurisdictions and contractual arrangements. In most cases the calculation of taxes is based on net income or deemed income, the latter generally being a function of gross revenue.


Year-endedIncome tax was an expense for the year ended December 31, 2017 (Predecessor) compared2020 in comparison to Year-endeda benefit recognized in the year ended December 31, 2016 (Predecessor)2019. This is primarily due to reversal of US UTP in 2019 which was not repeated in 2020.
The following table sets forth our operating results (by segment) for 2017 and 2016.
 Year ended December 31, 2017 Year ended December 31, 2016
(In $ millions)Floaters
  Jack-
up rigs

 Other
 Total
 Floaters
  Jack-
up rigs

 Other
 Total
Total operating revenues1,387
 617
 84
 2,088
 2,212
 865
 92
 3,169
Loss on disposals(79) (166) 
 (245) 
 
 
 
Contingent consideration realized27
 
 
 27
 21
 
 
 21
Total operating expenses (excluding impairment of long-lived assets)(1,261) (563) (78) (1,902) (1,430) (598) (92) (2,120)
Loss on impairment of long-lived assets(696) 
 
 (696) (44) 
 
 (44)
Operating (loss)/income(622) (112) 6
 (728) 759
 267
 
 1,026
Interest expense      (285)  
  
   (412)
Impairment of investments      (841)       (895)
Reorganization Items, net      (1,337)       
Other financial items      155
  
  
   325
(Loss)/ income before taxes      (3,036)  
  
   44
Income taxes      (66)  
  
   (199)
Net loss      (3,102)  
  
   (155)

B.LIQUIDITY AND CAPITAL RESOURCES
1) Total operating revenuesIntroduction, bankruptcy proceedings and going concern position
(In $ millions)2017
 2016
 Change
Floaters1,387
 2,212
 (37)%
Jack-up rigs617
 865
 (29)%
Other84
 92
 (9)%
Total operating revenues2,088
 3,169
 (34)%
Total operating revenues were $2.1 billionSince the mid-2010s, the industry has experienced a sustained decline in oil prices which has culminated in an industry-wide supply and demand imbalance. During this period, market dayrates for 2017, compared to $3.2 billion in 2016, a decrease of $1.1 billion, or 34%. Total operating revenues are predominantly contract revenuesdrilling rigs have been lower than was anticipated when the debt associated with additional amounts of reimbursable and other revenues. The decrease in total operating revenues compared to 2016acquiring our rigs was primarily drivenincurred. This challenging business climate was further destabilized by an increase in the number of idle rigs and reductions in certain operating dayrates.
Total operating revenues in the floaters segment were $1.4 billion in 2017 compared to $2.2 billion in 2016, a decrease of $0.8 billion, or 37%. The decrease primarily resulted from the increase in the number of idle rigs and reductions in certain operating dayrates. The average number of floaters on contract and operating in 2017 was 8, compared to 12 in 2016. The average contracted dayrates earned by the floaters was $395,000 during 2017 compared to $445,000 during 2016. We also received the early termination fee for the West Hercules of $66 million, of which $8 million was recognized in 2017 and $58 million recognized in 2016.
Total operating revenues in the jack-up rigs segment were $0.6 billion in 2017 compared to $0.9 billion in 2016, a decrease of $0.3 billion, or 29%. The decrease was primarilychallenges that have arisen due to an increase in the numberCOVID-19 pandemic. The actions taken by governmental authorities around the world to mitigate the spread of idle rigs and reductions in certain operating dayrates. The average number of jack-upsCOVID-19 have had a significant negative effect on contract and operating in 2017 was 9, comparedoil consumption. This has led to 12 in 2016. The average contracted dayrates earned by the jack-ups was $150,000 during 2017 compared to $170,000 during 2016. In addition, we disposed of the West Triton, West Mischief and West Resolute to Shelf Drilling. We also recognized an early termination fee for the West Epsilon of $11 million in 2016.
2) Loss on disposals
In 2017 we recorded a net loss on disposals of $245 million. In April 2017 we agreed to sell the West Triton, West Mischief and West Resolute to Shelf Drilling, recognizing a loss on disposal of $166 million. In July 2017 we amended the contractual agreement with Cosco for the Sevan Developer. Due to the renegotiated terms, we deemed to have lost control of the asset and the newbuilding was derecognized, resulting in a $75 million loss on disposal. In April 2018 we entered into a settlement and release agreement, subject to Bankruptcy Court approval, with Jurong for the West Rigel. To reflect our agreed share of sales proceeds in the value of the asset held for sale, we recognized a $2 million loss on disposal.
In 2016, we did not record any material gains or losses on the disposal of assets.
3) Contingent consideration realized
In 2017 we recorded contingent consideration realized of $27 million (2016: $21 million) relating to the disposals of the West Polaris and West Vela.
4) Total operating expenses (excluding loss on impairment of long-lived assets)
(In $ millions)2017
 2016
 Change
Floaters1,261
 1,430
 (12)%
Jack-up rigs563
 598
 (6)%
Other78
 92
 (15)%
Total operating expenses (excluding loss on impairment of long-lived assets)1,902
 2,120
 (10)%
Total operating expenses, excluding loss on impairment of long-lived assets, were $1,902 million in 2017 compared to $2,120 million in 2016, a decrease of $218 million or 10%. Total operating expenses consist of vessel and rig operating expenses, depreciation and amortization, reimbursable expenses and general and administrative expenses. The decrease in operating expenses resulted from a reduced number of drilling units in operation in 2017 as compared to 2016.
Total operating expenses, excluding loss on impairment of long-lived assets, for the floaters segment were $1,261 million in 2017 compared to $1,430 million in 2016, a decrease of $169 million, or 12%. This decrease was mainly related to thefurther decrease in the numberdemand for our services and has had an adverse impact on our business and financial condition.
Since the end of operating units during2019, we have been working with senior creditors to provide a solution to Seadrill's high cash outflow for debt service. In our first quarter earnings release, published on June 2, 2020, we announced that we had appointed financial advisors to evaluate comprehensive restructuring alternatives to reduce debt service costs and overall indebtedness.
In September 2020, we ceased making interest payments on our secured credit facilities which constituted an event of default. Furthermore, this triggered cross-defaults on the period.
Total operating expenses, excluding losssenior secured notes and leasing agreements in respect of the West Hercules, West Linus and West Taurus with subsidiaries of SFL Corporation Limited. The events of default meant that amounts due on impairment of long-lived assets, for the jack-up rigs segment were $563secured credit facilities and senior notes became callable on demand. As at December 31, 2020, we had $6,177 million in 2017 comparedprincipal amount of these debt obligations. Our available resources would not have been sufficient to $598 million in 2016,repay these obligations, were they called.
On February 7, 2021 and February 10, 2021 Seadrill Limited and most of its subsidiaries (the "Debtors") filed voluntary petitions for reorganization under Chapter 11, triggering a decreasestay on enforcement of $35 million, or 6%. This decrease was mainly relatedremedies with respect to the decrease in the number of operating units during the period.
Other operating expenses predominately relate to costs associated with the provision of management services to external parties and related parties.

5) Loss on impairment of long-lived assets
our debt obligations. As part of the Chapter 11 proceedings,Proceedings, the Debtors negotiatedwere granted “first-day” relief which enables us to continue operations without interruption. We are currently in negotiations to enter into a restructuring support agreement with certain lenders regarding a comprehensive restructuring transaction to be implemented pursuant to a plan of reorganization. The outcome of this process and announced a global settlement withfuture capital structure is not yet determined but it remains likely that it will involve significant equitization of debt and thereby material reductions to current shareholder positions.
As at December 31, 2020, Seadrill had cash and cash equivalents including restricted cash of $723 million, of which $526 million was unrestricted and we have implemented, and will continue to implement, various creditors, including Samsung Heavy Industries Co., Ltd. ("Samsung")measures to preserve liquidity. These include an increased
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focus on operating efficiency, reductions in corporate and Daewoo Shipbuilding & Marine Engineering Co., Ltd ("DSME"). The global settlement included an agreement regardingoverhead expenditures, and deferrals of capital expenditures. Whilst we believe this should provide sufficient liquidity for the allowed claim12 month period from the date of the newbuild shipyards Samsungissuance of these financial statements to allow us to complete a comprehensive restructuring, the process is difficult to predict and DSME, and the Debtors’ rejection and recognized termination of the newbuild contracts for the West Dorado, West Draco, West Aquila and the West Libra. As our plan of reorganization anticipated the rejection and termination of the newbuild contracts we recognized an impairment of the newbuild assets related to the West Dorado, West Draco, West Aquila and the West Libra, totaling $696 million, in the year ended December 31, 2017.
In 2016 a total of $44 million of impairments were recorded against the West Mira, following the settlement of the arbitration, as well as other impairments as a result of revisions to costs capitalized in our capital spares pool.
6) Interest expense
Interest expense was $285 million in 2017 compared to $412 million in 2016, a decrease of $127 million, or 31%. The decrease is mainly due to post-petition contractual interest expenses of $81 million related to debt held as subject to compromise which have not been recognized in the Consolidated Statement of Operations, but instead recorded as a reduction to debt principal value in the Consolidated Balance Sheet.
7) Other financial items
Other financial items, excluding interest expense, reported in the Statement of Operations include the following items: 
(In $ millions)2017
 2016
Interest income60
 66
Share in results of associated companies (net of tax)174
 283
Loss on impairment of investments(841) (895)
Gain/(loss) on derivative financial instruments11
 (74)
Net gain on debt extinguishment19
 47
Foreign exchange (loss)/gain(65) 18
Reorganization items, net(1,337) 
Other financial items and other (expense)/income, net(44) (15)
Total financial items and other (expense)/income, net(2,023) (570)
Share in results from associated companies was an income of $174 million in 2017 compared to income of $283 million in 2016. The income mainly comprised our share of income from Seadrill Partners, as well as SeaMex and Seabras Sapura. The decrease is primarily due to the decreased share of income from Seadrill Partners as a result of a decrease in the number of operating units and rigs and a reduction in certain operating dayrates.
During 2017 we recorded an "other than temporary" impairment of investments of $841 million, compared to an other than temporary impairment of investments of $895 million in 2016. The impairments relate to our investments in Seadrill Partners and SeaMex in both years. Refer to Note 11 - "Impairment loss on marketable securities and investments in associated companies" to our Consolidated Financial Statements included herein for further information.
The gain on derivative financial instruments was $11 million in 2017, compared to a loss of $74 million in 2016. The gain in 2017 was primarily due to gains of $46 million on our cross-currency interest swaps which were partially offset by a loss of $30 million on our interest rate swap agreements due to unfavorable movement in swap interest rates during the year and a loss on other derivatives of $5 million. On filing for Chapter 11, we triggered an event of default under our swap agreements, resulting in the terminationfactors outside of our derivatives by our counterparties on September 13, 2017. The loss on derivative financial instruments in 2016 was mainly relatedcontrol. We are subject to a loss of $48 million on our interest rate swap agreements and losses on our cross-currency interest rate swaps of $20 million due to unfavorable movements in our interest rate swap agreements and a loss on our TRS agreements of $6 million.
The results for 2017 included a gain of $19 million of debt extinguishment compared to a gain of $47 million in 2016, of which the 2017 gain is due to the conversion of subordinated loans, fees and interest provided to Archer into a new convertible instrument. The gain recognized in 2016 is related to the extinguishment of our convertible bonds.
Foreign exchange losses amounted to $65 million in 2017 compared to gains of $18 million in 2016. This was mainly due to the revaluation of our NOK-denominated and SEK-denominated bonds to the U.S. dollar.
After the filing of our bankruptcy petition on September 12, 2017, we incurred $66 million of post-petition professional feesnumerous risks associated with the bankruptcy cases. Additionally,proceedings and there can be no assurance that we incurred non-cash chargeswill agree a plan of $66 million relatingreorganization that is acceptable to unamortized debt issuance costsour creditors, nor that the Bankruptcy Court would confirm such a plan once agreed.
These conditions and $89 millionevents raise substantial doubt as to our ability to continue as a going concern for the twelve months after the date our financial statements are issued. Financial information in respectthis report has been prepared on a going concern basis of reversalaccounting, which presumes that we will be able to realize our assets and discharge our liabilities in the normal course of issuing entities credit risk on derivatives.
As partbusiness as they come due. Financial information in this report does not reflect the adjustments to the carrying values of the Chapter 11 proceedings, the Debtors negotiated and announced a global settlement with various creditors, including Samsung Heavy Industries Co., Ltd. ("Samsung") and Daewoo Shipbuilding & Marine Engineering Co., Ltd ("DSME"). The global settlement included an agreement regarding the allowed claim of the newbuild shipyards Samsung and DSME,assets, liabilities and the Debtors’ rejectionreported expenses and recognized terminationbalance sheet classifications that would be necessary if we were unable to realize our assets and settle our liabilities as a going concern in the normal course of the newbuild contracts for the West Dorado, West Draco, West Aquila and the West Libra. As the Plan anticipates the rejection and termination

of the newbuild contracts we have recognized an impairment of the newbuild assets related to the West Dorado, West Draco, West Aquila and the West Libra, totaling $696 million loss through reorganization items, in 2017.
8) Income taxes
Income tax expense was $8 million for the successor period ended December 31, 2018 while predecessor period was $30 million and $66 million for the year ended December 31, 2017.
Our effective tax rate was approximately (1.3)% for the year ended December 31, 2018, compared to (0.8)% for predecessor period ending July 1, 2018 and (2.2)% for the year ended December 31, 2017. This means that we continue to pay tax on consolidated losses after impairments, such that there were tax charges reported on overall losses before tax inclusive of discrete items. The 2018 and 2017 negative rates reflect no tax relief on the impairments or the derivative loss, as well as no tax chargeable on the disposal transactions. This was due to these items largely falling within the zero tax rate on Bermuda companies.

Significant amounts of our income and costs are reported in non-taxable jurisdictions such as Bermuda. Our drilling rig operations are normally carried out in taxable jurisdictions. In the tax jurisdictions where we operate, the corporate income tax rates range from 17% to 34% for earned income and the deemed tax rates vary from 4% to 10% of revenues. Further, losses in one tax jurisdiction may notoperations. Such adjustments could be offset against taxable income in other jurisdictions. Accordingly, our effective tax rate may differ significantly from period to period depending on the level of activity in each of the tax jurisdictions in which our operations are conducted.


B.LIQUIDITY AND CAPITAL RESOURCES

1) Introduction
We operate in a capital-intensive industry. We have historically funded acquisitions of drilling units and investments in associated companies through a combination of debt and equity issuances and from cash generated from operations. Although we restructured our debt through the Chapter 11 Reorganization we remain a highly leveraged company with outstanding borrowings on our external debt facilities totaling $7.1 billion as of December 31, 2018.
Our liquidity requirements relate to servicing our debt, making capital investments, funding working capital requirements and maintaining adequate cash reserves to mitigate the effects of fluctuations in operating cash flows. Most of our contract and other revenues are received between 30 and 60 days in arrears, and most of our operating costs are paid monthly. We believe our current resources, available cash and cash from operations will be sufficient to meet our working capital requirements and other obligations as they fall due for at least the next twelve months.
Our funding and treasury activities are conducted in accordance with our corporate policies, which aim to maximize returns while maintaining appropriate liquidity for our operating requirements. Cash and cash equivalents are held mainly in U.S. dollars, with lesser amounts held in Norwegian Kroner, Brazilian Reais and Great British Pounds.
This section discusses the most important factors affecting our liquidity and capital resources.material.
2) Liquidity
Our level of liquidity fluctuates depending on a number of factors. These include, among others, our contract backlog, economic utilization achieved, timing of accounts receivable collection, timing of payments for operating costs and other obligations. Our liquidity comprises cash and cash equivalents. The below tables show cash and restricted cash balances for each period presented.
 Successor Predecessor
(In $ millions) December 31, 2018
 July 1, 2018
 December 31, 2017
(In $ millions)December 31, 2020December 31, 2019December 31, 2018
Unrestricted cash 1,542
 1,599
 1,255
Unrestricted cash526 1,115 1,542 
Restricted cash 461
 578
 104
Restricted cash197 242 461 
Cash and cash equivalents, including restricted 2,003
 2,177
 1,359
Cash and cash equivalents, including restricted723 1,357 2,003 
We have shown our sources and uses of cash by category of cash flowflows in the below table.
 Successor PredecessorSuccessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018
Cash flows from operating activities (26) (213) 399
Cash flows from investing activities 61
 149
 358
Cash flows from financing activities (208) 887
 (846)
Net cash used in operating activities (a)
Net cash used in operating activities (a)
(420)(256)(26)
Net cash (used in)/provided by investing activities (b)
Net cash (used in)/provided by investing activities (b)
(32)(26)61 
Net cash used in financing activities (c)
Net cash used in financing activities (c)
(163)(367)(208)
Effect of exchange rate changes in cash and cash equivalents (1) (5) 5
Effect of exchange rate changes in cash and cash equivalents(19)(1)
Change in period (174) 818
 (84)Change in period(634)(646)(174)
This reconciles to the total cash and cash equivalents, including restricted, which is as follows:
Successor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018
Opening cash and cash equivalents, including restricted cash1,357 2,003 2,177 
Change in period(634)(646)(174)
Closing cash and cash equivalents, including restricted cash723 1,357 2,003 
58

  Successor Predecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Opening cash and cash equivalents, included restricted 2,177
 1,359
 1,443
Change in period (174) 818
 (84)
Closing cash and cash equivalents, included restricted 2,003
 2,177
 1,359
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a) Cash flows fromNet cash used in operating activities
Cash flows fromNet cash used in operating activities include cash receipts from customers, cash paid to employees and suppliers (except for capital expenditure), interest and dividends received (except for returns of capital), interest paid, income taxes paid and other operating cash payments and receipts.
We calculate net cash flows fromused in operating activities using the indirect method as summarized in the below table.
Successor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018
Net loss(4,663)(1,222)(605)
Adjustments to reconcile net loss to net cash provided by operating activities (1)
4,409 1,077 492 
Net loss after adjustments(254)(145)(113)
Payments for long-term maintenance(121)(114)(71)
Distributions received from associated companies11 32 
Settlement of payment-in-kind interest on Senior Secured Notes— (39)— 
Changes in operating assets and liabilities(47)31 126 
Net cash used in operating activities(420)(256)(26)
  Successor Predecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Net loss (605) (3,885) (3,102)
Adjustments to reconcile net loss to net cash provided by operating activities (1)
 477
 3,808
 3,603
Net loss after adjustments (128) (77) 501
Payments for long-term maintenance (71) (78) (58)
Distributions received from associated companies 32
 17
 39
Changes in operating assets and liabilities 141
 (75) (83)
Cash flows from operating activities (26) (213) 399
(1)Includes depreciation, amortization, gain on sale of assets, share of results of joint venturesfrom associated companies, loss on impairment of long-lived assets, investments, intangible assets and associates,convertible bond from related party, unrealized gains and losses on derivatives unrealized gains and losses on marketable securities, unrealized foreign exchange loss, net loss on debt extinguishment, payment-in-kind interest, fair value measurement on deconsolidation of VIE, amortization of discount on debt, changes in allowance for credit losses, deferred tax expensebenefit and other non-cash items shown under the sub-heading "adjustments to reconcile net loss to net cash provided by operating activities" in the Consolidated Statements of Cash Flows presented in the Consolidated Financial Statements included in this report.
Market conditions in the offshore drilling industry in recent years have led to materially lower levels of spending for offshore exploration and development. This has negatively affected our revenues, profitability and operating cash flows. During the 2018 Successor periodyear ended December 31, 2020, the year ended December 31, 2019 and the 2018 PredecessorSuccessor period, our cash flows from operating activities were negative, as cash receipts from customers were insufficient to cover operating costs, payments for long-term maintenance of our rigs, interest payments and tax payments.
b) Cash flows fromNet cash used in/provided by investing activities
Cash flows fromNet cash used in/provided by investing activities include purchases and sales of newbuildings, drilling units and equipment, investments in non-consolidated entities and sales of investments in unconsolidated entities, cash flowsreceipts from purchases and sales of debt or marketable securities and certain cash flows from business combinations.loans granted to related parties.
Net cash flowsused in investing activities for the year ended December 31, 2020 were primarily capital expenditures and a related party loan granted. Along with this there was also a decrease in the cash due to the deconsolidation of the Ship Finance SPVs. This is offset by contingent consideration payments from Seadrill Partners and loan repayments received from our joint venture, Seabras Sapura
Net cash used in investing activities for the year ended December 31, 2019 were primarily capital expenditures and a capital contribution into the Sonadrill joint venture. This is offset by contingent consideration payments from Seadrill Partners and loan repayments received from our joint venture, Seabras Sapura.
Net cash provided by investing activities for the 2018 Successor period were primarily generated by loan repayments from our joint venture Seabras Sapura, contingent consideration payments from Sapura Energy from the sale of our Tender Rig business in 2014, and contingent consideration payments from Seadrill Partners from sale of the drillship West Vela in 2015. These cash inflows were partly offset by capital expenditures.
c) Net cash flows from investing activities for the 2018 Predecessor period were driven by our share of proceeds from the sale of the West Rigel, contingent consideration payments from Seadrill Partners from the sale of the drillship West Vela and West Polarisused in 2015, and related party loan repayments from Seadrill Partners. These cash inflows were partly offset by capital expenditures.
Net cash flows from investing activities for the year ended 2017 were driven by cash inflows from the sale of the West Mira newbuild contract, sales of the jack-up rigs West Resolute, West Mischief and West Triton,proceeds from Seadrill Partners for contingent consideration related to the West Vela and West Polaris, payments of interest and principal on loans granted to Seadrill Partners and refunds of Sevan Developer yard installments. This was offset by capital expenditures and a payment to remove guarantees on Archer debt.
c) Cash flows from financing activities
Cash flows fromNet cash used in financing activities include proceeds from issuethe issuance of new equity, and payment of cash dividends, proceeds from issuing debt and repayments of debt and payment of debt issue costs, purchases of treasury shares, proceeds from exercise of stock options and cash flows from transactions with non-controlling interests.issuance costs.
Net cash flows from financing activities for the 2018 Successor period were related to repayments of debt contained within three consolidated variable interest entities (VIEs) managed and financed by Ship Finance International Limited from whom we lease rigs under sale and leaseback arrangements.
Net cash flows from financing activities for the 2018 Predecessor period were mainly driven by proceeds from issue of New Secured Notes and new equity on emergence from Chapter 11, offset by repayments of debt contained within our Ship Finance VIEs and debt fees paid on our senior credit facilities.
Net cash flows fromused in financing activities for the year ended 2017December 31, 2020 were driven by debt repayments and purchase of redeemable non-controlling interest.
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Net cash used in financing activities for the year ended December 31, 2019 and the 2018 Successor period were driven by redemptions of Senior Secured Notes and debt repayments of debt and revolving lines of credit and for debt fees paid.

within our Ship Finance SPVs.
3) Information on our borrowings
As at December 31, 2018,2020, we had total outstanding borrowings under our external debt facilities of $7.1 billion.$6,177 million. This included senior secured credit facility debt of $5.7 billion,$5,662 million and borrowings on our NewSenior Secured Notes of $0.8 billion$515 million.
Our credit facility agreements contain cross-default provisions, which were triggered on default of our interest payments and debt held by consolidated variable interest entitiesamounts under all of approximately $0.6 billion. In addition to our external debt facilities, we had interest bearing debtother credit facility agreements become due and payable and capable of $0.3 billion under loan agreements with related parties.
being accelerated. Our credit facilities are secured by, among other things, liens on our drilling units. Our credit facility agreements contain cross-default provisions, meaning that if we defaulted and amounts became due and payable under one of our credit agreements, this would trigger a cross-default in our other facilities so that amounts outstanding under our other credit facility agreements become due and payable and capable of being accelerated.
The NewSenior Secured Notes are secured by, among other things, our investments in Seadrill Partners, SeaMex, Seabras Sapura and Archer.
In September 2020 and December 2020, we defaulted on payments of interest on our senior secured credit facilities which was not cured within the waiver period. This has triggered the cross-default covenant for the Senior Secured Notes. As in default these amounts are callable on demand by the lender and have been classified as current. Although a forbearance agreement was in place at December 31, 2020 for certain debt facilities (see below) the waiver was not for more than one year from balance sheet date. We also considered it not probable that the violation would be cured in this forbearance waiver period and does not impact our current classification for these debt facilities.
Please refer to Note 2223 – "Debt" into the Consolidated Financial Statements included in this reportherein for additional information on our debt facilities as ofat December 31, 2018.2020.
4) Capital commitments
At December 31, 2018, we had contractual commitments under two (2017: eight) newbuilding contracts with Dalian totaling $0.4 billion (2017: $1.7 billion). In January 2019, Dalian appointed an administrator to restructure its liabilities.
Contracts for the newbuild jack-up rigs West Titan, West Proteus, West Rhea, West Hyperion, West Tethys and West Umbriel were terminated as of December 31, 2018. Further, in February 2019, the Seadrill contracting party terminated the contract to acquire the jack-up rig West Dione due to: (i) delays to delivery of the rig, and (ii) Dalian being subject to bankruptcy proceedings. In March 2019, Dalian purported to terminate the eighth newbuilding contract for the West Mimas. The Seadrill contracting party rejected Dalian’s termination of the contract as wrongful and reserved all its rights. The Seadrill contracting party will obtain a right to terminate the contract for the West Mimas for delay and claim a refund of the pre-delivery installments plus interest in early April 2019, and it intends to enforce all its rights under the contract as they arise.
In March 2019, the Seadrill contracting parties commenced arbitration proceedings in the UK for all eight rigs and will claim for the return of the paid installments plus interest and further damages for losses. They will also file claims for these amounts as part of the Dalian insolvency. Dalian has maintained it has a damages claim in respect of each of the rigs. The contracts are all with limited liability subsidiaries of Seadrill. There are no parent company guarantees. Apart from the Seadrill contracting parties’ claims for repayment of the paid installments plus interest, no quantification of claims has been made by either party.
In addition to these Newbuild commitments weWe expect to incur capital expenditures for purchases in the ordinary course of business.


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C.RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

C.RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

We do not undertake anyrecognize the significant expenditureimpact that technology is having on our industry and through adopting new technologies, improving connectivity and digitizing the way we operate, we have enhanced processes associated with monitoring and managing our assets. Innovation remains at the heart of our business model - for instance, research and development has enabled us to implement PLATO, an advanced data analytics platform that monitors rig performance. The ability to draw insight from these large data sets helps us to optimize our drilling performance for Customers and have no significant interestsensure care and maintenance of our equipment, without compromising safety.

We focus on technologies that will help us to improve results both financially and operationally. Our previously mentioned PLATO platform, with several joint patents, has expanded to include drilling performance, condition-based maintenance and red-zone management through VisionIQ. VisionIQ has earned industry recognition and awards in patents or licenses.2020 and is now moving into production and being sold to the broader industry through our technology partner.



D.TREND INFORMATION
D.TREND INFORMATION


The below table show the average oil price over the period 20142016 to 2018.2020. The Brent oil price at February 28, 20192021 was $66.$67.

201620172018 20192020
Average Brent oil price ($/bbl)45 55 71 64 42 

  2014
 2015
 2016
 2017
 2018
 
Average Brent oil price ($/bbl) 99
 54
 45
 55
 71
 

We have seen an improvement inAlthough we saw Brent prices stabilize between 2018-2019, the oil price plummeted in 2020 creating significant uncertainty on the Oil and gas market over 2018 withGas industry’s trajectory for 2021. The global impacts surrounding the COVID-19 outbreak and the oil price war between Saudi Arabia and Russia impacted in a substantial decline in Brent price. While the global demand for oil prices remaining above $60 per barrel for mosthas partially rebounded it remains well below the pre-pandemic levels. The sustained low level of oil price has materially affected the year. This favorable development in oil prices, combined with efficiencies acrossdrilling industry and the industry, has led to improved economics for our customers. This has in turn led to increased tendering activity and a positive trend in dayrates.financial condition of drilling contractors. We expect these trendsthis volatility to continue in 2019 asand if the price of oil declines further and/or remains at a low price for an extended period there could be further material effect on our customers continue to increase their levelsbusiness, financial condition, and results of investment.

operations.
The below table shows the global number of rigs on contract and marketed utilization atfor the year ended December 31, 20182020, and for each of the four preceding years.

20162017201820192020
Contracted rigs
Harsh environment jack-up (1)
28 26 28 32 26 
Harsh environment floater35 30 31 35 25 
Benign environment floater139 120 116 119 119 
Benign environment jack-up (1)
123 128 140 171 175 
Marketed utilization
Harsh environment jack-up (1)
85 %76 %85 %94 %75 %
Harsh environment floater81 %83 %85 %87 %77 %
Benign environment floater71 %71 %73 %77 %77 %
Benign environment jack-up (1)
68 %70 %75 %85 %82 %
  2014
 2015
 2016
 2017
 2018
 
Contracted rigs           
Harsh environment floater 48
 45
 35
 30
 31
 
Benign environment floater 232
 196
 139
 120
 116
 
Jack-up 1
 190
 180
 152
 154
 168
 
Marketed utilization           
Harsh environment floater 99% 93% 81% 83% 85% 
Benign environment floater 93% 83% 71% 71% 73% 
Jack-up 1
 95% 83% 70% 70% 74% 
1 Jack-up rigs(1) Rigs with water depth greater than 350 feet.feet


Activity has remained subdued over 2018 inFloater
During the floater market. The harsh environment has higher marketed utilization, continuingfirst two months of 2020 there continued to trend ahead of benign environment. There is high demand for high specification harsh environment units relative to their supply, which has led to increased dayrates and higher utilization within this segment. There is still an excess supply of benign environment units which has delayed the recovery in this market.

We have seen a bigger improvement in shallow water markets and this has led tobe an increase in the number of contracted jack-ups.opportunities for floaters and net floater supply continued to decline which improved utilization. However, the pandemic and the drop in oil prices impacted the utilization levels. The increasedrop in marketed utilization of the benign floater was not as stark as initially anticipated mainly due to units being cold stacked and increased attrition. The drop in utilization was greater in the harsh environment floater segment as it was further along in the recovery than the benign environment. Consequently, there was a larger number terminations and more units rolling off contracts with no follow on work. Lower attrition and less cold stacking also contributed to drop in marketed utilization levels.

There is still considerable imbalance between supply and demand across the floater segment applying downward pressure on the utilization levels and dayrates. With conservative capex spend estimated among oil companies we expect the recovery to be slow over the coming quarters, unless there is a surge in post-COVID oil demand.
Jack-up
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The jack-up segment was also materially impacted by the pandemic and the drop in oil prices. There were a significant number of contract terminations following these events and even with a reasonable level of attrition of older units there continued to be an unsustainable balance between supply and demand which lead to the utilization levels and dayrates have seen newbuilds begintrending downwards. Though the premium rigs performed better compared to enterstandard units with respect to utilization, the market.

Floaters - outlook

Based ondayrates levels remained consistently low. We expect to see continued attrition among the current level of activity, age ofstandard jack-up units which along with the floater fleet and level of consolidation in the industry, we expect scrapping activity to continue. A total of 119 floaters have been scrapped or retired since the beginning of 2014, equivalent to 38% of the total fleet, and currently there are 22 cold or warm stacked units that are 30 years old or older, with no follow-on work identified which are prime scrapping candidates. In the next 18 months,rising oil prices should help towards a further 17 units that are 30 years old or older will become available unless they win new work. These units represent additional scrapping candidates. A key rational for scrapping is the 35-year classing expenditures that can cost upwards of $100 million. Many rig owners will choose to retire the unit rather than incur this cost without a visible recovery in demand on the horizon.

Larger drilling companies with diversified fleets will find it easier to make economic decisions and cold stack idle rigs as each individual unit represents a smaller percentage of the overall fleet. Cold stacked units will generally require an improvement in dayrates sufficient to overcome reactivation costs before they are reintroduced into marketed supply.

Marketed utilization is 75% across benign and harsh environment floaters. The global floater order book stands at approximately 42 units, comprised of 28 drillships and 14 semi-submersible rigs. 22 units are scheduled for delivery in 2019, 11 in 2020 and 9 in 2021 and beyond.

Jack-ups - outlook

We saw improved activity levels in the jack-up market during 2018. The shorter-term contract profile in this market lends itself to more rig turnover and the market has likely reached the base level of units required to maintain existing decline curves.segment.


Globally, marketed utilization is 74%. We expect scrapping activity to continue for older units. Currently there are 50 cold stacked units that are 30 years old or older. Additionally, in the next 18 months, 73 units that are 30 years old or older will become available unless they win new work. Together these 123 units, or 24% of the delivered fleet, represent potential scrapping candidates.

78 jack-ups are currently under construction; however, a significant portion of these orders were placed by investors with little or no operating track record. While a number of these speculators may exit projects, these units will eventually reach the market, possibly in the hands of more established companies. The deployment of this incremental supply may be somewhat rationalized in the longer term as the more established players will likely only take delivery when economically viable.

E.OFF-BALANCE SHEET ARRANGEMENTS
E.OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as at December 31, 20182020 or 2017, other than operating lease obligations and other commitments in the ordinary course of business that we are contractually obligated to fulfill with cash under certain circumstances. These commitments include guarantees in favor of banks, suppliers and VIEs and guarantees towards third parties such as surety performance guarantees to customers as they relate to our drilling contracts, contract bidding, customs duties, tax appeals and other obligations in various jurisdictions. Obligations under these guarantees are not normally called, as we typically comply with the underlying performance requirement. December 31, 2019.

F.TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
As at December 31, 2018, we had not been required to make collateral deposits with respect to these agreements.

The maximum potential future payments are summarized in Note 33 - "Commitments and Contingencies,” of our Consolidated Financial Statements included herein.


F.TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
At December 31, 2018,2020, we had the following contractual obligations and commitments:
 Payment due by period
Year ended December 31,
(In $ millions)20212022 - 20232024 - 2025ThereafterTotal
Interest-bearing debt (1) (2)
6,177 — — — 6,177 
Capital lease obligations with related party (3)
108 288 515 235 1,146 
Pension obligations (4)
7 
Operating lease obligations60 18 — 79 
Total contractual obligations6,346 308 518 237 7,409 
  Payment due by period
  Year Ended December 31,
(In $ millions) 2019
 2020 - 2021
 2022 - 2023
 Thereafter
 Total
Interest-bearing debt (1) (2)
 33
 977
 2,721
 3,355
 7,086
Related party interest-bearing debt 
 
 
 314
 314
Total debt repayments 33
 977
 2,721
 3,669
 7,400
Pension obligations (3)
 2
 4
 6
 13
 25
Operating lease obligations 11
 18
 8
 1
 38
Newbuilding commitments (4)
 368
 
 
 
 368
Total contractual obligations 414
 999
 2,735
 3,683
 7,831
(1)Debt principal repayments, excluding cash and payment-in-kind interest.
(1)
(2)In the fourth quarter of 2020 an event of default was triggered for all debt facilities making the debt callable on demand by the lender and as such the debt has been classified as current in the Consolidated Balance Sheet. Refer to Note 23 - "Debt" to the Consolidated Financial Statements included herein for further information.
(3)As described in Note 36 – “Variable Interest Entities” to the Consolidated Financial Statements included herein, in the fourth quarter of 2020, Seadrill triggered an event of default on the sale and leaseback arrangements for three drilling units with SFL Corporation limited (West Taurus, West Hercules and West Linus). As a consequence of the subsequent VIE reassessment, it was determined that we were no longer the primary beneficiary. As such, the net assets and same corresponding non-controlling interest amount of $137 million were deconsolidated, resulting in no gain or loss. The financial liabilities of $933 million relating to the leasing arrangements no longer eliminated on consolidation, were reclassified to related party payables due to Hemen’s significant influence over Ship Finance. The recognition of the related party payable is considered a measurement event, triggering an adjustment of the related party payable to its fair value of $424 million. The remaining bareboat charter payments (including outstanding payments in arrears from the fourth quarter of 2020) and mandatory buyback provisions (altogether totaling $1.1 billion) are still gross contractual obligations under the sale and leaseback arrangements.
(4)Pension obligations are the forecasted employer’s contributions to our defined benefit plans, expected to be made over the next ten years. Refer to Note 31 - "Pension benefits" to the Consolidated Financial Statements included herein for further information.
Debt principal repayments, excluding cash and payment-in-kind interest.
(2)
The above table assumes that we will make amortization payments on our secured credit facilities from 2020. Per the terms of our senior secured credit facilities, we can elect to defer up to $500m of such amortization payments until 2021 through the initiation of new loans.
(3)
Pension obligations are the forecasted employer’s contributions to our defined benefit plans, expected to be made over the next ten years.
(4)
Newbuilding commitments for two jack-up rigs totaling $0.4 billion (2017: $1.7 billion) with the Dalian shipyard. See "Capital Commitments" section within ITEM 5B - "Liquidity and Capital Resources" and Note 33 - Commitments and Contingencies for further details.
In addition to the above, as of December 31, 2020, we have recognized liabilities for uncertain tax positions of $100$79 million, including interestinclusive of penalties and penalties as at December 31, 2018.
Please referinterest. Refer to Note 3314 - "Commitments and contingencies” of our"Taxation" to the Consolidated Financial Statements included herein for further information.

Please refer to Note 35 - "Commitments and contingencies” to the Consolidated Financial Statements included herein for further information.


G.CRITICAL ACCOUNTING ESTIMATES
Overview
The preparationG.CRITICAL ACCOUNTING ESTIMATES
Preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and relatedthe accompanying disclosures about contingent assets and liabilities. We base these estimates and assumptions on historical experience, available information and assumptions that we believe to be reasonable. Our criticalManagement also needs to exercise judgement in applying the group’s accounting policies. Uncertainty about these assumptions, estimates are important factorsand judgments could result in outcomes that require material adjustments to our financial condition and resultsthe carrying amount of operations, and require us to make subjectiveassets or complex assumptions or judgments about matters that are uncertain.liabilities in future periods. We believe that the following are the critical accounting estimates and assumptions used in the preparation of our Consolidated Financial Statements. In addition, there are other items in our Consolidated Financial Statements that require estimation. Our significant accounting policies are discussed in Note 2 - "Accounting Policies" and Note 5 – "Fresh Start Accounting" to our Consolidated Financial Statements included herein.
Impairment of Drilling Units
Generally, the carrying amount of our drilling units including rigs, vessels and related equipment are recorded at historical cost less accumulated depreciation. However, drilling units acquired through a business combination or remeasured through the application of fresh start accounting are measured at fair value as of the date of acquisition or the date of emergence, respectively. Our drilling units are subject to various estimates, assumptions, and judgments related to capitalized costs, useful lives and residual values, and impairments.
Our estimates, assumptions, and judgments reflect both historical experience and expectations regarding future operations, utilization and performance. At December 31, 2018 (Successor) and December 31, 2017 (Predecessor), the carrying amount of our drilling units was $7 billion and $13 billion, representing 61% and 73% of our total assets, respectively.
Useful lives and residual value
The cost of our drilling units less estimated residual value is depreciated on a straight-line basis over their estimated remaining useful lives. The estimated useful life of our semi-submersible drilling rigs, drillships and tender rigs, when new, is 30 years.
The useful lives of rigs and related equipment are difficult to estimate due to a variety of factors, including technological advances that impact the methods or cost of oil and gas exploration and development, changes in market or economic conditions and changes in laws or regulations affecting the drilling industry. We re-evaluate the remaining useful lives of our drilling units as and when events occur which may directly impact our assessment of their remaining useful lives. This includes changes in the operating condition or functional capability of our rigs as well as market and economic factors. The use of different estimates, assumptions and judgments in establishing estimated useful lives and residual values could result in significantly different carrying values for our drilling units which could materially affect our results of operations.

Impairment
The carrying values of our long-lived assets are reviewed for impairment when certain triggeringwhenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Asset impairment evaluationsIn 2020 the following events or changes in circumstances indicated that the carrying amount of the drilling units may not be recoverable:
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The oil price collapse in the beginning of 2020, triggered by the combined impact of COVID-19 and demand shortfalls, has caused a significant delay in the recovery of the drilling industry. This has negatively impacted offshore rig utilization and market day rates as the supply of drilling units continue to exceed demand.
The main industry players have not completed scrapping programs as expected. This has prevented a market consolidation and recovery as previously forecasted. The recovery of the benign environment floater market was slower and less pronounced than previously assumed, especially for semi-submersible units.
We decided to retire a number of rigs over the five year period.
We estimated future undiscounted cash flows to judge the recoverability of carrying amounts of the rigs in March 2020 and December 2020. Cash flows used in recoverability assessments are prepared for each rig and based on the assumptions which are developed in the annual budgeting process and our five-year plan. These include assumptions about long-term day rates by nature, highly subjective. They involve expectationsrig, long-term economic utilization, contract probabilities, operating expenses, estimated maintenance and inspection costs, reactivation costs and timing for the cold stacked rigs, and recycling probability. The recycling assumption was based on our estimates of the internal rate of return following the reactivation, the length of time rigs being cold stacked and assumptions relating to the remaining useful life of the rigs.
Our assumptions about future cash flows generated by our assets and reflect management’s assumptions and judgments regarding future industry conditions and their effect on future utilization levels, dayrates and costs. The use of different estimates andcontract probabilities, which are also considered key assumptions, could result in significantly different carrying values of our assets and could materially affect our results of operations. An impairment loss is recorded in the period in which it is determined that the aggregate carrying amount is not recoverable.
With regard to our older drilling units which have relatively short remaining estimated useful lives, the results of impairment tests are particularly sensitive to management’s assumptions. These assumptions include the likelihood of the unit obtaining a contract upon the expiration of any current contract, and our intentionwere based on independent market reports for the drilling unit should no contractindustry. We assumed that day rates will remain constant after 2025. Reactivation timing of cold stacked rigs and recycling probabilities were also considered to be obtained, including warm/coldkey assumptions and an area of significant management judgement. Assumptions about operating expenses, capital expenditure, stacking or scrapping. The use of differentand reactivation costs, were based on contractual rates and historical information. Due to the inherent uncertainty around these assumptions, it is at least reasonably possible that a material change in impairment can occur in the near term.
An asset is impaired if its estimated undiscounted cash flows are less than the asset’s carrying values. On assessment of asset recoverability through an estimated undiscounted future could potentially result in an impairment of older drilling units,net cash flows we calculated the value to be lower than the carrying value for 15 rigs. Impairment is measured by the amount by which could materially affect our results of operations. If market supply and demand conditionsthe carrying value exceeds fair value. The discount rate is considered to be a key assumption in the ultra-deepwater offshore drilling sector do not improve it is likely thatdiscounted future net cash flows. We applied weighted average cost of capital rates of 11.8% and 12.8% to determine an implied fair value of the rigs in December 2020 and March 2020, respectively. During 2020, we will be requiredrecorded an aggregate impairment loss of $4.1 billion. We have impaired all long-term cold stacked units in full and all other drillships and benign environment semi-submersible rigs down to impair certain drilling units.their estimated fair market value. Increasing/decreasing the weighted average cost of capital by +/- 200 basis points would increase/decrease the impairment loss by $83/107 million.
In the 2018 Predecessor period, we determined that the continuing downturn in the offshore drilling market was an indicator of impairment onfor certain assets. Following an assessment of recoverability, we recorded an impairment chargeloss of $414 million againstwith respect to three non-modern drilling rigs.
Deconsolidation of VIE's and measurement of fair value of Ship Finance SPV's related party liability
Between 2008 and 2013, we entered into sale and leaseback arrangements for two semi-submersible rigs and a jack-up rig (the West Alpha,Taurus, West NavigatorHercules and West Epsilon.Linus) with Ship Finance, who incorporated Ship Finance SPV's for the sole purpose of owning and leasing the drilling units to Seadrill. We concluded that we were the primary beneficiary of these companies and therefore consolidated them under the variable interest model. This conclusion was based on a judgement that the lease arrangements together with the mandatory obligation to repurchase rigs at the end of the lease at a fixed price under the lease contracts exposed Seadrill to substantially all of the risks and rewards from the changes in the fair value of the rigs.
DuringIn the 2018 Successorfourth quarter of 2020, Seadrill triggered an event of default on the leases by not curing the cross-default violation on Seadrill's secured credit facilities and for non-payment of bareboat charter payments to Ship Finance SPV's. This triggered a reassessment of whether we should still consolidate the Ship Finance SPV's under the variable interest model. Seadrill was no longer deemed to be the primary beneficiary as it no longer has control of the decisions that most significantly impact the SPV’s economic performance - termination or modification of the lease contracts and recoverability of amounts in default.
Therefore, we deconsolidated the net assets and corresponding non-controlling interest amount of $137 million. As part of the deconsolidation the external debt of the Ship Finance SPV's and parent entity loans to Ship Finance have been derecognized.
With the financial liabilities relating to the leasing arrangements no longer eliminated on consolidation, these financial liabilities were initially reclassified at carrying values of $933 million to related party payables. As the recognition of this related party payable upon deconsolidation is considered a measurement event (post-deconsolidation initial recognition), the liabilities were remeasured to an aggregate fair value of $424 million. The gain of $509 million is recognized in the Consolidated Statement of Operations. Along with this there was a subsequent amortization of the discount of debt of $2 million, for the period and the years ended December 31, 2017 and 2016 we identified indicators that2020.
We estimated the carryingfair value of our drilling units may not be recoverable. Market indicators included the reduction in new contract opportunities, fall in market dayrate and contract terminations. We assessed recoverability of our drilling units by first evaluating the estimated undiscounted future net cash flows basedliability to Ship Finance SPV's on projected dayrates and utilizations of the units. The estimated undiscounted future net cash flows were found to be greater than the carrying value of our drilling units. Asdeconsolidation using a result, we did not need to proceed to assess the discounted cash flows approach. This was based on the contractual cash flows under the bareboat charter agreements together with applicable LIBOR linked interest payments. We also assumed cash outflows under the mandatory repurchase obligation at the end of our drilling units,the lease term. We have discounted these cash flows at an appropriate cost of debt, which we have estimated to be Seadrill's senior secured note yield at the date of deconsolidation of 37%. A change of +/- 1000 basis points in the applicable discount rate would decrease/increase the fair value of the liability by $69/97 million.


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Fair Value of Archer Convertible Bond
We carry the Archer Convertible bond at its fair value with any gains or losses on remeasurement reflected in OCI. In 2019 Archer engaged in negotiations on refinancing its debt facilities. At December 2019, we assumed that the maturity date of the bond would be extended to 2024 after restructuring of the bank borrowings of Archer to which the Seadrill bond was subordinate. The extension of the maturity date led to a decrease in the bond’s fair value and noin an other-than-temporary impairment charges were recorded.of $11 million, recognized in the year ended December 31, 2019. We recognized a further impairment of $29 million in 2020 following the renegotiated terms of the convertible debt instrument on completion of Archer's refinancing. Refer to Note 32 - "Related party transactions"to the Consolidated Financial Statements included herein for more details.
Impairment of Equity Method Investments and Marketable Securitiesinvestments in Seadrill Partners
Overview
We assessEach reporting period, we consider whether there have been any indicators of ’other than temporary impairment’ (“OTTI”) of our equity method investments (subordinated units and marketable securities for impairment during each reporting period. We recorddirect interests) and whether there has been an impairment chargeof our investment in the IDR's issued by Seadrill Partners. We recognize an impairment for other-than-temporary declines in fair value when the fair value is not anticipated to recover above the carrying value within a reasonable period after the measurement date, unless there are mitigating factors that indicate impairment may not be required. The evaluation of whether a declinedate. Refer toNote 20 - "Investment in fair value is “other than temporary” requires a high degree of judgment and the use of different assumptions that could materially affect our earnings. If actual events differ from management’s estimates, orassociated companies" to the extent that these estimates are adjustedConsolidated Financial Statements included herein for details.
Impairment recognized in the future, our financial condition and results of operations could be affected in the period of any such change of estimate.
During 2017 and 2016, the deteriorating market conditions in the oil and gas industry, as well as the supply and demand conditions in the industry we operate, were indicators of impairment for our investments in Seadrill Partners and SeaMex, as well as our investment in Seadrill Partners’ member interest and incentive distribution rights. We have determined the length and severity of the deterioration of market conditions to be representative of an "other than temporary" impairment for the year ended December 31, 20172019
The share price of Seadrill Partners common units has declined in 2018. In September 2019 the common units were suspended from trading on NYSE as Seadrill Partners market capitalization decreased below $15 million for a period of 30 consecutive days. Seadrill Partners’ $2.6 billion Term Loan B (“TLB”) due for repayment in February 2021 needed to be refinanced. We considered this as (i) an indicator of OTTI for the subordinated units and 2016. our direct equity interests in OPCOs and (ii) an impairment indicator for the IDRs.
We haveestimated fair value of our direct equity interest in OPCOs using an income approach based on discounted future free cashflows (“DCF model”) net of the fair value of the outstanding debt. The cash flows were estimated for each rig based on management’s assumptions about long-term day rates by rig, long-term economic utilization, contract probabilities, operating expenses, estimated maintenance and inspection costs, reactivation costs and timing for the cold stacked rigs, scrapping probability. We applied a weighted average cost of capital (WACC) between 11.25% and 12.25% based on our assessment of market participants’ views about the WACC.
We assumed that Seadrill Partners needed to refinance their $2.6 billion TLB loan. Our DCF model considered a range of scenarios to reflect different potential refinancing outcomes for Seadrill Partners. The key assumptions used in the DCF were derived from significant unobservable Level 3 inputs based on our best judgments at the time of performing the impairment test.
We valued our IDR investments using an option pricing model valuing different tranches in the capital structure in sequence of seniority.
We estimated the fair value of our direct equity interest in OPCOs and IDRs at $134 million and nil, respectively. The carrying amount of our direct equity interest of $382 million and IDRs of $54 million were reduced to their recoverable amounts with impairment loss of $302 million recognized impairment of these investments within “Loss on impairment of investments” in our Consolidated Statement of Operations for the yearsyear ended December 31, 20172019.
We have summarized the carrying value of our investments before and 2016.after this impairment review in the below table.
During
(In $ millions)
InvestmentBasisSeptember 30, 2019 Post-impairmentSeptember 30, 2019 before impairmentDecember 31, 2018July 2, 2018
Seadrill Partners subsidiaries - Subordinated unitsEquity method— — 17 37 
Seadrill Partners subsidiaries - Common unitsFair value45 91 
Seadrill Partners subsidiaries - IDRsCost less impairment— 54 54 54 
Seadrill Partners subsidiaries - Direct ownership interestsEquity method    382 479 575 
Total2 438 595 757 
Impairment recognized in the 2018 Successor periodyear ended December 31, 2020:
In 2020 the impact of COVID-19 on the global economy has had a negative impact on our industry. As global oil demand has fallen, we have also seen an increase in oil supply, leading to a surplus of reserves and a decline in the 2018 Predecessor period we did not identify indicatorsoil price. This has led to reduced forecasted day rates and utilization in 2020, and an extended time for these to recover in future years as market supply and demand re-balance. On December 1, 2020, Seadrill Partners filed voluntary petition under Chapter 11 of the Bankruptcy Code. We concluded that an indicator of other than temporary impairment forarose in 2020. The fair value of the rigs decreased below the fair value of the net debt.
Therefore, the fair value of our direct equity interest in OPCOs was estimated at nil. The carrying amount of our equity method investments and marketable securities. As such, we did not recognize anyinvestment of $47 million was reduced with the impairment charge of these investments during these periods$47 million recognized within the “Loss“loss on impairment of investments” in our Consolidated Statement of Operations.Operations for the year ended December 31, 2020.
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We have summarized the carrying value of our investments before and after this impairment review in the below table.
(In $ millions)
InvestmentBasisMarch 31, 2020 Post-impairmentMarch 31, 2020 before impairmentDecember 31, 2019December 31, 2018
Seadrill Partners subsidiaries - Subordinated unitsEquity method— — — 17 
Seadrill Partners subsidiaries - Common unitsFair value— 45 
Seadrill Partners subsidiaries - IDRsCost less impairment— — — 54 
Seadrill Partners subsidiaries - Direct ownership interestsEquity method— 47 122 479 
Total 49 124 595 
Redeemable non-controlling interests
We entered into a Transaction Support Agreement (“TSA”) on April 4, 2018 with Mermaid Maritime Public Company Limited ("Mermaid"), a minority shareholder of one of our subsidiaries, Asia Offshore Drilling Limited (“AOD”). The TSA gave an option to Mermaid to sell its shares in AOD to Seadrill Partners direct ownershipLimited subject to a price ceiling ("Put Option"). After the end of the exercise period of the Put Option, Seadrill Limited had the option to purchase the non-controlling interest in AOD at a price subject to the floor price (“Call Option”). The Put Option gave rise to a redemption obligation for Seadrill Limited. The non-controlling interest was reclassified from equity and SeaMex investmentpresented as a separate line item below liabilities and measured at fair value through profit and loss.
To perform an impairment assessmentmeasure the non-controlling interest at fair value, we estimated the enterprise value of AOD based on our equity method investment in Seadrill Partners’ and SeaMex, we derived the fair value using an income approach which discounts future freeof the three drilling units it owns: AOD I, AOD II and AOD III, net of the fair value of the outstanding debt. The fair value of the drilling units was based on cash flows orgenerated by the ‘DCF’ model. The cash flows are estimated over the remaining useful economic lives of the underlying assets but no longer than 30 years in total andrigs discounted using the following estimated market participanta weighted average cost of capital:
 
Year ended
December 31, 2017
Year ended
December 31, 2016
Seadrill Partners direct ownership interest9.75%9.50%
SeaMex equity interest10.25%11.00%
capital of 11% (2019: 11%). The DCF model derived an enterprisefair value of the investments, after which associatedexternal debt facilities of AOD was subtracted to provide equity values. The assumptions used in the DCF model were derived from significant unobservable inputs (representative of Level 3 inputs for Fair Value Measurement) and are based on management’s best judgments and assumptions available at the time of performing the impairment test. The underlying assumptions and assigned probabilities of occurrence for utilization and dayrate scenarios were developedmeasured using cash flows discounted using a methodology that examines historical dataweighted average cost of debt of 6% (2019: 6%).
In August 2020 Mermaid exercised its put option which resulted in Seadrill purchasing the Mermaid shares in AOD for each rig, which considers the rig’s age, rated water depth and other attributes and then assesses its future marketability considering the current and projected market environment at the time$31 million. As 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.
Seadrill Partners- Seadrill member interest and Incentive Distribution Rights (‘IDRs’)
To assess the investments accounted for using the cost method for impairment, the fair value was determined using a Monte Carlo simulation method, or the Monte Carlo Model. The assumptions used in the Monte Carlo Model were derived from both observable and unobservable inputs and are based on management’s judgments and assumptions available at the time of performing the impairment test. The method considers the cash distribution waterfall, historical volatility, estimated dividend yield and the share price of the common units. We employ significant judgment in developing these estimates and assumptions.
Impairment
During the 2018 Successor period and the 2018 Predecessor period, we did not recognize any impairment of equity method investments and marketable securities within the “Loss on impairment of investments” in our Consolidated Statement of Operations.
During 2017 and 2016, we determined the length and severity of the deterioration of market conditions affecting our investments to be indicative of an "other than temporary" impairment for the years ended December 31, 2017 and 2016. During 2017 and 2016,2020 we recognizedno longer have a total impairment loss of $841 million and $895 million, respectively. The table below summarizes the total impairments of investments made during the years ended December 31, 2017 and 2016:
(In $ millions)
Period from July 2, 2018 through December 31, 2018


 
Period from January 1, 2018 through July 1, 2018

 Year ended December 31, 2017
 Year ended December 31, 2016
Impairments of marketable securities       
Seadrill Partners - Common units
 
 
 153
Total impairment of marketable securities investments (reclassification from OCI)
 
 
 153
        
Impairments of investment in associated companies       
Seadrill Partners - Total direct ownership investments
 
 723
 400
Seadrill Partners - Subordinated units
 
 82
 180
Seadrill Partners - Seadrill Member Interest and IDRs
 
 
 73
SeaMex
 
 36
 76
Sete Brasil Participacoes SA
 
 
 13
Total impairment of investments in associated companies
 
 841
 742
        
Total impairment of investments
 
 841
 895
redeemable non-controlling interest. Refer to Note 1128 - "Impairment loss on marketable securities and investment in associated companies""Redeemable non-controlling interest" to ourthe Consolidated Financial Statements included herein for further information on the various estimates and assumptions used for calculating the loss on impairment of equity method investments and marketable securities.details.
Income Taxes
Seadrill is a Bermuda company that has a number of subsidiaries and affiliates in various jurisdictions. We are not currently required to pay income taxes in Bermuda on ordinary income or capital gains because we qualify as an exemptexempted company. We have received written assurance from the Minister of Finance in Bermuda that we will be exempt from taxation until March 2035. Certain of our subsidiaries operate in other jurisdictions where income taxes are imposed. Consequently, income taxes have been recorded in these jurisdictions when appropriate. Our income tax expense is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate.
We providerecognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While we believe we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes based on the tax laws and rates in effect in the countries in which our operations are conducted and income is earned. The income tax rates and methods of computing taxable income vary substantially between jurisdictions. Our income tax expense is expected to fluctuate from year to year because our operations are conducted in different tax jurisdictions and the amount of pre-tax income fluctuations.

taxes.
The determination and evaluation of our annual group income tax provision involves the interpretation of tax laws in the various jurisdictions in which we operate and requires significant judgment and the use of estimates and assumptions regarding significant future events, such as

amounts, timing and the character of income, deductions and tax credits. There are certain transactions for which the ultimate tax determination is unclear due to uncertainty in the ordinary course of business. We recognize tax liabilities based on our assessment of whether our tax positions are more likely than not sustainable, based solely on the technical merits and considerations of the relevant taxing authorities widely understood administrative practices and precedence. Changes in tax laws (such as the recent US tax reform), regulations, agreements, treaties, foreign currency exchange restrictions or our levels of operations or profitability in each jurisdiction may impact our tax liability materially in any given year.

While our annual tax provision is based on the information available to us at the time, a number of years may elapse before the ultimate tax liabilities in certain tax jurisdictions are determined. Current income tax expense reflects an estimate of our income tax liability for the current year, withholding taxes, changes in prior year tax estimates as tax returns are filed or from tax audit adjustments. Our deferred tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reflected on the balance sheet. Valuation allowances are determined to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. To determine the amount of deferred tax assets and liabilities, as well as at the valuation allowances, we must make estimates and certain assumptions regarding future taxable income, including where our drilling units are expected to be deployed, as well as other assumptions related to our future tax position. A change in such estimates and assumptions, along with any changes in tax laws, could require us to adjust the deferred tax assets, liabilities or valuation allowances. In addition, our uncertain tax positions are estimated and presented within other current liabilities, other liabilities, and as reductions to our deferred tax assets within our Consolidated Balance Sheets. ReferFor details on our tax position, refer to Note 1214 – "Taxation" to the Consolidated Financial Statements included herein.
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Current Expected Credit Losses
The CECL model contemplates a broader range of information to estimate expected credit losses over the contractual lifetime of an asset. It also requires to consider the risk of loss even if it is remote. We estimate expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts of events which may affect the collectability. We estimate the CECL allowance using a “probability-of-default” model, calculated by multiplying the exposure at default by the probability of default by the loss given default by a risk overlay multiplier over the life of the financial instrument (as defined by ASU 2016-13). Our critical assumptions relate to internal credit ratings and maturities used to determine probability of default, the subordination of debt to determine loss given default and the performance status of the receivable that can impact any management overlay. We determine management risk overlay based on management assessment of defaults, overdue amounts and other observable events that provide information on collection. Our internal credit ratings are based on the Moody’s scorecard approach (based on several quantitative and qualitative factors) and our approach relies on statistical data from Moody’s ‘Default and Ratings Analytics’ to derive the expected credit loss. We monitor the credit quality of receivables by re-assessing credit ratings, assumed maturities and probability-of-default on a quarterly basis. Due to the inherent uncertainty around these judgmental areas, it is at least reasonably possible that a material change in the CECL allowance can occur in the near term. We grouped financial assets with similar risk characteristics based on their contractual terms, historical credit loss pattern, internal and external credit ratings, maturity, collateral type, past due status and other relevant factors.
The CECL model applies to our external trade receivables, related party receivables (See Note 32 – "Related party transactions" to the Consolidated Financial Statements included herein for further information.details) and other financial assets carried at amortized cost. Our external customers are international oil companies, national oil companies and large independent oil companies. These counterparties mostly have investment grade credit ratings. Historically we incurred very low credit losses and observed no significant past due amounts indicating delinquency of payments. Therefore, we have limited credit risk exposure impact based on our assessment of future, current and past conditions. However, we have established an allowance on our loans and trade receivables due from related parties reflecting their current financial position, lower crediting rating and overdue balances.


H.SAFE HARBOR
H.SAFE HARBOR
 
Forward-looking information discussed in this Item 5 includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking statements.” We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. Please see “Cautionary Statement Regarding Forward-Looking Statements”statement regarding forward-looking statements” in this annual report.



ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
A.DIRECTORS AND SENIOR MANAGEMENT
A.DIRECTORS AND SENIOR MANAGEMENT
1) Board of Directors
The Board of Directors consists of sevenfive individuals. The names and positions of the Directors as of February 28, 20192021 are set out in the table below.
NamePosition
Birgitte Ringstad VartdalBjarte BøeDirector
Eugene I. DavisBirgit Aagaard-SvendsenDirector
Harald ThorsteinGlen Ole RødlandDirector
John FredriksenDirector and Chairman of the Board
Kjell-Erik ØstdahlGunnar Winther EliassenDirector
Peter J. SharpeHerman R. FlinderDirector
Scott D. VogelDirector
Certain biographical information about each of our directors is set forth below.
Birgitte R. Vartdal servesBjarte Bøe was appointed as an independent director appointed by Hemen. Ms. Vartdal has served as Chief Executive Officer of Golden Ocean Management AS since May 2016 and previously served as Chief Financial Officer of Golden Ocean from June 2010 toon April 2016. Ms. Vartdal21, 2020. He currently serves as a Director of the NYSE-listed Hermitage Offshore, and is a member of its Audit Committee. Mr Bøe sits on the boardBoard of Marine Harvest ASAAgera Venture, a Norwegian Venture Capital company, and asis a member of the corporate assemblyNomination Committee of Equinor ASA. SheBW Offshore Ltd. He also previously servedserves as the Chairman of the Investment Committee at SEB Venture Capital, a directorsubsidiary of Sevan Drilling Ltd (formerly Sevan Drilling ASA). Ms. VartdalSkandinaviska Enskilda Banken AB (publ), or SEB, a Nordic financial services group, where from 1995 to 2019, he held a range of senior management positions. Mr Bøe holds a degree of Siv.Ing. (MSc) in Physics and Mathematicsan M.B.A. from the Norwegian UniversitySchool of ScienceEconomics and Technology (Nw. NTNU) and an MSc in Financial Mathematics from Heriot-Watt University, Scotland.Business Administration.
Eugene I. Davis serves
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Birgit Aagaard-Svendsen was appointed as an independent director appointed by the mutual agreement of Hemen, Centerbridge and the Select Commitment Parties. Mr. Davis is the Chairman and Chief Executive Officer of PIRINATE Consulting Group, LLC, a privately held consulting firm specializing in turnaround management, merger and acquisition consulting, hostile and friendly takeovers, proxy contests and strategic planning advisory services for domestic and international public and private business entities. Since forming PIRINATE in 1997, Mr. Davison February 27, 2020. Ms. Aagaard-Svendsen has advised, managed, sold, liquidated andpreviously served as a chief executive officer, chief restructuring officer, director, chairman or committee chairmanCFO in the shipping company J. Lauritzen A/S and brings more than 25 years of a numberboard experience in public companies. Ms. Aagaard-Svendsen has experience in different business segments including more than 25 years in shipping, 15 years related to offshore as well as 16 years of businesses operatingboard experience in diverse sectors. He was the President, Vice Chairman and a director of Emerson Radio Corporation, a consumer electronics company, from 1990 to 1997 and was the Chief Executive Officer and Vice Chairman of Sport Supply Group, Inc., a direct-mail marketer of sports equipment, from 1996 to 1997. Mr. Davis began his career in 1980 as an attorney and international negotiator with Exxon Corporation and Standard Oil Company (Indiana) and was in private practice from 1984 to 1998.
Mr. DavisDanske Bank. Ms. Aagaard-Svendsen currently serves as Co-Chairman of Verso Corporation, and also serves as a director of Sanchez Energy,Audit Committee Chairman in Aker Solutions AS, DNVGL, Prosafe SE as well as certain private, non-SEC reporting companies. Duringin West of England Ship Owners Mutual Insurance Association. In addition, Ms. Aagaard-Svendsen is the past five years, Mr. Davis has been a directorDeputy Chairman of Copenhagen Malmö Port. From 2011 to 2015 she was Chairman of the following public or formerly public companies: ALST Casino Holdco, LLC; Atlast Air Worldwide Holdings, Inc.; The Cash Store Financial Services, Inc.; Dex One Corp.; Genco Shipping & Trading Limited; Global Power Equipment Group, Inc.; Goodrich Petroleum Corp.; Great Elm Capital Corp.; GSI Group, Inc.; Hercules Offshore, Inc.; HRG Group, Inc.; Knology, Inc.; SeraCare Life Sciences, Inc.; Spansion, Inc.; Spectrum Brands Holdings, Inc.;Danish Committee on Corporate Governance. 
Ms. Aagaard-Svendsen is a constructional engineer (Technical University of Denmark) and WHIM Corp.has a Graduate Diploma in Business Administration (Copenhagen Business School, CBS). Ms. Aagaard-Svendsen has on an ongoing basis participated in Postgraduate Studies in Finance and Strategy at Insead, IMD and IESE.
Glen Ole Rødland was appointed Director and Chairman of the Board on November 21, 2019. Mr Rødland is currently Chairman of Prosafe, Axactor and AqualisBraemar, and has 25 years' experience in shipping, oil and gas and other industries. He has extensive experience as an analyst and in corporate finance from Investment Banking, Private Office and Private Equity, including DnB, HitecVision and Swedbank. Mr. DavisRødland obtained a Bachelor's degree from Columbia College, a Master of International Affairs degree (MIA)an MBA and Postgraduate Studies in international law and organization fromFinance completed at the Norwegian School of International Affairs of Columbia University,Economics and a Juris Doctorate from Columbia University School of Law.Business Administration (NHH) and UCLA.
Harald Thorstein servesGunnar Winther Eliassen was appointed as a director appointed by Hemen. Harald ThorsteinHemen Director on November 21, 2019. Mr. Eliassen has served as a director of Seadrill Partners LLC since September 2012. Mr. Thorstein is currentlybeen employed by Seatankers Consultancy Services (UK) Limited (previously Frontline Corporate Services) in London, prior to which he was employed in the Corporate Finance division of DnB NOR Markets, specializing in the offshore and shipping sectors. He has also served as a director of Ship Finance International Limited since 2011.January 2016. Mr. Thorstein has served as a director of Solstad Farstad ASA since June 2017 and Axactor AB since September 2017.
John Fredriksen serves as a director appointed by Hemen. Mr. Fredriksen has served as Chairman of the Board, President, and a director of Old Seadrill since its inception in May 2005. Mr. Fredriksen has also served since 1997 as Chairman, President, and a director of Frontline Ltd., a Bermuda company listed on the NYSE and the OSE, and from 2001 until September 2014 as Chairman of the Board, President and a director of Golar LNG Limited, or Golar, a Bermuda company listed on the Nasdaq Global Market. Mr. Fredriksen also currently serves as a director of Golden Ocean Group Limited, a Bermuda company listed on the Nasdaq Stock Market and the OSE, since March 2015. Mr. Fredriksen also served as a director and chairman of the board of North Atlantic Drilling Limited from its inception in 2011 until September 2015.
Kjell-Erik Østdahl serves as an independent director appointed by Hemen. Since 2016, Mr. Østdahl has been a senior advisor to Blackstone's Private Equity Energy division in London. Prior to that, between 2014 to 2015, Mr. Østdahl worked in Norway as a senior partner at HitecVision, a private equity investor focused on the upstream oil and gas industry. Prior to that, between 1990 and 2005, and again between 2007 to 2013, Mr. Østdahl worked at Schlumberger and its subsidiary, WesternGeco, including working in France as EVP Operations and Support and Chief Procurement, in the U.K. and Norway as VP Operations, General Manager, Marketing Manager, Business Development Manager and Local

Manager and in China and Indonesia as a Field Engineer. Between 2006 and 2007, Mr. Østdahl worked at Statoil as Chief Procurement Officer (Norway). He holds and has held various non-executive directorships and advisory roles including: (a) as Chairman of Sekal (Norway) from 2015 to date, and of Atlantica Tender Drilling (U.S.A) from 2014 to 2016; and (b) as a board member of the Flux Group (Norway) from 2015 to 2016 and of Wirescan (Norway) from 2014 to 2015. Mr. Østdahl has also agreed to act as a director of Mime, a new independent E&P player in the North Sea. Mr. Østdahl holds an MSc Electrical Engineering degree from NTNU Norwegian University of Science & Technology, Norway.
Peter J. Sharpe serves as an independent director appointed by Centerbridge. Mr. Sharpe retired from Shell in 2017 after holding a diverse range of Executive Management positions in international locations over a period of 37 years. Mr. Sharpe served as Executive Vice President of Royal Dutch Shell for over 10 years, with responsibility for managing Shell upstream investments in well construction and maintenance globally. Mr. Sharpe brings significant experience in all aspects of upstream development, asset management, and major project delivery. Mr. Sharpe served as Chairman of SWMS Pte Ltd an independent Joint Venture between Shell and CNPC from 2012 to 2017 and as a non-Executive director of Xtreme Drilling and Coil Services Corporation from 2008 to 2014. He brings to the Board expertise in strategic and operational risk management, supply chain management, organizational change and monetization of technology. Mr. Sharpe received a Bachelor of Science degree from the University of Hull in 1980.
Scott D. Vogel serves as an independent director appointed by the Select Commitment Parties. Mr. Vogel is the Managing Member of Vogel Partners LLC, a private investment firm. He was previously a managing director at Davidson Kempner Capital Management, L.L.C., in the Global Distressed Debt Group managing over USD 15 billion in assets and 75 investment professionals. Mr. VogelEliassen also serves as a Director of Seadrill Partners LLC, Golden Close Maritime Corp. Ltd. and KLX Energy Services Inc. Mr. Eliassen was also a Partner at Pareto Securities In. in New York and Oslo. Mr. Eliassen obtained an MBA in Finance from the Norwegian School of Economics.
Herman R. Flinder was appointed as an independent director on February 27, 2020. Mr. Flinder is a co-founder of Norse Partners LLC and Energy Investment Management LLC, which manage a portfolio of investments in oil service companies. Mr. Flinder serves on the public company Boardsboards of Bonanza Creek Energy, Key Energy ServicesNoram Drilling Company AS, Panther Fluids Management LLC and Avaya IncWolf Downhole Motors LLC. Mr. Flinder was previously a managing partner of Fearnley Offshore LLC in Houston and several private companies.brings to the board 30 years of experience in the offshore industry, including chartering, sales and purchase and corporate development. Mr. Flinder attended the Colorado School of Mines and the University of West Virginia, with a degree in Geology and Engineering and an MBA.
2) Senior Management
Our executive management team consists of the following fourfive employees who are responsible for overseeing the management of our business ("Management"). The Board of Directors has organized the provision of management services through Seadrill Management Ltd. ("Seadrill Management"), a subsidiary incorporated in the United Kingdom. The Board of Directors has defined the scope and terms of the services to be provided by Seadrill Management. The Board of Directors must be consulted on all matters of material importance and/or of an unusual nature and, for such matters, will provide specific authorization to personnel in Seadrill Management to act on its behalf.
The names of the members of Management as of February 28, 2019,2021, and their respective positions, are presented in the table below:
NameAgePosition
Stuart Jackson61Chief Executive Officer
Reid Warriner48Chief Operating Officer
Sandra Redding44General Counsel
NameLeif NelsonAge46PositionChief Technology Officer
Anton DibowitzMatthew Lyne4746Chief ExecutiveCommercial Officer
Mark Morris55Chief Financial Officer
Leif Nelson44Chief Operating Officer
Chris Edwards54General Counsel
Anton DibowitzStuart Jackson serves as the Chief Executive Officer of Seadrill Management and as the Company's Principal Executive Officer. Mr. Dibowitz was appointed Chief Executive Officer of the Groupoffice since October 2020. Stuart joined Seadrill in July 2017. Prior to this Mr. Dibowitz served as Executive Vice President of Seadrill Management since June 2016, and2019 as Chief Commercial Officer since January 2013. He has over 20 years drilling industry experience most recently serving as Vice President of Marketing and prior to that as Commercial Director, Deepwater Western Hemisphere Division. Prior to joining Seadrill, Mr. Dibowitz held various positions within tax, process reengineering and marketing at Transocean Ltd. and Ernst & Young LLP. He is a Certified Public Accountant and a graduate of the University of Texas at Austin where he received a Bachelor's degree in Business Administration, and Master's degrees in Professional Accounting (MPA) and Business Administration (MBA).
Mark Morris serves as the Chief Financial Officer of Seadrill Management and as the Company’s Principal Financial Officer and Principal Accounting Officer. Mr. MorrisJackson is an experienced finance executive with 20 years' experience in CFO roles at LSE, Nasdaq, OSE and AIM listed companies, including offshore and oil field services experience having served as CFO for Bibby Offshore, CEONA Pte and Acergy SA.
Reid Warriner was appointed Chief Operating Officer on 17 December 2020. Reid has served as Senior Vice President since January 2019. Reid has over 25 years of experience in the oil and gas industry. Prior to Seadrill Reid held the position of President, OilSERV Drilling Group. Before that he worked for Schlumberger for over 15 years where he held various senior line management and functional positions around the world.
Sandra Redding was appointed Chief Financial OfficerGeneral Counsel & SVP in September 2019. Ms. Redding has approaching 20 years in-house legal experience in the oil & gas sector including most recently serving as General Counsel of the GroupDubai government owned operator Dragon Oil. Ms. Redding has also worked as in-house counsel to Gaz de France (now Engie) and RWE Dea (now Ineos) in September 2015. Priorthe UK North Sea and across their international portfolios. Ms. Redding is qualified to joining Seadrill, Mr. Morris was the chief financial officer for Rolls-Royce Group plc as well as servingpractice as a director on its main boardsolicitor in England & Wales and held several roles in his 28 years with the company. During his career at Rolls-Royce, amongst other roles, Mr. Morris served as group treasurer, ran Rolls-Royce Capital, its aircraft and engine leasing division and was treasurer of IAE International Aero Engines AG, a Rolls-Royce joint venture based in the USA. Mr. Morris also serves as the Chief Executive Officer of Seadrill Partners, a position he has held since September 2015.  He is a graduate of the University of Manchester where he received a Bachelor’s degree in Aeronautical Engineering, is a member of the Association of Corporate Treasurers (ACT) Advisory Panel and an Honorary Fellow of the ACT.Queensland, Australia.
Leif Nelson has served was appointed as Seadrill Management's Chief OperatingTechnology Officer since July 2015. Hein December 2020. Mr. Nelson has over 18 years' experience in the drilling industry most recently as the Group's Vice PresidentChief Operations Performance.Officer. Prior to joining Seadrill, Mr. Nelson held various operational positions for Transocean Ltd. Mr. Nelson is a graduate of the Colorado School of Mines and holds a BSc in Petroleum Engineering. Mr. Nelson also sits on the board of the Well Control Institute.
Chris Edwards has served as Seadrill Management's General Counsel since February 2015 and
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Matthew Lyne was appointed Senior Vice PresidentChief Commercial Officer in June 2016. HeJanuary 2018. Mr. Lyne has over 2015 years of in-house legal experience in the natural resources sector, includingdrilling industry most recently serving as General Counsel Corporate and General Counsel of the Aluminium Division at BHP Billiton.Vice President Marketing, Eastern Hemisphere. Prior to working in-house, he trainedSeadrill, Mr. Lyne held various positions at Transocean in operations, projects and worked at Linklaters LLP in its London and Hong Kong offices.general management.



B.COMPENSATION

B.COMPENSATION
1) Directors
During the 2018 Successor period,year ended December 31, 2020 we paid an aggregate $0.4$1 million in directors’ fees to the current members of the Board of Directors as shown in ITEMItem 6A - "Directors and Senior Management"senior management". Certain current members of the Board of Directors were also Directors of the Predecessor Company. We paid these Directors an aggregate $1 million in directors' fees for the 2018 Predecessor period.
In addition, certain members of our current Board of Directors received awards of restricted stock units ("RSUs") under our Employee Incentive Plan in September 2018. For details of these awards please see ITEM 6E - "Share Ownership".
2) Senior Managementmanagement

Members of our Management receive compensation for the services they provide. TheirSenior management compensation currently includes base salary, performance bonus and awards under our Employee Incentive Plan. In addition, members of Managementmanagement may participate in our retirement savings plans and are eligible to participate in benefit programs available to our UK workforce generallyin their work locations including medical, life insurance and disability benefits. We believe that the compensation awarded to our Managementmanagement is consistent with that of our peers and similarly situated companies in our industry.

During the 2018 Successor period,year ended December 31, 2020, we paid an aggregate compensation of $3.4$12 million to our Management.management. In addition, we incurred compensation expense in the aggregate amount of $0.1$0.2 million for their pension and retirement benefits. We paid our Management aggregate compensation of $2.5 millionfor the 2018 Predecessor period. We additionally incurred compensation expense in the aggregate amount of $0.1 million for their pension and retirement benefits during this period.

Our Management received awards of RSUs under our Employee Incentive Plan in September 2018. For details of these awards please see ITEM 6E - "Share Ownership".

The Chief Executive Officer, Chief Financial Officer and General Counsel and Chief Commercial Officer have termination related payment clauses in their contracts. These relate to terminations in the context of a "Change of Control Event" or terminations agreed due to "Good Reason" other than "Cause". "Cause" is defined as one of the following: Gross misconduct; Serious breach of Contract; UK criminal offence; Fraud & corrupt practices relating to the Bribery Act 2010 and ineligibility to work legally in the UK. All the above contracts are signed by the current incumbents. Other than the listed termination related payment clauses, no employee, including members of Management, has entered into employment agreements which provide for any special benefits upon termination of employment.


C.BOARD PRACTICES

C.BOARD PRACTICES
The Board of Directors is responsible for the overall management of the Company and may exercise all the powers of the Company not reserved to the Company's shareholders by the Bye-Laws or Bermuda law.
1) Terms of office
Each member of the Board of Directors was appointed in 2018 and is up for re-election in 2019.
The Bye-Laws provide that, as long as Hemen's ownership interest is equal to or exceeds 5% and its ownership percentage has not previously fallen below 5%, the Board of Directors shall consist of not more than seven Directors, unless the Company's shareholders by Ordinary Resolution (as such term is defined in the Bye-Laws) resolve otherwise and Hemen provides its prior written consent thereto. If Hemen's ownership interest falls below 5%, the number of Directors shall be such number as the Company's shareholders by Ordinary Resolution may from time to time determine. The Directors are either appointed by certain of the Company's shareholders pursuant to appointment rights set out in the Bye-Laws or elected by the Company's shareholders at the annual general meeting or any special general meeting called for that purpose. The Company's shareholders may authorize the Board of Directors to fill any vacancy in their number left unfilled at an annual general meeting or any special general meeting called for that purpose. If there is a casual vacancy of the Board of Directors occurring as a result of, among other things, the death, disability, disqualificationremoval, bankruptcy, prohibition by law, or resignation of any Directordirector (other than an Investor Appointed Director (as defined in the Bye-Laws)), the Board of Directors has the power to appoint a Directordirector to fill the casual vacancy.
2) Directors' service contracts
The Directors are entitled to one months' salary uponnotice of termination of their service.service agreements.
3) Board committees
Our Board of Directors has established an Audit and Risk Committee, a Compensation Committee and a ConflictsRestructuring Steering Committee, and may create such other committees as the Board of Directors shall determine from time to time. Each of the standing committees of our Board of Directors has the composition and responsibilities described below.

i.Audit and Risk committee
i.Audit committee
The Board of Directors has established an Audit and Risk Committee among the members of the Board of Directors. The Audit and Risk Committee comprises Eugene I. Davis (chairman), Scott Vogel (committee member)Birgit Aagaard-Svendsen (chair) and Birgitte R. Vartdal (committee member)Bjarte Bøe. The Audit and Risk Committee is responsible for overseeing the quality and integrity of the Company's Consolidated Financial Statements and its accounting, auditing and financial reporting practices; the Group's compliance with legal and regulatory requirements; the independent auditor's qualifications, independence and performance; and the Group's internal audit function.
ii.Compensation committee
The In addition, the Audit and Risk Committee monitors and makes recommendations to the Board of Directors has established a Compensation Committee among the membersin
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Table of the Board of Directors. The Compensation Committee comprises Peter J. Sharpe (chairman), Eugene I. Davis (committee member) and Harald Thorstein (committee member). The Compensation Committee is responsible for establishing and reviewing the executive officer's and senior management's compensation and benefits.Contents
iii.Conflicts committee
The Board of Directors has established a Conflicts Committee among the members of the Board of Directors. The Conflicts Committee comprises Scott Vogel (chairman), Peter Sharpe (committee member), Eugene I. Davis (committee member) and Kjell-Erik Østdahl (committee member). The primary purpose of the Conflicts Committee is to monitor and make recommendations to the board in relation to potential conflicts of interest between the Company and any of its affiliates or related third parties. The committee will also evaluate any conflicts of interest between a director and the Company.

ii.Compensation committee
The Board of Directors has established a Compensation Committee among the members of the Board of Directors. The Compensation Committee comprises Herman Flinder (Chair) and Glen Ole Rødland. The Compensation Committee is responsible for establishing and reviewing the executive officer's and senior management's compensation and benefits.
D.EMPLOYEES
iii.Restructuring Steering committee
The Board of Directors has established a Restructuring Steering Committee among the members of the Board of Directors. The Restructuring Steering Committee is an adhoc committee and comprises Glen Ole Rødland, Birgit Aagaard-Svendsen, Gunnar Eliassen, Bjarte Bøe, Stuart Jackson and Sandra Redding. The primary purpose of the Restructuring Steering Committee is to provide oversight, guidance and support timely decision-making related to the financial restructuring to be undertaken by the Company.

D.EMPLOYEES
 
The table below shows the development in the numbers of employees (including contracted-in staff) at December 31, 2018, 20172020, 2019 and 2016.2018. Please note that some of ourthose shown in the "Other" category below, represent employees who provide services for Seadrill Partners, SeaMex as well as corporate employees.
Employees (including contracted-in staff)As at December 31,
2020
As at December 31, 2019
(Restated)(1)    
As at December 31, 2018 (Restated)(1)
Operating segments:   
Harsh environment1,066 1,037 695 
Floaters1,035 1,257 1,272 
Jack-up rigs294 699 631 
Other780 1,243 1,577 
Total employees3,175 4,236 4,175 
Geographical location:
Norway1,154 994 737 
Rest of Europe224 345 364 
North and Central America623 1,071 978 
South America423 300 425 
Asia Pacific65 492 673 
Africa and Middle East686 1,034 998 
Total employees3,175 4,236 4,175 
(1) In the second half of 2020, we implemented a new operating unit structure which had an increased focus on asset class / product line. The change in reportable segments has been reflected retrospectively. Corresponding items of segment information for earlier periods have been restated. Please refer to Note 7 – "Segment information" to the Consolidated Financial Statements included herein for more information. Along with this the total numbers of employees restated to exclude employees from Seadrill Partners owned rigs, West Capella and Northern Drilling. They are shownWest Polaris.
We employ people in the "Other" category below.
Total employees (including contracted-in staff)As at December 31,
2018

 As at December 31,
2017

 As at December 31,
2016

Operating segments:     
Floaters1,598
 1,484
 1,710
Jack-up rigs974
 938
 1,230
Other1,617
 1,221
 1,100
Corporate699
 685
 740
Total employees4,888
 4,328
 4,780
Geographical location:     
Norway737
 510
 600
Rest of Europe390
 235
 210
North America and Mexico1,493
 1,095
 1,100
South America425
 742
 600
Asia Pacific845
 462
 450
Africa and Middle East998
 1,284
 1,820
Total employees4,888
 4,328
 4,780
Somea number of ourlocations globally. In some locations, predominantly Norway and Brazil, employees and our contractedcontract labor most of whom work in Angola, Brazil, Nigeria, Norway and the United Kingdom, are represented by collective bargaining agreements.agreements ("CBAs"). As part of the legal obligations in some of these agreements, we are required to contribute certain amounts to retirement funds and pension plans and have restricted ability to dismiss employees.funds. In addition, many of these represented individualsemployees are working under agreements that are subject to salary negotiation. These negotiationsnegotiation, which could result in higher personnel costs, other increased costs or increased operating restrictions that could adversely affect our financial performance.
We consider our relationships with the various unions to be stable. The CBAs in place relating to Norway's employees have no set expiry. The CBAs in place relating to South America's employees are set to be renegotiated in September 2021, which occurs annually. We do not expect the CBA's to expire within the next year.
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The table below shows the percentage of the labor force covered by a CBAs by geographic location, as stable, productive and professional. At present, there are no ongoing negotiations or outstanding issues, other than as disclosed in Note 33 - "Commitments and contingencies” of our Consolidated Financial Statements included herein.at December 31,2020:

Employees (including contracted-in staff)Total employeesEmployees covered by CBAsEmployees covered by CBAs (%)CBA cover expiring within 1 yearCBA cover expiring within 1 year (%)
Geographical location:
Norway1,154 1,154 100 %— — %
South America423 391 92 %391 100 %
Other1,598 — — %— — %
Total3,175 1,545 49 %391 25 %

E.SHARE OWNERSHIP


E.SHARE OWNERSHIP

As at February 28, 2019,2021, members of the Board of Directors and members of Management had the following shareholding in the Company. Also shown are their interests in unvested restricted stock units ("RSUs") awarded to them under the Employee Incentive Plan. These awards were made in September 2018.

NamePositionNumber of Common Shares, par value $0.10 sharesNumber of unvested RSUseach
Birgitte Ringstad VartdalBjarte BøeDirector5,105
Eugene I. DavisBirgit Aagaard-SvendsenDirector5,105
Harald ThorsteinGlen Ole RødlandDirector5,105
John Fredriksen (1)
Director and Chairman5,105
Kjell-Erik ØstdahlGunnar Winther EliassenDirector10,000 5,105
Peter J. SharpeHerman R. FlinderDirector25,000 5,105
Scott D. VogelDirector5,105
Anton DibowitzManagement90,056
Mark MorrisManagement42,605
Leif NelsonManagement50,124
Chris EdwardsManagement20,049
(1)
Stuart Jackson
Mr. Fredriksen disclaims beneficial ownership of the 30,193,826 shares held by Hemen, a company which is indirectly controlled by trusts established by Mr. Fredriksen for the benefit of his immediate family, except to the extent of his voting and dispositive interest in such shares of common stock. Mr. Fredriksen has no pecuniary interest in the shares held by Hemen. The address of Hemen is c/o Seatankers Management Co. Ltd., P.O. Box 53562, CY-3399 Limassol, Cyprus.

— 
ITEM 7.Leif NelsonMAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSManagement

8,807 
A.Sandra ReddingMAJOR SHAREHOLDERSManagement— 
Reid WarrinerManagement— 
Matthew LyneManagement5,466 


ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.MAJOR SHAREHOLDERS
The following table presents certain information as of February 28, 2019,2021, regarding the ownership of our common shares with respect to each shareholdershareholder whom we know to beneficially own more than 5% of our issued and outstanding common shares.
 Common Shares Held
ShareholderNumber%
Hemen (1)
27,193,826 27.1 %
 Common Shares Held
ShareholderNumber
 %
Hemen Holding Ltd (1)
30,193,826
 30.2%
King Street Capital Management LP7,856,039
 7.9%
Centerbridge Partners LP6,657,192
 6.7%
Aristeia Capital LLC5,037,657
 5.0%
(1) Includes Hemen Holding Ltd and Hemen Investment Ltd
(1)
For further information regarding Hemen, please see Item 6. "Directors, Senior Management and Employees – E. Share Ownership.”
We had a total of 100,000,000100,384,435 common shares issued and outstanding as of February 28, 2019.2021.
Our major shareholders have the same voting rights as our other shareholders. No corporation or foreign government owns more than 50% of our issued and outstanding common shares. We are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of Seadrill.


B.RELATED PARTY TRANSACTIONS

B.RELATED PARTY TRANSACTIONS
Please see Note 3032 - "Related Party Transactions" ofparty transactions" to the Consolidated Financial Statements included within this report.herein.


C.INTERESTS OF EXPERTS AND COUNSEL

C.INTERESTS OF EXPERTS AND COUNSEL
Not applicable.


ITEM 8.FINANCIAL INFORMATION
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ITEM 8.FINANCIAL INFORMATION

A.CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
A.CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION


1) Financial Statements


Please see the section of this Annual Report on Form 20-F entitled “Item 18. Financial Statements.”Item 18 - “Financial Statements".
 
2) Legal Proceedings


Please see Note 3335 - "Commitments and Contingencies"contingencies" to the Consolidated Financial Statements included within this report.herein.
3) Dividends
The payment of any future dividends to shareholders will depend upon decisions that will be at the sole discretion of the Board of Directors and will depend on the then existing conditions, including Seadrill's operating results, financial condition, contractual restrictions, corporate law restrictions, capital requirements, the applicable laws of Bermuda and business prospects.
Under Bermuda law, a company may not declare or pay a dividend, or make a distribution out of contributed surplus, if there are reasonable grounds for believing that (a) it is, or would after the payment be, unable to pay its liabilities as they become due; or (b) the realizable value of its assets would thereby be less than its liabilities.
Although the Board of Directors may consider the payment of dividends, there can be no assurance that any dividend will be paid, or if declared, the amount of such dividend. The terms of our senior credit facilities and the agreements governing our subsidiary NSNCo's indebtedness under the NewSenior Secured Notes may restrict our ability to declare or pay dividends. Further, as Seadrill Limited is a holding company with no material assets other than the shares of its subsidiaries through which it conducts its operations, its ability to pay dividends will also depend on the subsidiaries distributing their respective earnings and cash flow.flows.
Seadrill Limited was incorporated on 14 March 2018 and has not paid any dividends since its incorporation. Old Seadrill Limited did not pay dividends on its common shares since it suspended dividend distributions on November 26, 2014.


B.SIGNIFICANT CHANGES
B.SIGNIFICANT CHANGES
 
Not applicable.

ITEM 9.THE OFFER AND LISTING

A.OFFER AND LISTING DETAILS

SharesThere have been no significant changes since the date of our Consolidated Financial Statements, other than as described in Note 38

ITEM 9.THE OFFER AND LISTING

A.    OFFER AND LISTING DETAILS
Our common stock,shares, par value $0.10 per share, have traded on the NYSE since July 3, 2018 and on the OSE since July 26, 2018 under the trading symbol “SDRL”.
The NYSE This listing is intendednow our sole exchange listing.
Prior to be our primary listing andJune 20, 2020, Seadrill Limited was listed on the OSE listingNYSE. It is intended to be our secondary listing.now traded over-the-counter on the OTCQX market, an electronic inter-dealer quotation system based in the United States (OTCQX: SDRLF).
B.B.    PLAN OF DISTRIBUTION

Not applicable.


C.C.    MARKETS

Our common shares currently tradeare traded on the NYSE and the OSE under the trading symbol “SDRL.”“SDRL”. Prior to June 20, 2020, our common shares were listed on the NYSE. They are now traded over-the-counter on the OTCQX Market under the trading symbol "SDRLF"


D.D.    SELLING SHAREHOLDERS

Not applicable.


E.E.    DILUTION

Not applicable.



F.F.    EXPENSES OF THE ISSUE

Not applicable.

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ITEM 10.ADDITIONAL INFORMATION
ITEM 10.ADDITIONAL INFORMATION
 
A.SHARE CAPITAL
A.SHARE CAPITAL
Not applicable.


B.MEMORANDUM OF ASSOCIATION AND BYE-LAWS
B.MEMORANDUM OF ASSOCIATION AND BYE-LAWS
The Bye-Laws are filed as an exhibitreferenced in the exhibits to this annual report on Form 20-F report.and has been incorporated by reference to Exhibit 3.2 of the amended Registration Statement, filed on Form F-1 on July 18, 2018. Below is a summary of provisions of the Bye-Laws and certain aspects of applicable Bermuda law. The Bye-Laws do not place more stringent conditions for the change of rights of holders than those required by the Bermuda Companies Act.
1) ObjectiveObjects of the Company
The objectiveobjects of the Company's business are unrestricted, meaning that the Company has the capacity of a natural person, and can carry out any trade or business which, in the Board of Directors' opinion, can be advantageously carried out by the Company. Moreover, this means that the Company's objectives are not specified in the Bye-Laws. The Company can therefore undertake activities without restriction on its capacity.
2) Board of Directors
i.Proceedings of the Board of Directors
i.Proceedings of the Board of Directors
The Bye-Laws provide that, subject to the Bermuda Companies Act, the business of the Company shall be managed by the Board of Directors. Generally, the Board of Directors may exercise the powers of the Company, except to the extent the Bermuda Companies Act or the Bye-Laws reserve such power to the shareholders. Bermuda law permits individual or corporate directors and there is no requirement in the Bye-Laws or Bermuda law that directors hold any of the Company's shares. There is also no requirement in the Bye-Laws or Bermuda law that the Directors must retire at a certain age.
The remuneration of the Directors is determined by the shareholders in a general meeting, by ordinary resolution. The Directors may also be paidreimbursed for all reasonable travel, hotel and incidental expenses properly incurred by them in connection with the Company's business or in discharge of their duties as Directors.
No physical meeting of the Board of Directors may take place in Norway or the United Kingdom. For any meeting of the Board of Directors or any board committee held electronically, a majority of the Directors participating (including the Chairman) must be physically located outside the United Kingdom, and the Board of Directors must use all reasonable endeavors to ensure that the meeting is not deemed to be held in Norway.
Provided a Director discloses a direct or indirect interest in any contract or arrangement with the Company, as required by Bermuda law, such Director is pursuant to the Bye-Laws entitled to vote in respect of any such contract or arrangement in which he or she is interested and shall be considered in determining the quorum for the relevant board meeting. The Director must declare the nature of that interest, as required by the Bermuda Companies Act, however, no such contract or proposed contract will be void or voidable by reason only that such Directordirector voted on it or was counted in the quorum of the relevant board meeting. Matters decided at a board meeting are determined by a majority of votes cast. No Director (including the chairman of the Board of Directors (if any)) is entitled to a second or casting vote. In the case of an equality of votes, the motion will be deemed to be lost.
A Director (including the spouse or childrenii.Election and removal of the Director or any company of which such Director, spouse or children own or control more than 20% of the capital or loan debt) cannot borrow from the Company, (except loans made to Directors who are bona fide employees or former employees pursuant to an employees' share scheme) unless Shareholders holding 90% of the total voting rights have consented to the loan.
ii.Election and removal of Directors
The Bye-Laws provide that, provided Hemen's Percentage Interest (as defined therein) is at least 5% (and has not previously fallen below 5%), the Board of Directors shall not have more than seven directorsDirectors unless the shareholders by Ordinary Resolution (as defined in the Bye-Laws) determine otherwise and Hemen provides its prior written consent. In the event that Hemen's Percentage Interest falls below 5%, the number of Directors shall be such number as the Company by Ordinary Resolution may determine from time to time.
Pursuant to the Bye-Laws, members of the Board of Directors are appointed as follows:
a)
a.provided that Hemen's Percentage Interest is equal to or exceeds 10% (and has not previously fallen below 10%), Hemen shall have the right from the Plan Effective Date (as defined in the Bye-Laws) to: (a) appoint two persons as Hemen Directors (as defined in the Bye-Laws), of whom one shall be the Chairman; and (b) appoint two persons as Independent Nominees (as defined in the Bye-Laws), provided that the other Directors are given reasonable opportunity to meet and consult with Hemen and such Independent Nominees prior to their appointment to the Board of Directors;
b)provided that Hemen's Percentage Interest is equal to or exceeds 5% but is less than 10% (and has not previously fallen below 5%), Hemen shall have the right from the Plan Effective Date to: (a) appoint one person as a Hemen Director, who shall be the Chairman; and (b) appoint two persons as Independent Nominees, provided that the other Directors are given reasonable opportunity to meet and consult with Hemen and such Independent Nominees prior to their appointment to the Board of Directors;

c)provided that Centerbridge retains at least 50% of the Initial Centerbridge Investment (as defined in the Bye-Laws) (and has not previously held less than 50% of the Initial Centerbridge Investment), Centerbridge shall have the right from the Plan Effective Date to appoint one person as a Centerbridge Director (as defined in the Bye-Laws), including at the time of the first election of directors that follows the first anniversary of the Plan Effective Date (but not any subsequent election). From the second election of directors which takes place following the first anniversary of the Plan Effective Date (and subsequent elections thereafter), Centerbridge shall no longer have the right to appoint a Centerbridge Director;
d)provided that the Select Commitment Parties retain at least 50% of the Initial Select Commitment Parties' Investment (as defined in the Bye-Laws) (and have not previously held less than 50% of the Initial Select Commitment Parties' Investment), the Select Commitment Parties, acting by a majority shall have the right from the Plan Effective Date until immediately prior to the first annual general meeting after the Plan Effective Date to appoint Select Commitment Parties Director (as defined in the Bye-Laws); and
e)Hemen, Centerbridge and the Select Commitment Parties, acting by a majority of each of Hemen, Centerbridge and the Select Commitment Parties, shall have the right from the Plan Effective Date to appoint one Joint Designee Director (as defined in the Bye-Laws). The New Commitment Parties (as defined in the Bye-Laws) shall have the right to suggest up to three candidates for the position of Joint Designee Director, which candidates will be considered by Hemen, Centerbridge and the Select Commitment Parties when determining the identity of the Joint Designee Director, provided that the New Commitment Parties will provide the names of the suggested candidates to Hemen, Centerbridge and the Select Commitment Parties, not less than 10 Business Days (as defined in the Bye-Laws) in advance of the proposed date of appointment of the Joint Designee Director in accordance with the Bye-Laws. Prior to appointing the Joint Designee Director, Hemen, Centerbridge and the Select Commitment Parties will deliver written notice of the proposed identity of the Joint Designee Director to the Ad Hoc Group (with separate notice to the outside legal counsel of the Ad Hoc Group) and Barclays not less than three Business Days in advance of the proposed date of appointment of the Joint Designee Director, and shall take into consideration any objections raised by the New Commitment Parties as to the identity of the Joint Designee Director. Notwithstanding the foregoing, each of Hemen, Centerbridge and the Select Commitment Parties shall not unreasonably withhold its consent to any appointment of such Joint Designee Director.
From and after such time as Hemen, Centerbridge and the Select Commitment Parties cease to have the right from the Plan Effective Date (as defined in the Bye-Laws) to: (i) appoint two persons as Hemen Directors (as defined in the Bye-Laws), of whom one shall be the Chairman; and (ii) appoint two persons as Independent Nominees (as defined in the Bye-Laws), provided that the other Directors are given reasonable opportunity to meet and consult with Hemen and such Independent Nominees prior to their appointment to the Board of Directors;
b.provided that Hemen's Percentage Interest is equal to or exceeds 5% but is less than 10% (and has not previously fallen below 5%), Hemen shall have the right from the Plan Effective Date to: (a) appoint one person as a Hemen Director, who shall be the Chairman; and (b) appoint two persons as Independent Nominees, provided that the other Directors are given reasonable
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opportunity to meet and consult with Hemen and such Independent Nominees prior to their respective Director(s) or Independent Nominee, asappointment to the case may be, suchBoard of Directors; and
c.save for (a) and (b) above, following the expiry of certain shareholder appointment rights in accordance with the Bye-Laws, Directors shall be subject to re-election(re-)elected by Ordinary Resolution at each annual general meeting.
Following the divestment of Centerbridge’s interest in the Company’s common shares in 2020, it no longer has a right to appoint a Director under the Bye-Laws.
A Director may resign by providing notice in writing to the Company of such resignation. A Director (otherother than an Investor Appointed Director (as defined in the Bye-Laws), may be removed by the Shareholders in a special general meeting, provided that the notice of any such special general meeting of shareholders convened for the purpose of removing a Director is given to the Director concerned. The notice must contain a statement of the intention to remove the Director and must be served on the Director not less than 14 days before the meeting. The Director shall be entitled to attend the meeting and be heard on the motion for his or her removal. An Investor Appointed Director may be removed by written notice delivered to the Company's registered office by the Investor(s) entitled to make the appointment.
The majority of all the Directors, when taken together, shall not be resident in the United Kingdom.
iii.Duties of Directors
iii.Duties of Directors
The Bye-Laws provide that the Company's business is to be managed by the Board of Directors. Under Bermuda common law, members of the board of directors of a Bermuda company owe a fiduciary duty to the company to act in good faith in their dealings with or on behalf of the company and exercise their powers and fulfill the duties of their office honestly. This duty includes the following elements:
a duty to act in good faith in the best interest of the company;
a duty not to make a personal profit from opportunities that arise from the officeroffice of director;
a duty to avoid conflicts of interest; and
a duty to exercise powers for the purpose for which such powers were intended.
The Bermuda Companies Act imposes a duty on directors and officers of a Bermuda company to act honestly and in good faith with a view to the best interests of the company, and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In addition, the Bermuda Companies Act imposes various duties on directors and officers of a company with respect to certain matters of management and administration of the company. Directors and officers generally owe fiduciary duties to the company, and not to the company's individual shareholders.
3) Share rights
The holders of Shares have no pre-emptive, redemption, conversion or sinking fund rights. The holders of Shares are entitled to one vote per Share on all matters submitted to a vote of the holders of Shares. Unless a different majority is required by law or by the Bye-Laws, resolutions to be approved by the holders of Shares require approval by a simple majority of votes cast at a meeting at which a quorum is present.
In the event of the liquidation, dissolution or winding up of the Company, the holders of Shares are entitled to share equally and ratably in its assets, if any, remaining after the payment of all the Company's debts and liabilities, subject to any liquidation preference on any issued and outstanding preference shares.
i.Variation of share rights
i.Variation of share rights
The Bye-Laws provide that, subject to the Bermuda Companies Act, the rights attached to any class of the shares issued, unless otherwise provided for by the terms of issue of the relevant class, may be altered or abrogated either: (i) with the consent in writing of the holders of not less than

75% of the issued shares of that class; or (ii) with the sanction of a resolution passed by a majority of 75% of the votes cast at a general meeting of the relevant class of shareholders at which a quorum consisting of at least two persons holding or representing at least one-third of the issued shares of the relevant class is present. However, if the Company or a class of shareholders only has one shareholder, one shareholder present in person or by proxy shall constitute the necessary quorum, as specified in (i) and (ii). The Bye-Laws specify that the creation or issue of Shares ranking equally with existing Shares will not, unless expressly provided by the terms of issue of existing Shares, vary the rights attached to existing Shares.
ii.Voting rights
ii.Voting rights
Under Bermuda law, the voting rights of Shareholders are regulated by the Bye-laws, except in certain circumstances provided in the Bermuda Companies Act. At any general meeting, every holder of Shares present in person and every person holding a valid proxy shall have one vote on a show of hands. On a poll, every such holder of Shares present in person or by proxy shall have one vote for every Share held. Unless a different majority is required by law or by the Bye-Laws, resolutions to be approved by the holders of Shares require approval by a simple majority of votes cast at a meeting at which a quorum is present.
Except where a greater majority is required by the Bermuda Companies Act or the Bye-Laws, any question proposed for the consideration of the shareholders at a general meeting shall be decided by Ordinary Resolution, being the affirmative votes of a majority of the votes cast in
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accordance with the provisions of the Bye-Laws and inBye-Laws. In case of an equality of votes, the chairman of such meeting shall not be entitled to a second or deciding vote and the resolution shall fail.
4) Amendment of the memorandum of association and Bye-Laws
Bermuda law provides that the memorandum of association of a company may be amended in the manner provided for in the Bermuda Companies Act, i.e. by a resolution passed at a general meeting of shareholders. The Bye-laws provide that the Bye-laws may be amended by the Board of Directors but any such amendment shall only become operative to the extent that it has been confirmed by an Ordinary Resolution (as defined in the Bye-laws). The Bye-Laws provide that as long as Hemen's Percentage Interest (as defined in the Bye-Laws) is at least 5%, Hemen's prior written consent is required for any amendment that would modify or otherwise affect Hemen's right to appoint the Hemen Directors and/or the Independent Nominees (as terms are defined in the Bye-Laws) or the right and powers of the Hemen Directors and/or the Independent Nominees once appointed. The Bye-Laws also provide that as long as Centerbridge retains at least 50% of the Initial Centerbridge Investment (as defined in the Bye-Laws), the Company may not, without prior written consent of Centerbridge, amend the Bye-Laws or its memorandum of association in any way that would modify or otherwise negatively impact: (i) Centerbridge's right to appoint the Centerbridge Director (as defined in the Bye-Laws); or (ii) the rights and powers of the Centerbridge Director once appointed.
Under Bermuda law, the holders of an aggregate of not less than 20% in par value of the Company's issued share capital or any class thereof have the right to apply to the Supreme Court of Bermuda for an annulment of any amendment of the memorandum of association adopted by shareholders at any general meeting, other than an amendment which alters or reduces a company's share capital as provided in the Bermuda Companies Act. Where such an application is made, the amendment becomes effective only to the extent that it is confirmed by the Supreme Court of Bermuda. An application for an annulment of an amendment of the memorandum of association must be made within 21 days after the date on which the resolution altering the Company's memorandum of association is passed and may be made on behalf of persons entitled to make the application or by one or more of their numbers as they may appoint in writing for the purpose. No application may be made by shareholders voting in favor of the amendment.
5) General Meetings of shareholders
The annual general meeting of the Company shall be held once in every year at such time and place as the Board of Directors appoints. Pursuant to Bermuda law, the Board of Directors may call for a special general meeting whenever they think fit, and the Board of Directors must call for a special general meeting upon the request of shareholders holding not less than 10% of the paid-up capital of the Company carrying the right to vote at general meetings. Bermuda law also requires that shareholders of a company are given at least five days' advance notice of a general meeting, unless notice is waived. The Bye-Laws provide that the Board of Directors may convene an annual general meeting or a special general meeting. General meetings of shareholders may not be held in Norway or the United Kingdom.
Under the Bye-Laws, at least seven days' notice of an annual general meeting must be given to each shareholder entitled to attend and vote thereat, stating the date, place and time at which the meeting is to be held. At least seven days' notice of a special general meeting must be given to each shareholder entitled to attend and vote thereat, stating the date, place and time and the general nature of the business to be considered at the meeting. This notice requirement is subject to the ability to hold such meetings on shorter notice if such notice is agreed: (i) in the case of an annual general meeting by all of the shareholders entitled to attend and vote at such meeting; or (ii) in the case of a special general meeting by a majority in number of the shareholders entitled to attend and vote at the meeting holding not less than 95% in nominal value of the shares entitled to attend and vote at such meeting. Pursuant to the Bye-Laws, the quorum required for a general meeting of shareholders is two or more shareholders present in person or by proxy and entitled to vote (whatever the number of shares held by them).
The accidental omission to give notice of a general meeting to, or the non-receipt of a notice of a general meeting by, any person entitled to receive notice does not invalidate the proceedings at that meeting.
Pursuant to the Bye-Laws, no Shareholder is entitled to attend any general meeting of shareholders unless the Shareholder has delivered to the Company's registered office written notice of its intention to attend and vote in person or by proxy at least 48 hours before the time of the meeting or the adjournment thereof.
6) Shareholders' proposals
Under Bermuda law, shareholders may, as set forth below and at their own expense (unless the company otherwise resolves), require the company to: (i) give notice to all shareholders entitled to receive notice of the annual general meeting of any resolution that the shareholders may properly

move at the next annual general meeting; and/or (ii) circulate to all shareholders entitled to receive notice of any general meeting a statement (of not more than one thousand words) in respect of any matter referred to in the proposed resolution or any business to be conducted at such general meeting. The number of shareholders necessary for such a requisition is either: (i) any number of shareholders representing not less than 5% of the total voting rights of all shareholders entitled to vote at the meeting to which the requisition relates; or (ii) not less than 100 shareholders.
7) Dividend rights
Under Bermuda law, a company may not declare or pay a dividend or make a distribution out of the contributed surplus, if there are reasonable grounds for believing that: (i) the Company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) that the realizable value of its assets would thereby be less than its liabilities. Under the Bye-Laws, each common share is entitled to dividends if, as and when dividends are declared by the Board of Directors, subject to any preferred dividend right of the holders of any preference shares.
Any cash dividend payable to holders
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Table of the shares listed on the NYSE will be paid to Computershare, the Company's transfer agent in the United States for disbursement to those holders. Contents
Any cash dividends payable to holders of the Shares listed on Oslo Børsthe OSE will be paid to Nordea, the Company's transfer agent in Norway for disbursement to those holders.
Pursuant to the Bye-Laws, any dividends, distributions or proceeds of share repurchases which remain unclaimed for three years from the date of declaration of such dividend, distribution or proceeds of share repurchases will be forfeited and revert to the Company.
8) Transfer of Shares
The Bye-Laws provide that the Board of Directors may decline to register, and may require any registrar appointed by the Company to decline to register, a transfer of a Share or any interest therein held through the VPS if such transfer would be likely, in the opinion of the Board of Directors, to result in 50% or more of the issued share capital (or of the votes attaching to all issued shares inof the Company) being held or owned directly or indirectly by persons resident for tax purposes in Norway. A failure to notify the Company of sucha correction or change in their tax residency status can lead to a suspension of the Shareholder's entitlement to vote, and to exercise other rights attaching to the Shares or interests therein being soldand the Board of Directors and registrar may cause such Shares to be disposed at the best price reasonably obtainable in all the circumstances. Furthermore, if such holding of 50% or more by individuals or legal persons resident for tax purposes in Norway or connected to a Norwegian business activity, the Bye-Laws require the Board of Directors to make an announcement through the Oslo Stock Exchange,OSE, and the Board of Directors and the registrar appointed by the Company are then entitled to dispose of Shares or interests therein to bring such holding by an individual or legal person resident for tax purposes in Norway or connected to a Norwegian business below 50% -, the Shares or interests therein to be sold being firstly those held by holders who failed to comply with the above notification requirement, and thereafter those that were acquired most recently by the Shareholders.
Notwithstanding anything else to the contrary in the Bye-Laws, shares that are listed or admitted to trading on an Appointed Stock Exchange may be transferred in accordance with the rules and regulations of such exchange. All transfers of uncertificated Shares shall be made in accordance with and be subject to the facilities and requirements of the transfer of title to Shares in that class by means of the VPS or any other relevant system concerned and, subject thereto, in accordance with any arrangements made by the Board of Directors in accordance with the Bye-Laws. The Board of Directors may in its absolute discretion, refuse to register the transfer of a Share that is not fully paid. The Board of Directors may also refuse to recognize an instrument of transfer of a Share unless it is accompanied by the relevant Share certificate (if one has been issued) and such other evidence of the transferor's right to make the transfer as the Board of Directors shall reasonably require. Pursuant to the Bye-Laws, if the Board of Directors is of the opinion that a transfer may breach any law or requirement of any authority or any stock exchange or quotation system upon which any of the Company's common Shares are listed (from time to time), then registration of the transfer shall be declined until the Board of Directors receives satisfactory evidence that no such breach would occur. Subject to these restrictions and any other restrictions in the Bye-Laws and to the Bermuda Companies Act and applicable United States laws (including, without limitation, the U.S. Securities Act and related regulations), a holder of Shares may transfer the title to all or any of his Shares by completing an instrument of transfer in the usual common form or in such other form as the Board of Directors may approve. The instrument of transfer must be signed by the transferor and, in the case of a Share that is not fully paid, the transferee. The Board of Directors may also implement arrangements in relation to the evidencing of title to and the transfer of uncertified shares.
In accordance with Bermuda law, share certificates are only issued in the names of companies, partnerships or individuals. In the case of a shareholder acting in a special capacity (for example as a trustee), certificates may, at the request of the shareholder, record the capacity in which the shareholder is acting. Notwithstanding such recording of any special capacity, the Company is not bound to investigate or see to the execution of any such trust. The Company will take no notice of any trust applicable to any of the Shares, whether or not the Company has been notified of such trust.
9) Disclosure of material interest
The Bye-Laws provide that, where the requirements of the Oslo Stock ExchangeOSE require any person acquiring or disposing of an interest in the Shares to give notification of such change in interest, such person must immediately notify the registrar appointed by the Company of the acquisition or disposal and of its resulting interest, following which, the registrar appointed by the Company will notify the Oslo Stock Exchange.OSE. If a person fails to provide such notification, the Board of Directors shall require the registrar appointed by the Company to serve the person with notice, requiring compliance with the notification requirements and inform him or her that pending such compliance the registered holder of the Shares shall have suspended its entitlement to vote, exercise other rights attaching to the Shares and receive payment of income or capital.
10) Amalgamations and mergers
The amalgamation or merger of a Bermuda company with another company or corporation (other than certain affiliated companies) requires the amalgamation or merger agreement to be approved by the company's board of directors and by its shareholders. Unless the bye-laws provide

otherwise, the approval of 75% of the shareholders voting at such meeting is required to approve the amalgamation or merger agreement, and the quorum for such meeting must be two persons holding or representing more than one-third of the issued shares of the company. The Bye-Laws provide that any such amalgamation or merger must be approved by the affirmative vote of at least a majority of the votes cast at a general meeting of the Company at which the quorum shall be two shareholders present in person or by proxy and entitled to vote (whatever the number of shares held by them).
Under Bermuda law, in the event of an amalgamation or merger of a Bermuda company with another company or corporation, a shareholder of the Bermuda company who did not vote in favor of the amalgamation or merger and who is not satisfied that fair value has been offered for such shareholder's shares may, within one month of notice of the relevant general meeting of shareholders, apply to the Supreme Court of Bermuda to appraise the fair value of those shares.
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11) Shareholder suits
Class actions and derivative actions are generally not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or is illegal, or would result in the violation of the company's memorandum of association or bye-laws.Bye-Laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company's shareholders than that which actually approved it.
When the affairs of a company are being conducted in a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company's affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company.
The Bye-Laws contain a provision by virtue of which the Shareholders waive any claim or right of action that they have, both individually and on the Company's behalf, against any director or officer in relation to any action or failure to take action by such director or officer, except in respect of any fraud or dishonesty of such director or officer.
12) Capitalization of profits and reserves
Pursuant to the Bye-Laws, the Board of Directors may (i) capitalize any amount for the time being standing to the credit of the Company's share premium or other reserve accounts or any amount credited to the Company's profit and loss account or otherwise available for distribution by applying such sum in paying up unissued shares to be allotted as fully paid bonus shares pro-rata to the shareholders; or (ii) capitalize any amount for the time being standing to the credit of a reserve account or amounts otherwise available for dividend or distribution by applying such amounts in full, partly paid or nil paid shares of those shareholders who would have been entitled to such sums if they were distributed by way of dividend or distribution.
13) Access to books and records and dissemination of information
Members of the general public have the right to inspect the public documents of a company available at the office of the Bermuda Registrar of Companies. These documents include the Company's memorandum of association (including its objects and powers) and certain alterations to the Company's memorandum of association. The members of the Company have the additional right to inspect the Bye-Laws, minutes of general meetings and the Company's audited financial statements (unless such requirement is waived in accordance with the Bye-Laws and the Bermuda Companies Act), which must be presented to the annual general meeting. The register of members of the Company is also open to inspection by Shareholders and by members of the general public without charge. Except when the register of members is closed under the provisions of the Bermuda Companies Act, the register of members of a company shall during business hours (subject to such reasonable restrictions as the company may impose so that not less than two hours in each day be allowed for inspection) be open for inspection by members of the general public without charge. A company may on giving notice by advertisement in an appointed newspaper close the register of members for any time or times not exceeding in the whole thirty days in a year.
Subject to the provisions of the Bermuda Companies Act, a company is required to maintain its register of members in Bermuda. A company with its shares listed on an Appointed Stock Exchange or which has had its shares offered to the public pursuant to a prospectus filed in accordance with the Bermuda Companies Act, or which is subject to the rules or regulations of a competent regulatory authority, may keep in any place outside Bermuda, one or more branch registers after giving written notice to the Bermuda Registrar of Companies of the place where each such register is to be kept. Any branch register of members established by the aforementioned is subject to the same rights of inspection as the register of members of the company in Bermuda. Any member of the public may require a copy of the register of members or any part thereof which must be provided within 14 days of a request on payment of the appropriate fee prescribed in the Bermuda Companies Act.
A company is required to keep a register of directors and officers at its registered office and such register must during business hours (subject to such reasonable restrictions as the company may impose, so that not less than two hours in each day be allowed for inspection) be open for inspection by members of the public without charge. Any member of the public may require a copy of the register of directors and officers, or any part of it, on payment of the appropriate fee prescribed in the Bermuda Companies Act. A company is also required to file with the Bermuda Registrar of Companies a list of its directors to be maintained on a register, which register will be available for public inspection subject to such conditions as the Bermuda Registrar of Companies may impose and on payment of such fee as may be prescribed.
Where a company, the shares of which are listed on an Appointed Stock Exchange, sends its summarized financial statements to its members pursuant to section 87A of the Bermuda Companies Act, a copy of the full financial statements (as well as the summarized financial statements)

must be made available for inspection by the public at the company's registered office. Bermuda law does not, however, provide a general right for shareholders to inspect or obtain copies of any other corporate records.
In addition, the Bye-Laws require that the Company provide each of the Investors (as defined in the Bye-Laws) certain financial reports and other information, unless such Investor notifies the Company otherwise, and provide certain investors with certain additional inspection rights and access to Management.
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14) Winding-up
A company may be wound up by the Bermuda court on application presented by the company itself, its creditors (including contingent or prospective creditors) or its contributories. The Bermuda court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the Bermuda court, just and equitable to do so.
A company may be wound up voluntarily when the members so resolve in general meeting, or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum expires, or the event occurs on the occurrence of which the memorandum provides that the company is to be dissolved. In the case of a voluntary winding up, the company shall, from the commencement of the winding up, cease to carry on its business, except so far as may be required for the beneficial winding up thereof.
Where, on a voluntary winding up, a majority of directors make a statutory declaration of solvency, the winding up will be deemed a "members' voluntary winding up". In any case where such declaration has not been made, the winding up will be deemed a "creditors' voluntary winding up".
In the case of a members' voluntary winding up of a company, the company in general meeting must appoint one or more liquidators within the period prescribed by the Bermuda Companies Act for the purpose of winding up the affairs of the company and distributing its assets. If the liquidator is at any time of the opinion that the company will not be able to pay its debts in full in the period stated in the directors' declaration of solvency, he is obliged to summon a meeting of creditors and lay before the meeting a statement of the assets and liabilities of the company.
As soon as the affairs of the company are fully wound up via a members' voluntary winding up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account, and giving any explanation thereof. This final general meeting shall be called by advertisement in an appointed newspaper, published at least one month before the meeting. Within one week after the meeting the liquidator shall notify the Bermuda Registrar of Companies that the company has been dissolved and the Registrar shall record that fact in accordance with the Bermuda Companies Act.
In the case of a creditors' voluntary winding up of a company, the company must call a meeting of the creditors of the company to be summoned for the day, or the next day following the day, on which the meeting of the members at which the resolution for voluntary winding up is to be proposed is held. Notice of such meeting of creditors must be sent at the same time as notice is sent to members. In addition, the company must cause a notice to appear in an appointed newspaper on at least two occasions.
The creditors and the members at their respective meetings may nominate a person to be liquidator for the purposes of winding up the affairs of the company and distributing the assets of the company, provided that if the creditors and the members nominate different persons, the person nominated by the creditors shall be the liquidator. If no person is nominated by the creditors, the person (if any) nominated by the members shall be liquidator. The creditors at the creditors' meeting may also appoint a committee of inspection consisting of not more than five persons.
If a creditors' voluntary winding up continues for more than one year, the liquidator is required to summon a general meeting of the company and a meeting of the creditors at the end of each year and must lay before such meetings an account of his acts and dealings and of the conduct of the winding up during the preceding year.
As soon as the affairs of the company are fully wound up via a creditors' voluntary winding up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company and a meeting of the creditors for the purposes of laying the account before the meetings, and giving any explanation thereof. Each such meeting shall be called by advertisement in an appointed newspaper, published at least one month before the meeting. Within one week after the date of the meetings, or if the meetings are not held on the same date, after the date of the later meeting, the liquidator is required to send to the Bermuda Registrar of Companies a copy of the account and make a return to him in accordance with the Bermuda Companies Act. The company will be deemed to be dissolved on the expiration of three months from the registration by the Bermuda Registrar of Companies of the account and the return. However, a Bermuda court may, on the application of the liquidator or of some other person who appears to the court to be interested, make an order deferring the date at which the dissolution of the company is to take effect for such time as the court thinks fit.
15) Indemnification of Directors and officers
Section 98 of the Bermuda Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to section 281 of the Bermuda Companies Act.

The Company has adopted provisions in the Bye-Laws that provide that the Company shall indemnify its officers and directors of their actions and omissions to the fullest extent permitted by Bermuda law. The Bye-Laws provide that the Shareholders shall waive all claims or rights of action that they might have, individually or in right of the Company, against any of the Company's directors or officers for any act or failure to act in the performance of such director's or officer's duties, except in respect of any fraud or dishonesty of such director or officer. Section 98A of the Bermuda Companies Act permits the Company to purchase and maintain insurance for the benefit of any officer or
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director in respect of any loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not the Company may otherwise indemnify such officer or director.
16) Compulsory acquisition of shares held by minority Shareholders
An acquiring party is generally able to acquire compulsorily the common shares of a minority shareholder of a Bermuda company in the following ways:
By procedure under the Bermuda Companies Act known as a "scheme of arrangement". A scheme of arrangement could be affected by obtaining the agreement of the company and of holders of common shares, representing in the aggregate a majority in number and at least 75% in value of the common shareholders present and voting at a court ordered meeting held to consider the scheme of arrangement. The scheme of arrangement must then be sanctioned by the Bermuda Supreme Court. If a scheme of arrangement receives all necessary agreements and sanctions, upon the filing of the court order with the Bermuda Registrar of Companies, all holders of common shares could be compelled to sell their common shares under the terms of the scheme of arrangement.
If the acquiring party is a company it may compulsorycompulsorily acquire all the shares of the target company, by acquiring pursuant to a tender offer 90% of the shares or class of shares not already owned by, or by a nominee for, the acquiring party (the offeror), or any of its subsidiaries. If an offeror has, within four months after the making of an offer for all the shares or class of shares not owned by, or by a nominee for, the offeror, or any of its subsidiaries, obtained the approval of the holders of 90% or more of all the shares to which the offer relates, the offeror may, at any time within two months beginning with the date on which the approval was obtained, required by notice any non-tendering shareholder to transfer its shares on the same terms as the original offer. In those circumstances, non-tendering shareholders will be compelled to sell their shares unless the Supreme Court of Bermuda (on application made within a one-month period from the date of the offeror's notice of its intention to acquire such shares) orders otherwise.
Where the acquiring party or parties hold not less than 95% of the shares or class of shares of the company, such holder(s) may, pursuant to a notice given to the remaining shareholders or class of shareholders, acquire the shares of such remaining shareholders or class of shareholders. When this notice is given, the acquiring party is entitled and bound to acquire the shares of the remaining shareholders on the terms set out in the notice, unless a remaining shareholder, within one month of receiving such notice, applies to the Supreme Court of Bermuda for an appraisal of the value of their shares. This provision only applies where the acquiring party offers the same terms to all holders of shares whose shares are being acquired.
17) Certain provisions of Bermuda law
The Company has been designated by the Bermuda Monetary Authority as a non-resident for Bermuda exchange control purposes. This designation allows the Company to engage in transactions in currencies other than the Bermuda dollar, and there are no restrictions on its ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to United States residents who are holders of its common shares. The Bermuda Monetary Authority has given its consent for the issue and free transferability of all its common shares from and/or to non-residents and residents of Bermuda for exchange control purposes, provided its shares remain listed on an Appointed Stock Exchange, which includes the NYSE and the Oslo Stock Exchange.OSE. Approvals or permissions given by the Bermuda Monetary Authority do not constitute a guarantee by the Bermuda Monetary Authority as to the Company's performance or creditworthiness. Accordingly, in giving such consent or permissions, the Bermuda Monetary Authority shall not be liable for the financial soundness, performance or default of the Company's business or for the correctness of any opinions or statements expressed in this report. Certain issues and transfers of common shares involving persons deemed resident in Bermuda for exchange control purposes require the specific consent of the Bermuda Monetary Authority.
In accordance with Bermuda law, share certificates are only issued in the names of companies, partnerships or individuals. In the case of a shareholder acting in a special capacity (for example as a trustee), certificates may, at the request of the shareholder and if the Board of Directors so determines, record the capacity in which the shareholder is acting. Notwithstanding such recording of any special capacity, the Company is not bound to investigate or see to the execution of any such trust. Except as ordered by a court of competent jurisdiction or as required by law or the Bye-Laws, the Company will take no notice of any trust applicable to any of its common shares, whether or not it has been notified of such trust.



C.MATERIAL CONTRACTS

C.MATERIAL CONTRACTS
Attached as exhibits to this annual report are the contracts we consider to be both material and not in the ordinary course of business. Other than these contracts, we have no material contracts other than those entered in the ordinary course of business.



D.EXCHANGE CONTROLS
TheD.EXCHANGE CONTROLS
We have been designated by the Bermuda Monetary Authority or the BMA, must give permission for all issuances and transfers of securities of a Bermuda exempted company like ours, unless the proposed transaction is exempted by the BMA’s written general permissions. We have received general permission from the BMA to issue any unissued common shares and for the free transferability of our common shares as long as our common shares are listed on an “appointed stock exchange.” Our common shares are listed on the OSE and the NYSE, each of which is an “appointed stock exchange.” Our common shares may therefore be freely transferred among persons who are residents and non-residents of Bermuda.
Although we are incorporated in Bermuda, we are classified as a non-resident offor Bermuda for exchange control purposes bypurposes. This designation allows us to engage in transactions in currencies other than the BMA. Other than transferring Bermuda Dollars out of Bermuda,dollar, and there are no restrictions on our ability to transfer funds into
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(other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to U.S. residents who are holders of Common Shares or other non-residentsour common shares.
The Bermuda Monetary Authority has given its consent for the issue and free transferability of Bermuda who are holdersall of our common shares to and between non-residents of Bermuda for exchange control purposes, provided such shares remain listed on an appointed stock exchange, which includes the OSE. Approvals or permissions given by the Bermuda Monetary Authority do not constitute a guarantee by the Bermuda Monetary Authority as to our performance or our creditworthiness. Accordingly, in currency other thangiving such consent or permissions, the Bermuda Dollars.
 In accordance withMonetary Authority shall not be liable for the financial soundness, performance or default of our business or for the correctness of any opinions or statements expressed in this annual report. Certain issues and transfers of common shares involving persons deemed resident in Bermuda law, share certificates may be issued only infor exchange control purposes require the names of corporations, individuals or legal persons. In the case of an applicant acting in a special capacity (for example, as an executor or trustee), certificates may, at the requestspecific consent of the applicant, recordBermuda Monetary Authority.
At the capacity in which the applicantpresent time, there is acting. Notwithstanding the recording of any such special capacity, we are not bound to investigateno Bermuda income or incur any responsibilityprofits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by us or by our shareholders in respect of our shares. We have obtained an assurance from the proper administrationMinister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such estatetax shall not, until March 31, 2035, be applicable to us or trust.
 We will take no notice of any trust applicable to any of our operations or to our shares, debentures or other securities whether or not we had notice ofobligations except insofar as such trust.
As an “exempted company,” we are exempt from Bermuda laws which restrict the percentage of share capital that may be held by non-Bermudians, but as an exempted company, we may not participate in certain business transactions including: (i) the acquisition or holding of landtax applies to persons ordinarily resident in Bermuda (except that required for its business and held by way of lease or tenancy for terms of not more than 21 years) without the express authorization of the Bermuda legislature; (ii) the taking of mortgages on land in Bermuda to secure an amount in excess of $50,000 without the consent of the Minister of Economic Development of Bermuda; (iii) the acquisition of any bonds or debentures secured on any land in Bermuda except bonds or debentures issued by the Government of Bermuda or by a public authority in Bermuda; or (iv) the carrying on of business of any kind in Bermuda, except in so far as may be necessary for the carrying on of its business outside Bermuda or under a license granted by the Minister of Economic Development of Bermuda.
 The Bermuda government actively encourages foreign investment in “exempted” entities like us that are based in Bermuda but do not operate in competition with local business. In addition to having no restrictions on the degree of foreign ownership, we are subject neither to taxes on our income or dividends nor to any exchange controls in Bermuda. In addition, there is no capital gains tax in Bermuda, and profits can be accumulatedpayable by us as required, without limitation. There is no income tax treaty between the United States and Bermuda pertaining to the taxationin respect of income other than applicable to insurance enterprises.real property owned or leased by us in Bermuda.


E.TAXATION
E.TAXATION

The following is a discussion of the material Bermuda, United States federal income and other tax considerations with respect to us and holders of common stock.shares. This discussion does not purport to deal with the tax consequences of owning common stockshares to all categories of investors, some of which, such as dealers in securities, investors whose functional currency is not the United States DollarU.S. dollar and investors that own, actually or under applicable constructive ownership rules, 10% or more of our common stock,shares, may be subject to special rules. This discussion deals only with holders who hold the common stockshares as a capital asset, generally for investment purposes. Shareholders are encouraged to consult their own tax advisors concerning the overall tax consequences arising in their own particular situation under United States federal, state, local or foreign law of the ownership of common stock.shares.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds common stock,shares, the U.S. federal income tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. Partners of partnerships holding the common stockshares are encouraged to consult their own tax advisers.

Bermuda and Other Non-U.S. Tax Considerations

As at the date of this annual report, whilst Seadrill is resident in Bermuda, we are not subject to taxation under the laws of Bermuda. Distributions we receive from our subsidiaries also are not subject to any Bermuda tax. As at the date of this annual report, there is no Bermuda income, corporation or profits tax, withholding tax, capital gains tax, capital transfer tax, or estate duty or inheritance tax payable by non-residents of Bermuda in respect of capital gains realized on a disposition of our common stockshares or in respect of distributions they receive from us with respect to our common stock.shares. This discussion does not, however, apply to the taxation of persons ordinarily resident in Bermuda. Bermuda shareholders should consult their own tax advisors regarding possible Bermuda taxes with respect to dispositions of, and distributions on, our common stock.shares.

We have received from the Minister of Finance under The Exempted Undertaking Tax Protection Act 1966, as amended, an assurance that, in the event that Bermuda enacts legislation imposing tax computed on profits, income, any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance, the imposition of any such tax shall not be applicable to us or to any of our operations or shares, debentures or other obligations, until March 31, 2035. This assurance is subject to the proviso that it is not to be construed to prevent the application of any tax or duty to such persons as are ordinarily resident in Bermuda or to prevent the application of any tax payable in accordance with the provisions of the Land Tax Act 1967. The assurance does not exempt us from paying import duty on goods imported into Bermuda. In addition, all entities

employing individuals in Bermuda are required to pay a payroll tax and there are other sundry taxes payable, directly or indirectly, to the Bermuda government. We and our subsidiaries incorporated in Bermuda pay annual government fees to the Bermuda government.

Bermuda currently has no tax treaties in place with other countries in relation to double-taxation or for the withholding of tax for foreign tax authorities.

Dividends distributed by Seadrill Limited out of Bermuda

Currently, there is no withholding tax payable in Bermuda on dividends distributed from Seadrill Limited to its shareholders.

Taxation of rig owning entities

A number of our drilling rigs are owned in tax-free jurisdictions such as Bermuda or Liberia. There is no taxation of the rig owners’ income in these jurisdictions. The remaining drilling rigs are owned in jurisdictions with income or tonnage taxation of the rig owners’ income, being
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Hungary, Norway and Singapore. There may also be income tax in certain other jurisdictions where rigs are owned by, or allocated to, local branches.

Please also see the section below entitled “Taxation in country of drilling operations.”

Taxation in country of drilling operations

Income derived from drilling operations is generally taxed in the country where these operations take place. The taxation of income derived from drilling operations could be based on net income, deemed income, withholding taxes and/or other bases, depending upon the applicable tax legislation in each country of operation. Some countries levy withholding taxes on bareboat charter payments (internal rig rent), branch profits, crew, dividends, interest and management fees.

Drilling operations can be carried out by locally incorporated companies, foreign branches of operating companies or foreign branches of the rig owning entities. We elect the appropriate structure with due regard to the applicable legislation of each country where the drilling operations occur.

Taxation may also extend to the rig owning entity in some of the countries where the drilling operations are performed. Some countries have introduced new laws and rules since the commencement of certain drilling contracts, which may affect, or have affected, the position of the group, potentially leading to additional tax on rig owners. The group considers the applicability of these to individual companies and contracts based on the relevant facts and circumstances.

In March 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which grants taxpayers a five-year carryback period for net operating losses arising in tax years beginning after December 31, 2017 and before January 1, 2021. See Note 14 – "Taxation" to the Consolidated Financial Statements included herein for further details of the impact for 2020.

Net income

Net income corresponds to gross income derived from the drilling operations less tax-deductible costs (i.e. operating costs, crew, insurance, management fees and capital costs (internal bareboat fee; tax depreciation; interest costs) incurred in relation to those operations). In addition to net income tax, withholding tax on branch profits, dividends, internal bareboat fees, among other items, may also be levied.

Net income taxation for an international drilling contractor is complex, and pricing of internal transactions (e.g., rig sales; bareboat fees; services) will allocate overall taxable income between the relevant countries. We apply Organization for Economic Cooperation and Development, or OECD, Transfer Pricing Guidelines as a basis to arrive at pricing for internal transactions. OECD Transfer Pricing Guidelines describe various methods to price internal services on terms believed by us to be no less favorable than are available from unaffiliated third parties. However, some tax authorities could disagree with our transfer pricing methods and disputes may arise regarding the correct pricing.

Deemed income tax
Deemed income tax is normally calculated based on gross turnover, which can include or exclude reimbursables and often reflects an assumed profit ratio, multiplied by the applicable corporate tax rate. Some countries will also levy withholding taxes on the distribution of dividend and/or branch profits at the deemed tax rate.

Withholding and other taxes

Some countries base their taxation solely on withholding tax on gross turnover. In addition, some countries levy stamp duties, training taxes or similar taxes on the gross turnover.

Customs duties

Customs duties are generally payable on the importation of drilling rigs, equipment and spare parts into the country of operation, although several countries provide exemption from such duties for the temporary importation of drilling rigs. Such exemption may also apply to the temporary importation of equipment.

Taxation of other income

Other income related to crewing, management fees and technical services will generally be taxed in the country where the service provider is resident, although withholding tax and/or income tax may also be imposed in the country where the drilling operations take place.
Dividends and other investment income will be taxable in accordance with the legislation of the country where the company holding the investment is resident. For companies resident in Bermuda, there is currently no tax on these types of income.

Some countries levy withholding taxes on outbound dividends and interest payments.

Capital gains taxation

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In respect of drilling rigs located in Bermuda, Liberia, Singapore and Hungary, no capital gains tax is payable in these countries upon the sale or disposition of a rig. However, some countries may impose a capital gains tax or a claw-back of tax depreciation (on a full or partial basis) upon the sale of a rig during or attributable to such time as the rig is operating within such country, or within a certain time after completion of such drilling operations, or when the rig is exported after completion of such drilling operations.

Other taxes

Our operations may be subject to sales taxes, value added taxes, or other similar taxes in various countries.

Taxation of shareholders

Taxation of shareholders will depend upon the jurisdiction where the shareholder is a tax resident. Shareholders should seek advice from their tax adviser to determine the taxation to which they may be subject based on the shareholder’s circumstances.

United States Federal Income Tax Considerations

The following are the material United States federal income tax consequences to us of our activities and to U.S. Holders and Non-U.S. Holders, each as defined below, of the ownership of our common stock.shares. This discussion does not purport to deal with the tax consequences of owning common stockshares to all categories of investors, some of which, such as dealers in securities, banks, financial institutions, tax-exempt entities, insurance companies, pension funds, US expatriates, real estate investment trusts, regulated investment companies, investors holding common stockshares as part of a straddle, hedging or conversion transaction, investors subject to the alternative minimum tax, investors who acquired their common stockshares pursuant to the exercise of employee stock options or otherwise as compensation, investors whose functional currency is not the United States DollarU.S. dollar and investors that own, actually or under applicable constructive ownership rules, 10% or more of our common stock,shares, may be subject to special rules. The following discussion of United States federal income tax matters is based on the United States Internal Revenue Code of 1986, as amended, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive effect. The discussion below is based, in part, on the description of our business in this annual report and assumes that we conduct our business as described.

United States Federal Income Taxation of U.S. Holders

As used herein, the term “U.S. Holder” means a beneficial owner of common stockshares that is (1) a U.S. citizen or resident for U.S. federal income tax purposes, (2) U.S. corporation or other U.S. entity taxable as a corporation, (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (4) a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.

If an entity or arrangement treated as a partnership holds our common stock,shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common stock,shares, you are encouraged to consult your tax adviser.

Distributions

Subject to the discussion of PFICs below, any distributions made by us with respect to our common stockshares to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or “qualified dividend income” as described in more detail below, to the extent of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a non-taxable return of capital to the extent of the U.S. Holder’s tax basis in his common stockshares on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a United States corporation, U.S. Holders that are corporations will not be entitled to claim a dividend received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common stockShares will generally be treated as “passive category income” or, in the case of certain types of U.S. Holders, “general category income” for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.

Dividends paid on our common stockshares to a U.S. Holder who is an individual, trust or estate, or a “U.S. Individual Holder” will generally be treated as “qualified dividend income” that is taxable to such U.S. Individual Holders at preferential tax rates provided that (1)1) the common stock isshares are readily tradable on an established securities market in the United States (such as the NYSE, on which our common stockshares were traded for part of 2020; or the OTCQX) or on a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located (such as the OSE, on which our common shares are also traded); (2)2) we are not a PFIC for the taxable year duringin which the dividend is paid or the immediately preceding taxable year (which, as discussed below, we are not and do not anticipate being in the future); (3)3) the U.S. Individual Holder has owned the common stockshares for more than 60 days in the 121-day period beginning 60 days before the date on which thewhichthe common stock becomesshares become ex-dividend; and (4)4) the U.S. Individual Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. There is no assurance that any dividends paid on our common stockshares will be eligible for these preferential rates in the hands of a U.S. Individual Holder. Any dividends paid by us which are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Individual Holder.

Special rules may apply to any “extraordinary dividend,” generally, a dividend paid by us in an amount which is equal to or in excess of 10% of a shareholder’s adjusted tax basis (or fair market value in certain circumstances) in a share of common stock.shares. If we pay an “extraordinary
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dividend” on our common stockshares that is treated as “qualified dividend income,” then any loss derived by a U.S. Individual Holder from the sale or exchange of such common stockshares will be treated as long-term capital loss to the extent of such dividend.


Sale, Exchange or other Taxable Disposition of Common StockShares

Assuming we do not constitute a PFIC for any taxable year, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other taxable disposition of our common stockshares in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other taxable disposition and the U.S. Holder’s tax basis in such stock. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as United States source income or loss, as applicable, for United States foreign tax credit purposes. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.

3.8% Tax on Net Investment Income

Certain U.S. Holders, including individuals, estates, or, in certain cases, trusts, will generally be subject to a 3.8% tax on the lesser of (1) the U.S. Holder’s net investment income for the taxable year and (2) the excess of the U.S. Holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and $250,000). A U.S. Holder’s net investment income will generally include distributions made by us which constitute a dividend for U.S. federal income tax purposes and gain realized from the sale, exchange or other taxable disposition of our common stock.shares. This tax is in addition to any income taxes due on such investment income.

If you are a U.S. Holder that is an individual, estate or trust, you are encouraged to consult your tax advisors regarding the applicability of the 3.8% tax on net investment income to the ownership and disposition of our common stock.shares.

Passive Foreign Investment Company Status and Significant Tax Consequences

Special United States federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a PFIC for United States federal income tax purposes. In general, a foreign corporation will be treated as a PFIC with respect to a United States shareholder, if, for any taxable year in which such shareholder holds stock in such foreign corporation, either:

at least 75% of the corporation’s gross income for such taxable year consists of passive income (e.g. dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or
at least 50% of the average value of the assets held by the corporation during such taxable year produce, or are held for the production of, passive income.
For purposes of determining whether a foreign corporation is a PFIC, it will be treated as earning and owning its proportionate share of the income and assets, respectively, of any of its subsidiary corporations in which it owns, directly or indirectly, at least 25% of the value of the subsidiary’s stock.

Income earned by a foreign corporation in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute “passive income” unless the foreign corporation is treated under specific rules as deriving its rental income in the active conduct of a trade or business or is received from a related party.

Based on the current and anticipated valuation of our assets, including goodwill, and composition of our income and assets, we intend to take the position that we will not be treated as a PFIC for U.S. federal income tax purposes for our current taxable year or in the foreseeable future. Our position is based on valuations and projections regarding our assets and income. While we believe these valuations and projections to be accurate, such valuations and projections may not continue to be accurate. Moreover, as we have not sought a ruling from the Internal Revenue Service, or IRS, on this matter, the IRS or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any taxable year, the nature of our operations may change in the future, and if so, we may not be able to avoid PFIC status in the future.

As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different United States federal income taxation rules depending on whether the U.S. Holder makes an election to treat us as a “Qualified Electing Fund,” which election we refer to as a “QEF election.” As an alternative to making a QEF election, a U.S. Holder should be able to make a “mark-to-market” election with respect to our common stock,shares, as discussed below. In addition, if we were to be treated as a PFIC for any taxable year a U.S. Holder would be required to file an annual report with the United States Internal Revenue Service, or the IRS, for that year with respect to such U.S. Holder’s common stock.shares.

Taxation of U.S. Holders Making a Timely QEF Election

If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as an “Electing Holder,” the Electing Holder must report each year for United States federal income tax purposes his pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing Holder, regardless of whether or not distributions were received from us by the Electing Holder. The Electing Holder’s adjusted tax basis in the common stockshares would be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed would result in a corresponding reduction in the adjusted tax
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basis in the common stockshares and would not be taxed again once distributed. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common stock.shares. A U.S. Holder would make a QEF election with respect to any taxable year during which we are a PFIC by filing a valid IRS Form 8621 with his United States federal income tax return. If we were aware that we or any of our subsidiaries were to be treated as a PFIC for any taxable year, we would, if possible, provide each U.S. Holder with all necessary information in order to make the QEF election described above. If we were to be treated as a PFIC, a U.S. Holder would be treated as owning his proportionate share

of stock in each of our subsidiaries which is treated as a PFIC and a separate QEF election would be necessary with respect to each subsidiary. It should be noted that we may not be able to provide such information if we did not become aware of our status as a PFIC in a timely manner.

Taxation of U.S. Holders Making a “Mark-to-Market” Election

Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate, our stock is treated as “marketable stock,” a U.S. Holder would be allowed to make a “mark-to-market” election with respect to our common stock,shares, provided the U.S. Holder completes and files a valid IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. The “mark-to-market” election will not be available for any of our subsidiaries. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common stockshares at the end of the taxable year over such holder’s adjusted tax basis in the common stock.shares. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder’s adjusted tax basis in the common stockshares over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s tax basis in his common stockshares would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our common stockshares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common stockshares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included as ordinary income by the U.S. Holder. It should be noted that the mark-to-market election would likely not be available for any of our subsidiaries which are treated as PFICs.

Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election

Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a “mark-to-market” election for that year, whom we refer to as a “Non-Electing Holder,” would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on our common stockshares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for the common stock)shares), and (2) any gain realized on the sale, exchange or other disposition of our common stock.shares. Under these special rules:

the excess distribution or gain would be allocated ratably over the Non-Electing Holders’ aggregate holding period for the common stock;shares;
the amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxed as ordinary income; and
the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.

These penalties would not apply to a pension or profit sharingprofit-sharing trust or other tax-exempt organization that did not borrow funds or otherwise utilize leverage in connection with its acquisition of our common stock.shares. If a Non-Electing Holder, who is an individual, dies while owning our common stock,shares, such Non-Electing Holder’s successor generally would not receive a step-up in tax basis with respect to such common stock.shares.

United States Federal Income Taxation of “Non-U.S. Holders”

A beneficial owner of our common stockshares that is not a U.S. Holder or partnership is referred to herein as a “Non-U.S. Holder.”

Dividends on Common StockShares

Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on dividends received from us with respect to our common stock,shares, unless that income is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a United States income tax treaty with respect to those dividends, that income is subject to United States federal income tax only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.

Sale, Exchange or Other Disposition of Common StockShares

Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on any gain realized upon the sale, exchange or other taxable disposition of our common stock,shares, unless:

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the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a United States income tax treaty with respect to that gain, that gain is subject to United States Federal Income tax only if it is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States; or
the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.


If a Non-U.S. Holder is engaged in a United States trade or business for United States federal income tax purposes, the income from the common stock,shares, including dividends and the gain from the sale, exchange or other taxable disposition of the common stockshares that is effectively connected with the conduct of that United States trade or business will generally be subject to United States federal income tax in the same manner as discussed in the previous section relating to the United States federal income taxation of U.S. Holders. In addition, if the Non-U.S. Holder is a corporation, the Non-U.S. Holder’s earnings and profits that are attributable to the effectively connected income, subject to certain adjustments, may be subject to an additional United States federal branch profits tax at a rate of 30%, or at a lower rate as may be specified by an applicable United States income tax treaty.


Backup Withholding and Information Reporting

In general, dividend payments, and other taxable distributions, made by us to you within the United States will be subject to information reporting requirements. Such payments will also be subject to backup withholding if paid to a U.S. Individual Holder who:

fails to provide an accurate taxpayer identification number;
is notified by the IRS that he has failed to report all interest or dividends required to be shown on his United States federal income tax returns; or
in certain circumstances, fails to comply with applicable certification requirements.

Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on an applicable IRS Form W-8.

If a Non-U.S. Holder sells his common stockshares to or through a United States office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless the Non-U.S. Holder certifies that he is a non-United States person, under penalties of perjury, or otherwise establishes an exemption. If a Non-U.S. Holder sells his common stockshares through a non-United States office of a non-United States broker and the sales proceeds are paid to the Non-U.S. Holder outside the United States, then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made to a Non-U.S. Holder outside the United States, if the Non-U.S. Holder sells his common stockshares through a non-United States office of a broker that is a United States person or has some other connection to the United States.

Backup withholding is not an additional tax. Rather, a taxpayer generally may obtain a refund of any amounts withheld under backup withholding rules that exceed the taxpayer’s United States federal income tax liability by properly filing a refund claim with the IRS.

Individuals who are U.S. Holders (and to the extent specified in the applicable Treasury Regulations, certain individuals who are non-U.S. Holders and certain U.S. entities) who hold “specified foreign financial assets” (as defined in section 6038D of the Code and the applicable Treasury Regulations) are required to file IRS Form 8938 (Statement of Specified Foreign Financial Assets) with information relating to each such asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year. Specified foreign financial assets would include, among other assets, our common stock,shares, unless the common stockshares were held through an account maintained with certain financial institutions. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, the statute of limitations on the assessment and collection of U.S. federal income tax with respect to a taxable year for which the filing of IRS Form 8938 is required may not close until three years after the date on which IRS Form 8938 is filed. U.S. Holders and Non-U.S. Holders are encouraged to consult their own tax advisers regarding their reporting obligations under section 6038D of the Code.

Other Tax Considerations

In addition to the tax consequences discussed above, we may be subject to tax in one or more other jurisdictions where we conduct activities. The amount of any such tax imposed upon our operations may be material.


F.DIVIDENDS AND PAYING AGENTS

F.DIVIDENDS AND PAYING AGENTS

Not applicable. 


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G.STATEMENT BY EXPERTS

G.STATEMENT BY EXPERTS

Not applicable.


H.DOCUMENTS ON DISPLAY

H.DOCUMENTS ON DISPLAY

We are subject to the informational requirements of the Exchange Act. In accordance with these requirements we file reports and other information with the Commission. These materials, including this annual report on Form 20-F and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330, and you may obtain copies at prescribed rates from the Public Reference Section of the Commission at its principal office in Washington, D.C. The Commission maintains a website (http://www.sec.gov.) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. In addition, documents referred to in this annual report on Form 20-F may be inspected at our principle executive offices at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda and at the offices of Seadrill Management Ltd., at Building 11, Chiswick Business Park, 566 Chiswick High Road, London, W4 5YA,5YS, United Kingdom.



I.SUBSIDIARY INFORMATION

I.SUBSIDIARY INFORMATION

Not applicable.


ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are exposed to several market risks, including credit risk, foreign currency risk and interest rate risk. Our policy is to reduce our exposure to these risks, where possible, within boundaries deemed appropriate by our management team. This may include the use of derivative instruments.


Credit risk


We have financial assets, including cash and cash equivalents, marketable securities, related party receivables, other receivables and certain amounts receivable on derivative instruments. These assets expose us to credit risk arising from possible default by the counterparty. Most of the counterparties are creditworthy financial institutions or large oil and gas companies. We do not expect any significant loss to result from non-performance by such counterparties. However, we have established an allowance on our loans and trade receivables due from related parties reflecting their current financial position, lower credit rating and overdue balances.


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


Credit risk is also considered as part of our expected credit loss provision. For details on how we estimate expected credit losses refer to Note 6 - "Current expected credit losses" to the Consolidated Financial Statements included herein.

Concentration of risk
 
There is also a concentration of credit risk with respect to cash and cash equivalents to the extent that most of the amounts are carried with Citibank, Nordea Bank Finland Plc, Danske Bank A/S, BNP Paribas and ING Bank N.V.BTG Pactual. We consider these risks to be remote.remote, however, from time to time, we may utilize instruments such as money market deposits to manage concentration of risk with respect to cash and cash equivalents. We also have a concentration of risk with respect to customers, including affiliated companies. For details on the customers with greater than 10% of contract revenues, refer to Note 67 - Segment information.  "Segment information". For details on amounts due from affiliated companies, refer to Note 32 - "Related party transactions" to the Consolidated Financial Statements included herein.


Foreign exchange risk


AsIt is customary in the oil and gas industry that a majority of our revenues and expenses are denominated in U.S. dollars, which is the functional currency of most of our subsidiaries and equity method investees. However, a portion of the revenues and expenses of certain of our subsidiaries and equity method investees are denominated in other currencies. We are therefore exposed to foreign exchange gains and losses that may arise on the revaluation or settlement of monetary balances denominated in foreign currencies.


Before we entered Chapter 11, we had unsecured bonds denominated in Norwegian Krone and Swedish Krona. These bonds were extinguished on emergence from Chapter 11. Our remaining foreign exchange exposures primarily relate to foreign denominated cash and working capital balances.balances denominated in foreign currencies. We do not expect these remaining exposures to cause a significant amount of fluctuation in net income and therefore do not currently hedge them. Further, theThe effect of fluctuations in currency exchange rates caused byarising from our international operations generally has not had a material impact on our overall operating results.

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Interest rate risk


Our exposure to interest rate risk relates mainly to our floating rate debt and balances of surplus funds placed with financial institutions. We manage this risk through the use of derivative arrangements. We have set out our exposure to interest rate risk on our net debt obligations at December 31, 2018 (Successor) in the below table.

(In $ millions) Principal outstanding
 Hedging instruments - see below
 Net exposure
 Impact of 1% increase in rates
Senior Credit Facilities 5,662
 4,500
 1,162
 15
Debt contained within VIEs 655
 
 655
 6
Total floating rate debt obligations 6,317
 4,500
 1,817
 21
New Secured Notes 769
 
 
 
Less: Cash and Restricted Cash (2,003) 
 (2,003) (20)
Net debt 5,083
 4,500
 (186) 1

At December 31, 2017 we were in Chapter 11 and did not make interest payments on our Senior Credit Facilities. Our exposure to interest rate risk was therefore limited to loans contained within VIEs. The net exposure on those debt obligations was not materially different to the amount shown in the above table.



On May 11, 2018, we purchased an interest rate cap for $68 million to mitigate our exposure to future increases inof LIBOR on our Senior Credit Facility debt. The interest rate cap is not designated as a hedge and therefore doeswe do not apply hedge accounting. The capped rate against the 3-month US LIBOR is 2.87% and covers the period from June 15, 2018 to June 15, 2023.


TheAs part of reference rate reform, the use of LIBOR will be replaced by other interest rate applied onindexes as part of a negotiation with our debtlenders. As at December 31, 20182020 our debt facilities and derivatives continue to be linked to the LIBOR interest rate index.

We have set out our exposure to interest rate risk on our net debt obligations at December 31, 2020 in the table below:
(In $ millions)PrincipalHedging instrumentsTotalImpact of 1% increase in rates
Senior Credit Facilities5,662 (4,500)1,162 12 
Ineffective portion of interest rate cap (1)
— 4,500 4,500 45 
Debt exposed to interest rate fluctuations5,662  5,662 57 
Less: Cash and Restricted Cash(723)— (723)(7)
Net debt exposed to interest rate fluctuations (2)
4,939  4,939 50 
(1) The 3-month LIBOR rate as at December 31, 2020 was 2.81%0.238%. Therefore,At this date, the interest cap would mitigate none of the impact of 94% of a theoretical 1% point increase in LIBOR.
(2) The $515 million of Senior Secured Notes are a fixed rate debt instrument and are therefore excluded from the LIBOR rate. This is set out in the belowabove table.


ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.DEBT SECURITIES
(In $ millions) Amount
 Impact of 1% point increase in rates (before impact of interest rate cap)
 Less: impact of LIBOR CAP
 Impact of 1% point increase in rates (after impact of interest rate cap)
         
Senior Credit Facility debt - hedged 4,500
 45
 (42) 3
Senior Credit Facility debt - not hedged 1,162
 12
 
 12
Total Senior Credit Facility Debt 5,662
 57
 (42) 15

One of the Ship Finance subsidiaries that we consolidate as a VIE (refer to Note 35 "Variable Interest Entities") previously entered into interest rate swaps to mitigate its exposure to variability in cash flows for future interest payments on the loans taken out to finance the acquisition of the West Linus. These interest rate swaps matured on December 31, 2018 (Successor).


ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.DEBT SECURITIES
 
Not applicable.



B.WARRANTS AND RIGHTS
B.WARRANTS AND RIGHTS
 
Not applicable.



C.OTHER SECURITIES
C.OTHER SECURITIES
 
Not applicable.



D.AMERICAN DEPOSITARY SHARES
D.AMERICAN DEPOSITARY SHARES
 
Not applicable.


 
PART II
 
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES


None.The Debtors filing of Chapter 11 Proceedings on the Petition Dates constituted an event of default under our secured credit facilities and bond facilities and were reported as “Liabilities subject to compromise” on the Consolidated Balance Sheets as of the Petition Dates.


ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS


None.

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ITEM 15.CONTROLS AND PROCEDURES
 
ITEM 15.CONTROLS AND PROCEDURES
A. Disclosure Controls and Procedures
Our Management, with participation from the Chief Executive Officer, Chief Accounting Officer and Chief FinancialRestructuring Officer assessed the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 and Rule 15a-1515d-15 of the Exchange Act as of December 31, 2018.2020. Based upon that evaluation, the Chief Executive Officer, Chief Accounting Officer and Chief FinancialRestructuring Officer concluded that our disclosure controls and procedures were effective as of the evaluation date.

B.     Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) promulgated under the Exchange Act.
Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that the Company's receipts and expenditures are being made only in accordance with authorizations of Company's management and directors; and
Provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our Management, with the participation of the Chief Executive Officer, Chief Accounting Officer and the Chief FinancialRestructuring Officer, assessed the effectiveness of the design and operation of our internal control over financial reporting pursuant to Rule 13a-15 of the Exchange Act as of December 31, 2018.2020.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Management reviewed the results of its assessment with the Audit Committee of our Board of Directors. On the basis of this evaluation, Management concluded that, as of December 31, 2018,2020, the Company’s internal control over financial reporting was effective.
C.Attestation Report of the Registered Public Accounting Firm
The independent registered public accounting firm that audited the Consolidated Financial Statements, PricewaterhouseCoopers LLP, has issued an attestation report on the effectiveness of our internal control over financial reporting as at December 31, 2018, appearing under Item 18 "Financial Statements", and such report is incorporated herein by reference.
D.Changes in Internal Control over Financial Reporting
There were no changes in these internal controls during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


ITEM 16.RESERVED

Not applicable.


ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Birgitte Vartdal, is anBjarte Bøe and Birgit Aagaard-Svendsen, are independent DirectorDirectors as defined by the NYSE and is anare audit committee financial expertexperts as defined by the SEC. See Item 6A - "Directors and Senior Management" for a description of Birgitte Vartdal'stheir relevant experience.

 
ITEM 16B. CODE OF ETHICS
We have adopted a Code of Ethics that applies to all entities controlled by us and its employees, directors, officers and agents of ours. We will provide any person, free of charge, a copy of our Code of Ethics upon written request to our registered office.

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ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES


Our principal accountant for the fiscal years ended December 31, 20182020 and 20172019 was PricewaterhouseCoopers LLP in the United Kingdom. The following table sets forth the fees related to audit and other services provided by the principal accountants and their affiliates.
 
Successor
(In $)Year ended December 31, 2020Year ended December 31, 2019
Audit fees (1)
3,272,317 3,308,694 
Audit-related fees (2)
64,195 100,330 
Taxation fees (3)
— — 
All other fees (4)
19,259 17,269 
Total3,355,771 3,426,293 
 Successor
 Predecessor
(in $)
Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
December 31, 2017
Audit fees (1)
4,035,949
 1,484,600
5,036,510
Audit-related fees (2)
252,108
 
25,000
Taxation fees (3)

 
10,000
All other fees (4)

 

Total4,288,057
 1,484,600
5,071,510


(1)Audit fees represent professional services rendered for the audit of our annual Consolidated Financial Statements and services provided by the principal accountant in connection with statutory and regulatory filings or engagements.
(1)
(2)Audit-related fees consist of assurance and related services rendered by the principal accountant related to the performance of the audit or review of our Consolidated Financial Statements which have not been reported under Audit fees above.
(3)Taxation fees represent fees for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning.
(4)All other fees include services other than audit fees, audit-related fees and taxation fees set forth above, primarily including assistance in the preparation of financial statement for subsidiaries.
Audit fees represent professional services rendered for the audit of our annual Consolidated Financial Statements and services provided by the principal accountant in connection with statutory and regulatory filings or engagements.
(2)
Audit-related fees consist of assurance and related services rendered by the principal accountant related to the performance of the audit or review of our Consolidated Financial Statements which have not been reported under Audit fees above.
(3)
Taxation fees represent fees for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning.

(4)
All other fees include services other than audit fees, audit-related fees and taxation fees set forth above, primarily including information security and network penetration testing services.
 
Audit Committee’s Pre-Approval Policies and Procedures
 
Our Board has adopted pre-approval policies and procedures in compliance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X that require the Board to approve the appointment of our independent auditor before such auditor is engaged and approve each of the audit and non-audit-related services to be provided by such auditor under such engagement by us. All services provided by the principal auditor in 2018, 20172020 and 20162019 were approved by the Board pursuant to the pre-approval policy.


 
ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.


ITEM 16E.     PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.



ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.


ITEM 16G.     CORPORATE GOVERNANCE
U.S. companiesSeadrill is committed to good corporate governance. As a company listed onat the NYSE areOSE, Seadrill is subject to the "NYSENorwegian Code of Practice for Corporate Governance: A Practical Guide" which has been published byGovernance, and the NYSECompany complies with such guidelines, with certain deviations, as outlined and is available at nyse.com/cgguide. Asexplained in a foreign private issuer, we are exempt from certain requirements of the NYSE that are applicable to U.S. listed companies, including certainseparate corporate governance practices. Set out below is a listreport made available on or about the date of the significant differences between our corporate governance practicesthis annual report.
i.Internal Control and the NYSE standards applicable to listed U.S. companies.Risk Management
i.Independence of Directors

The NYSE requires that a U.S. listed company maintain a majority of independent directors. Under Bermuda law, we are not required to have a board of directors comprised of a majority of directors meeting the independence standards described in NYSE rules. However, our Board of Directors currently has a majority of independent directors, with five of the seven members being independent under the NYSE's standards for independence applicable to a foreign private issuer.
ii.Executive Sessions
The NYSE requires that non-management directors meet regularly in executive sessions without management. The NYSE also requires that all independent directors meet in an executive session at least once a year. Historically, non-management directors regularly held executive sessions without management. We expect this to continue in the future.
iii.Nominating/Corporate Governance Committee.
The NYSE requires that a listed U.S. company have a nominating/corporate governance committee of independent directors and a committee charter specifying the purpose, duties and evaluation procedures of the committee. As permitted under Bermuda law, we do not currently have a nominating or corporate governance committee.
iv.Corporate Governance Guidelines.
The NYSE requires that a listed U.S. company adopts and discloses corporate governance guidelines. The guidelines must address, among other things, director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management succession and an annual performance evaluation. We are not required to adopt such guidelines under Bermuda law, however our current bye-laws include certain matters concerning corporate governance.
Additional Information Concerning Corporate Governance Required by the Oslo Stock Exchange Continuing Obligations as of January 2019
i.Internal Control and Risk Management
Information concerning the main elements of our internal control and risk management systems associated with the financial reporting process has been provided in "Item 15. ControlsItem 15 - "Controls and Procedures".
ii.Board of Directors and Board Committees
ii.Board of Directors and Board Committees
The composition of our Board of Directors is set out in "Item 6. Directors,Item 6 - "Directors, Senior Management and Employees", as is information pertaining to our Audit and Risk Committee, Compensation Committee and ConflictsRestructuring Steering Committee.
iii.Appointment of Board Members
iii.Appointment of Board Members
88

Table of Contents
Our current bye-laws regulate the process of appointing Board Members. Reference is made to "Item 6. Directors,Item 6 - "Directors, Senior Management and Employees", subsection "C. Board Practices" for information on specific rights concerning Terms of Office, the number of Board Members required in the Board of Directors and appointment procedures. Our current bye-laws have been included under "Item 10. AdditionalItem 10 - "Additional Information", subsection "B. Memorandum of Association and Bye-laws", and set out the full regulation of the procedures for the appointment of Board Members.
iv.Authorization to Acquire Treasury Shares
iv.Authorization to Acquire Treasury Shares
Pursuant to our current bye-laws, the Company has the power to purchase its own shares (treasury shares) for cancellation, as well as to hold such shares as treasury shares. The Board of Directors may exercise all powers of the Company to purchase or acquire its own shares, whether for cancellation or to be held as treasury shares in accordance with Bermuda law.

ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.



PART III
 
ITEM 17.     FINANCIAL STATEMENTS
 
See “Item 18. Financial Statements”Item 18 - "Financial Statements" below.

 
ITEM 18. FINANCIAL STATEMENTS


Our Consolidated Financial Statements, together with the reports from PricewaterhouseCoopers LLP thereon, are filed as a part of this Annual Report, beginning on page F-1.


Pursuant to Rule 3-09, the Consolidated Financial Statements and the Management ICFR Report
89



ITEM 19.    EXHIBITS
Exhibit

Number
Description
1.1



1.2
1.3

1.4

2.1

2.2

2.3

2.4

2.5
2.6

4.1

8.1
4.2
8.1
11.1
12.1
12.2
13.1
13.2
15.1
15.2
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema 
101.CALXBRL Taxonomy Extension Schema Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase


Seadrill agrees to furnish to the SEC upon request any instrument with respect to long-term debt that Seadrill has not filed as an exhibit pursuant to the exemption provided by instruction 2(b)(i)the general instructions to Item 19 of Form 20-F.

90

SIGNATURES


The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.


Seadrill Limited
(Registrant)


Date: March 28, 2019

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



RESPONSIBILITY STATEMENT
We confirm, to the best of our knowledge, that the Consolidated Financial Statements for the year ended December 31, 2018, have been prepared in accordance with accounting principles generally accepted in the United States of America, and give a true and fair view of the assets, liabilities, financial position and results of the Company and the Group taken as a whole.
We also confirm that, to the best of our knowledge, this Annual Report includes a true and fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks. For further details on risks related to our business and uncertainties facing the Company and the Group, please see "Item 3. Key Information" subsection "D. Risk Factors".
Date: March 28, 2019
The Board of Directors
Seadrill Limited
Hamilton, Bermuda(Registrant)


Date: March 19, 2021
By:/s/ Birgitte Ringstad VartdalDirectorStuart Jackson
Name:Stuart Jackson
/s/ Eugene I. DavisDirector
Title:
/s/ Harald ThorsteinDirector
/s/ John FredriksenDirectorPrincipal Executive Officer and ChairmanPrincipal Financial Officer of the Board
/s/ Kjell-Erik ØstdahlDirector
/s/ Peter J. SharpeDirector
/s/ Scott D. VogelDirectorSeadrill Limited







Table of Contents
Seadrill Limited
Index to Consolidated Financial Statements

Consolidated Financial Statements of Seadrill Limited

F-1

Table of Contents
Report of Independent Registered Public Accounting Firm


TotheBoard of Directors and Shareholders of Seadrill Limited


Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying Consolidated Balance Sheet of Seadrill Limited and its subsidiaries (Successor) (the “Company”) as of December 31, 2018, and the related Consolidated Statements of Operations, of Comprehensive (loss)/income, of Changes in Shareholders’ Equity and of Cash Flows for the period from July 2, 2018 to December 31, 2018, including the related notes (collectively referred to as the “Consolidated Financial Statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Consolidated Financial Statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the period from July 2, 2018 to December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis of Accounting

As discussed in Note 1 to the Consolidated Financial Statements, the United States Bankruptcy Court for the Southern District of Texas Victoria Division confirmed the Company's Second Amended Joint Chapter 11 Plan of Reorganization (the "plan") on April 17, 2018. Confirmation of the plan resulted in the discharge of all claims against the Company that arose before September 12, 2017 and substantially alters or terminates rights and interests of equity security holders as provided for in the plan. The plan was substantially consummated on July 2, 2018 and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of July 2, 2018.

Basis for Opinions

The Company's management is responsible for these Consolidated Financial Statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under item 15. Our responsibility is to express opinions on the Company’s Consolidated Financial Statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the Consolidated Financial Statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the Consolidated Financial Statements included performing procedures to assess the risks of material misstatement of the Consolidated Financial Statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Consolidated Financial Statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Consolidated Financial Statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.




/s/ PricewaterhouseCoopers LLP
Uxbridge, United Kingdom
March 28, 2019
We have served as the Company’s or its predecessor auditor since 2013.






Report of Independent Registered Public Accounting Firm

To theBoard of Directors and Shareholders of Seadrill Limited

Opinion on the Financial Statements


We have audited the accompanying Consolidated Balance Sheetconsolidated balance sheets of Seadrill Limited and its subsidiaries (Predecessor)(Successor) (the “Company”) as of December 31, 20172020 and December 31, 2019, and the related Consolidated Statementsconsolidated statements of Operations, of Comprehensive (loss)/income, of Changesoperations, comprehensive loss, changes in Shareholders’ Equityshareholders’ equity and of Cash Flowscash flows for the years ended December 31, 2020 and December 31, 2019, and for the period from January 1,July 2, 2018 to July 1, 2018, and for each of the two years in the period ended December 31, 2017,2018, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the Consolidated Financial Statementsconsolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017,2020 and December 31, 2019, and the results of its operations and its cash flows for the period from January 1, 2018 to July 1, 2018, and for each of the two years in the period ended December 31, 20172020 and December 31, 2019, and for the period from July 2, 2018 to December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.


Substantial Doubt About the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, on February 10, 2021, the Company and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. Uncertainties inherent in the bankruptcy process raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis of Accounting


As discussed in Note 1 to the Consolidatedconsolidated financial statements, the United States Bankruptcy Court for the Southern District of Texas Victoria Division confirmed the Company's Second Amended Joint Chapter 11 Plan of Reorganization (the "plan") on April 17, 2018. Confirmation of the plan resulted in the discharge of all claims against the Company that arose before September 12, 2017 and substantially alters or terminates rights and interests of equity security holders as provided for in the plan. The plan was substantially consummated on July 2, 2018 and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of July 2, 2018.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on financial instruments in 2020.

As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of January 1, 2019.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit and risk committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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Table of Contents
Impairment of drilling units

As described in Notes 2, 12, and 21 to the consolidated financial statements, the Company’s carrying value of drilling units was $2,120 million as of December 31, 2020. Management reviews the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be appropriate. Management first assesses recoverability of the carrying value of the asset by estimating the undiscounted future net cash flows expected to be generated from the asset, including eventual disposal. If the undiscounted future net cash flows are less than the carrying value of the asset, then the carrying value of the asset is compared to the discounted future net cash flows, using a relevant weighted-average cost of capital. The impairment loss to be recognized during the period, is the amount by which the carrying value of the asset exceeds the discounted future net cash flows. As disclosed by management, cash flows used in the recoverability assessments are prepared for each rig based on the assumptions which are developed in the annual budgeting process and the five-year plan. These include assumptions about long-term day rates by rig, long-term economic utilization, contract probabilities, operating expenses, estimated maintenance and inspection costs, reactivation costs and timing for the cold stacked rigs, and recycling probability. The discount rate is considered to be a key assumption in the discounted future net cash flows. In 2020 management concluded that impairment triggering events had occurred for the drilling unit fleet which were: the oil price collapse at the beginning of 2020, main industry players have not completed scrapping programs as expected and management’s decision to retire a number of rigs over a five year period. This resulted in an impairment expense of $4,087 million during 2020.

The principal considerations for our determination that performing procedures relating to the impairment of drilling units is a critical audit matter are (i) the significant judgment made by management when developing the forecasted cash flows associated with drilling units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant estimates and assumptions related to long term day rates by rig, contract probabilities, reactivation timing for the cold stacked rigs, recycling probability and the discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) testing management’s process for developing the future net cash flows, (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness, accuracy, and relevance of the underlying data used in the model; and (iv) evaluating the significant estimates and assumptions used by management related to the long term day rates by rig, contract probabilities, reactivation timing for cold stacked rigs, recycling probability, and the weighted-average cost of capital used to determine the discount rate. Evaluating management’s significant estimates and assumptions involved evaluating whether the estimates and assumptions used by management were reasonable considering (i) the current and past performance of the drilling units; (ii) the consistency with external market and industry forecast data; (iii) sensitivity analysis to understand the impact of changes to significant assumptions and (iv) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s weighted-average cost of capital used to determine the discount rate.

Uncertain tax positions

As described in Notes 2 and 14 to the consolidated financial statements, the Company had a total amount of unrecognized tax benefits of $82 million as of December 31, 2020. As disclosed, management recognizes tax liabilities based on an assessment of whether their tax positions are more likely than not sustainable, based solely on the technical merits and considerations of the relevant taxing authorities widely understood administrative practices and precedence. Management recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While the annual tax provision is based on the information available to management at the time, a number of years may elapse before the ultimate tax liabilities in certain tax jurisdictions are determined.

The principal considerations for our determination that performing procedures relating to the uncertain tax positions is a critical audit matter are (i) the significant judgment applied by management to assess whether their tax positions are more likely than not sustainable; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s timely identification and accurate measurement of uncertain tax positions; (iii) the evaluation of audit evidence available to support the tax liabilities for uncertain tax positions is complex and resulted in significant auditor judgment as the nature of the evidence is often highly subjective; and (iv) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) testing the completeness, accuracy and relevance of data used in the calculation of the liability for uncertain tax positions, including agreements, and tax positions in various jurisdictions, and the related final tax returns; (ii) testing the model for calculating the liability for uncertain tax positions by jurisdiction, including management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained; and (iii) evaluating the status and results of income tax audits with the relevant tax authorities. Professionals with specialized skill and knowledge were used to assist in the evaluation of the completeness and measurement of the Company’s uncertain tax positions, including assessing the reasonableness of management’s determination whether tax positions are more-likely-than-not of being sustained and the amount of potential benefit to be realized, and the application of relevant tax laws.

Initial adoption of current expected credit losses (CECL) on related party receivables

As described in Notes 2, 3 and 6 to the consolidated financial statements, the Company adopted accounting standard update 2016-13 Measurement of Credit Losses on Financial Instruments effective January 1, 2020. On adoption of the CECL approach, management
F-3

Table of Contents
recognized an initial credit allowance of $143 million through opening retained earnings on January 1, 2020. The ECL allowance related primarily to subordinated loan receivables due from related parties. The allowance for credit losses reflects the net amount expected to be collected on the financial asset. As disclosed, management estimates the CECL allowance using a “probability-of-default” model, calculated by multiplying the exposure at default by the probability of default by the loss given default by a risk overlay multiplier over the life of the financial instrument (as defined by ASU 2016-13). Management’s critical assumptions relate to internal credit ratings and maturities used to determine probability of default, the subordination of debt to determine loss given default and the performance status of the receivable that can impact any management overlay.

The principal considerations for our determination that performing procedures relating to the initial adoption of current expected credit losses on related party receivables is a critical audit matter are the significant assumptions made by management when estimating the internal credit rating, maturities used to determine probability of default, and the risk overlay multiplier. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions. The audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) understanding and assessing management’s implementation of the new accounting standard, (ii) , testing the completeness, accuracy, and relevance of the data used in the estimate (iii) evaluating management’s process of estimating expected credit losses and the reasonableness of significant assumptions related to internal credit rating, maturities used to determine probability of default and risk overlay multiplier. Evaluating the significant assumptions used in the models involved assessing the reasonableness of the impact of external factors on management’s estimate of the maturity of the outstanding loan balances and risk overlay multiplier. Professionals with specialized skills assisted in testing the internal credit rating assumption and the appropriateness of the model applied.


/s/ PricewaterhouseCoopers LLP
Watford, United Kingdom
March 19, 2021


We have served as the Company's or its predecessor's auditor since 2013.



F-4

Table of Contents
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Seadrill Limited

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of operations, comprehensive loss, changes in shareholders’ equity and cash flows of Seadrill Limited and its subsidiaries (Predecessor) (the “Company”) for the period from January 1, 2018 to July 1, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the period from January 1, 2018 to July 1, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis of Accounting

As discussed inNote 1 to the consolidated financial statements, the Company filed a petition on September 12, 2017 with the United States Bankruptcy Court for the Southern District of Texas Victoria Division for reorganization under the provisions of Chapter 11 of the Bankruptcy Code. The Company’s Second Amended Joint Chapter 11 Plan of Reorganization was substantially consummated on July 2, 2018 and the Company emerged from bankruptcy. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting.


Basis for Opinion


These Consolidated Financial Statementsconsolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s Consolidated Financial Statementsconsolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits of these Consolidated Financial Statementsconsolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Consolidated Financial Statementsconsolidated financial statements are free of material misstatement, whether due to error or fraud.


Our audits included performing procedures to assess the risks of material misstatement of the Consolidated Financial Statements,consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Consolidated Financial Statements.consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Consolidated Financial Statements.consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.







/s/ PricewaterhouseCoopers LLP
Uxbridge, United Kingdom
March 28, 2019
We have served as the Company’s or its predecessorpredecessor's auditor since 2013.


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Table of Contents
Seadrill Limited
CONSOLIDATED STATEMENTS OF OPERATIONS
for the year ended December 31, 2020 (Successor), December 31, 2019 (Successor), the period from July 2, 2018 through December 31, 2018 (Successor), and the period from January 1, 2018 through July 1, 2018 (Predecessor) and the years ended December 31, 2017 (Predecessor) and 2016 (Predecessor).
(In $ millions, except per share data)
SuccessorPredecessor
NotesYear ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Operating revenues   
Contract revenues703 997 469 619 
Reimbursable revenues37 41 16 21 
Management contract revenue*289 338 56 38 
Other revenues9 *30 12 34 
Total operating revenues1,059 1,388 541 712 
Operating expenses   
Vessel and rig operating expenses(606)(726)(341)(417)
Reimbursable expenses(34)(39)(15)(18)
Depreciation(346)(426)(236)(391)
Amortization of intangibles(1)(134)(58)
Management contract expense*(390)(302)(44)(45)
Selling, general and administrative expenses(80)(95)(43)(47)
Total operating expenses(1,457)(1,722)(737)(918)
Other operating items
Loss on impairment of long-lived assets12(4,087)(414)
Loss on impairment of intangibles(21)
Gain on disposals15 
Other operating income*39 21 
Total other operating items10(4,084)39 21 (407)
Operating loss(4,482)(295)(175)(613)
Financial and other non-operating items   
Interest income*34 69 40 19 
Interest expense11(469)(487)(261)(38)
Loss on impairment of investments13(47)(302)
Share in results from associated companies (net of tax)20(77)(115)(90)149 
Fair value measurement on deconsolidation of VIE36 *509 
Loss on derivative financial instrument(37)(31)(4)
Loss impairment of convertible bond from related party*(29)(11)
Net loss on debt extinguishment(22)
Foreign exchange loss
(23)(11)(4)
Loss on marketable securities
17(3)(46)(64)(3)
Reorganization items, net
4(9)(3,365)
Other financial and non-operating items
*(71)(4)(3)
Total financial and other non-operating items, net(176)(966)(422)(3,242)
Loss before income taxes(4,658)(1,261)(597)(3,855)
Income tax (expense)/benefit14(5)39 (8)(30)
Net loss(4,663)(1,222)(605)(3,885)
Net loss attributable to the parent(4,659)(1,219)(602)(3,881)
Net loss attributable to the non-controlling interest(3)(1)(2)(6)
Net (loss)/gain attributable to the redeemable non-controlling interest(1)(2)(1)2 
Basic loss per share (U.S. dollar)(46.43)(12.18)(6.02)(7.71)
Diluted loss per share (U.S. dollar)(46.43)(12.18)(6.02)(7.71)
  Successor Predecessor
 NotesPeriod from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Twelve Months Ended 
 December 31, 2017

 Twelve Months Ended 
 December 31, 2016

Operating revenues        
Contract revenues 469
 619
 1,888
 2,850
Reimbursable revenues 26
 21
 38
 66
Other revenues8 *46
 72
 162
 253
Total operating revenues 541
 712
 2,088
 3,169
         
Operating expenses        
Vessel and rig operating expenses*(357) (407) (792) (1,015)
Reimbursable expenses (24) (20) (35) (61)
Depreciation (236) (391) (798) (810)
Amortization of intangibles (58) 
 
 
General and administrative expenses*(62) (100) (277) (234)
Total operating expenses (737) (918) (1,902) (2,120)
         
Other operating items        
Impairment of long lived assets 

(414)
(696) (44)
Loss on disposals9 *



(245) 
Other operating income*21
 7
 27
 21
Total other operating items 21
 (407) (914) (23)
         
Operating (loss)/income (175) (613) (728) 1,026
         
Financial and other non-operating items      
  
Interest income*40
 19
 60
 66
Interest expense10 *(261) (38) (285) (412)
Loss on impairment of investments11



(841) (895)
Share in results from associated companies (net of tax)18(90) 149
 174
 283
(Loss)/gain on derivative financial instruments31 *(31)
(4)
11
 (74)
Gain on debt extinguishment 
 
 19
 47
Foreign exchange (loss)/gain (4) 
 (65) 18
Loss on marketable securities15(64)
(3)

 
Reorganization items, net4(9)
(3,365)
(1,337) 
Other financial and non-operating items*(3) 
 (44) (15)
Total financial and other non-operating items (422) (3,242) (2,308) (982)
         
(Loss)/income before income taxes (597) (3,855) (3,036) 44
         
Income tax expense12(8) (30) (66) (199)
Net loss (605) (3,885) (3,102) (155)
         
Net loss attributable to the parent (602) (3,881) (2,973) (181)
Net (loss)/gain attributable to the non-controlling interest (2) (6) (129) 26
Net (loss)/gain attributable to the redeemable non-controlling interest (1) 2
 
 
         
Basic loss per share (U.S. dollar) (6.02) (7.71) (5.89) (0.36)
Diluted loss per share (U.S. dollar) (6.02) (7.71) (5.89) (0.36)
* Includes transactions with related parties. Refer to Note 3032 - "Related party transactions". for further details.
See accompanying notes that are an integral part of these Consolidated Financial Statements.


F-6

Table of Contents
Seadrill Limited
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOMELOSS
for the year ended December 31, 2020 (Successor), December 31, 2019 (Successor), the period from July 2, 2018 through December 31, 2018 (Successor), and the period from January 1, 2018 through July 1, 2018 (Predecessor) and the years ended December 31, 2017 (Predecessor) and 2016 (Predecessor).
(In $ millions)
 
 Successor Predecessor
 Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Twelve months ended December 31, 2017
 Twelve months ended December 31, 2016
Net loss(605) (3,885) (3,102) (155)
        
Other comprehensive income/(loss), net of tax: 
    
  
Unrealized gain on marketable securities
 
 14
 17
Change in fair value of debt component of Archer convertible bond(3) 
 
 
Other than temporary impairment of marketable securities,
reclassification to Statement of Operations

 
 
 153
Actuarial gain/(loss) relating to pensions1
 
 (3) 22
Unrealized gain on interest rate swaps in VIEs and subsidiaries
 
 2
 1
Share of other comprehensive (loss)/income from associated
companies
(5) 
 (8) 10
Other comprehensive (loss)/income:(7) 
 5
 203
        
Total comprehensive (loss)/income for the period(612) (3,885) (3,097) 48
        
Comprehensive (loss)/income attributable to the parent(609) (3,881) (2,976) 14
Comprehensive (loss)/income attributable to the non-controlling interest(2) (6) (121) 34
Comprehensive (loss)/income attributable to the redeemable non-controlling interest(1) 2
 
 
SuccessorPredecessor
 Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Net loss(4,663)(1,222)(605)(3,885)
Other comprehensive (loss)/income, net of tax:   
Change in fair value of debt component of Archer convertible bond(3)
Actuarial (loss)/gain relating to pensions(2)(1)
Share of other comprehensive loss from associated
companies
(15)(8)(5)
Other comprehensive loss(13)(6)(7)0 
Total comprehensive loss for the period(4,676)(1,228)(612)(3,885)
Comprehensive loss attributable to the parent(4,672)(1,225)(609)(3,881)
Comprehensive loss attributable to the non-controlling interest(3)(1)(2)(6)
Comprehensive (loss)/income attributable to the redeemable non-controlling interest(1)(2)(1)2 
 
See accompanying notes that are an integral part of these Consolidated Financial Statements.









F-7

Table of Contents
Seadrill Limited
CONSOLIDATED BALANCE SHEETS
Asas at December 31, 2018 (Successor)2020 and 2017 (Predecessor)2019
(In $ millions)
 Successor
 Predecessor
NotesDecember 31, 2020December 31, 2019
Notes2018

2017
ASSETS
 


ASSETS 
Current assets
 
 Current assets  
Cash and cash equivalents
1,542

1,255
Cash and cash equivalents526 1,115 
Restricted cash14461

104
Restricted cash16132 135 
Marketable securities1557

124
Marketable securities1711 
Accounts receivables, net16208

295
Accounts receivables, net18125 173 
Amount due from related parties - current30177

217
Amount due from related parties, netAmount due from related parties, net3285 181 
Other current assets17322

257
Other current assets19186 158 
Total current assets
2,767

2,252
Total current assets1,062 1,773 
Non-current assets
 
 Non-current assets  
Investment in associated companies18800

1,473
Investment in associated companies20248 389 
Newbuildings19

248
Drilling units206,659

13,216
Drilling units212,120 6,401 
Restricted cashRestricted cash1665 107 
Deferred tax assets1218

10
Deferred tax assets14
Equipment2129

29
Equipment2219 23 
Amount due from related parties - non-current30539

547
Assets held for sale36

126
Amount due from related parties, netAmount due from related parties, net32392 523 
Other non-current assets1736

81
Other non-current assets1946 59 
Total non-current assets
8,081

15,730
Total non-current assets2,899 7,506 
Total assets
10,848

17,982
Total assets3,961 9,279 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY
 
 LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY  
Current liabilities
 
 Current liabilities  
Debt due within one year2233

509
Debt due within one year236,177 343 
Trade accounts payable
82

72
Trade accounts payable45 86 
Amounts due to related parties - current3039

10
Amounts due to related parties - current3219 
Other current liabilities23310

268
Other current liabilities24316 322 
Total current liabilities
464

859
Total current liabilities6,545 770 
Liabilities subject to compromise5

9,191
Non-current liabilities
 
 Non-current liabilities  
Long-term debt226,881

485
Long-term debt236,280 
Long-term debt due to related parties30222

314
Long-term debt due to related parties32426 239 
Deferred tax liabilities1287

107
Deferred tax liabilities1410 12 
Other non-current liabilities23121

67
Other non-current liabilities24120 128 
Total non-current liabilities
7,311

973
Total non-current liabilities556 6,659 
Commitments and contingencies (see note 32)


 

Commitments and contingencies (see Note 35)Commitments and contingencies (see Note 35)00
Redeemable non-controlling interest2638


Redeemable non-controlling interest280 57 
Equity
 
 
Common shares of par value US$0.10 per share: 111,000,000 shares authorized and 100,000,000 issued at December 31, 2018 (Successor) (Common shares of par value US$2.00 per share: 800,000,000 shares authorized and 504,518,940 issued at December 31, 2017 (Predecessor)2410

1,008
EQUITYEQUITY  
Common shares of par value US$0.10 per share: US$0.10 per share: 138,880,000 shares authorized and 100,384,435 issued at December 31, 2020 (US$0.10 per share: 138,880,000 shares authorized and 100,234,973 issued at December 31, 2019)Common shares of par value US$0.10 per share: US$0.10 per share: 138,880,000 shares authorized and 100,384,435 issued at December 31, 2020 (US$0.10 per share: 138,880,000 shares authorized and 100,234,973 issued at December 31, 2019)2610 10 
Additional paid in capital
3,491

3,313
Additional paid in capital3,504 3,496 
Contributed surplus


1,956
Accumulated other comprehensive (loss)/income
(7)
58
Retained (loss)/earnings
(611)
225
Total Shareholder's equity
2,883

6,560
Accumulated other comprehensive lossAccumulated other comprehensive loss(26)(13)
Retained lossRetained loss(6,628)(1,851)
Total Shareholder's (deficit)/equityTotal Shareholder's (deficit)/equity(3,140)1,642 
Non-controlling interest25152

399
Non-controlling interest27151 
Total equity
3,035

6,959
Total (deficit)/equityTotal (deficit)/equity(3,140)1,793 
Total liabilities, redeemable non-controlling interest and equity
10,848

17,982
Total liabilities, redeemable non-controlling interest and equity3,961 9,279 
See accompanying notes that are an integral part of these Consolidated Financial Statements.

F-8

Table of Contents
Seadrill Limited
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the year ended December 31, 2020 (Successor), December 31, 2019 (Successor), the period from July 2, 2018 through December 31, 2018 (Successor), and the period from January 1, 2018 through July 1, 2018 (Predecessor) and the years ended December 31, 2017 (Predecessor) and 2016 (Predecessor).
(In $ millions)
SuccessorPredecessor
 Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Cash Flows from Operating Activities   
Net loss(4,663)(1,222)(605)(3,885)
Adjustments to reconcile net loss to net cash provided by operating activities: 
Depreciation346 426 236 391 
Amortization of unfavorable and favorable contracts134 58 (21)
Share of results from associated companies77 115 90 (149)
Impairment of investments47 302 
Contingent consideration realized(7)
Gain on disposals(15)
Unrealized loss related to derivatives37 31 
Fair value measurement on deconsolidation of VIE(509)
Payment in kind interest14 15 (15)
Loss on impairment of long-lived assets4,087 414 
Loss on impairment of intangibles21 
Deferred tax benefit(7)(61)(22)
Unrealized foreign exchange loss19 
Amortization of discount on debt122 36 23 
Change in allowance for credit losses166 
Impairment of convertible bond from related party29 11 
Net loss on debt extinguishment22 
Unrealized loss on marketable securities46 64 3��
Non-cash gain on liabilities subject to compromise(2,977)
Fresh start valuation adjustments6,142 
Other re-organization items
Other(3)
Other cash movements in operating activities
Distributions received from associated companies11 32 17 
Payments for long-term maintenance(121)(114)(71)(78)
Settlement of payment-in-kind interest on Senior Secured Notes(39)
Changes in operating assets and liabilities, net of effect of acquisitions and disposals  
Trade accounts receivable48 35 64 29 
Trade accounts payable(38)(31)
Prepaid expenses/accrued revenue(52)(1)12 42 
Deferred revenue(5)13 21 (23)
Related party receivables(105)(14)22 
Related party payables(5)(4)54 (42)
Other assets30 (12)(20)(62)
Other liabilities80 10 (10)
Net cash used in operating activities(420)(256)(26)(213)




F-9

 Successor Predecessor
 Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
 Year ended December 31, 2016
Cash Flows from Operating Activities       
Net loss(605) (3,885) (3,102) (155)
Adjustments to reconcile net loss to net cash provided by operating activities:       
Depreciation236
 391
 798
 810
Amortization of deferred loan charges
 
 27
 45
Amortization of unfavorable and favorable contracts58
 (21) (43) (65)
Share of results from associated companies90
 (149) (174) (283)
Share-based compensation expense
 3
 7
 8
Loss on disposals
 
 245
 
Contingent consideration realized
 (7) (27) (21)
Interest unwind on contingent consideration assets(1) 
 
 
Unrealized loss/(gain) related to derivative financial instruments31
 4
 (76) (67)
Loss on impairment of long-lived assets
 414
 696
 44
Loss on impairment of investments
 
 841
 895
Deferred tax (benefit)/expense(22) 
 7
 73
Unrealized foreign exchange loss/(gain) on long-term debt
 
 59
 (5)
Amortization of discount on debt23
 
 
 
Gain on derecognition of investment in associated company
 
 (10) 
Gain on debt extinguishment
 
 (19) (47)
Unrealized loss on marketable securities64
 3
 
 
Non-cash gain on liabilities subject to compromise
 (2,977) 
 
Fresh start valuation adjustments
 6,142
 
 
Other re-organization items

6
 1,274


Other(2) (1) (2) (2)
Other cash movements in operating activities       
Distributions received from associated companies32
 17
 39
 55
Payments for long-term maintenance(71) (78) (58) (95)
Changes in operating assets and liabilities, net of effect of acquisitions and disposals       
Trade accounts receivable64
 29
 167
 256
Trade accounts payable(31) 4
 (9) (55)
Prepaid expenses/accrued revenue12
 42
 (66) 15
Deferred revenue21
 (23) (107) (168)
Related party receivables7
 (13) (42) 2
Related party payables54
 (42) (44) (35)
Other assets(20) (62) 93
 55
Other liabilities34
 (10) (75) (76)
Net cash (used in)/provided by operating activities(26) (213) 399
 1,184
Table of Contents


Seadrill Limited
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
for the year ended December 31, 2020 (Successor), December 31, 2019 (Successor), the period from July 2, 2018 through December 31, 2018 (Successor) and the period from January 1, 2018 through July 1, 2018 (Predecessor) and the years ended December 31, 2017 (Predecessor) and 2016 (Predecessor).
(In $ millions)
SuccessorPredecessor
 Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Cash Flows from Investing Activities   
Additions to newbuildings(1)
Additions to drilling units and equipment(27)(48)(27)(48)
Purchase of call option for non-controlling interest shares(11)
Contingent consideration received32 32 65 48 
Loans granted to related party(8)
Sale of rigs and equipment126 
Impact to cash resulting from deconsolidation of VIE(22)
Investment in associated companies(25)
Payments received from loans granted to related parties15 23 24 
Net cash (used in)/provided by investing activities(32)(26)61 149 
Cash Flows from Financing Activities   
Proceeds from debt875 
Repayments of secured credit facilities(132)(34)(83)(153)
Redemption of Senior Secured Notes(333)(121)
Debt fees paid(4)(35)
Purchase of redeemable AOD non-controlling interest(31)
Proceeds from issuance of shares200 
Net cash (used in)/provided by financing activities(163)(367)(208)887 
Effect of exchange rate changes on cash and cash equivalents(19)(1)(5)
Net (decrease)/increase in cash and cash equivalents, including restricted cash(634)(646)(174)818 
Cash and cash equivalents, including restricted cash, at beginning of the year1,357 2,003 2,177 1,359 
Cash and cash equivalents, including restricted cash, at the end of year723 1,357 2,003 2,177 
Supplementary disclosure of cash flow information 
Interest paid, net of capitalized interest(181)(391)(178)(38)
Taxes paid(13)(36)(16)(22)
 Successor Predecessor
 Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
 Year ended December 31, 2016
Cash Flows from Investing Activities       
Additions to newbuildings
 (1) (33) (52)
Additions to drilling units and equipment(27) (48) (59) (84)
Refund of yard installments
 
 25
 53
Contingent consideration received65
 48
 95
 95
Settlement of West Mira

 
 170
 
Sale of rigs and equipment
 126
 122
 
Buyout of guarantee
 
 (28) 
Investment in associated companies
 
 
 (16)
Payments received from loans granted to related parties23
 24
 66
 283
Loans granted to related parties
 
 
 (120)
Proceeds from disposal of marketable securities
 
 
 195
Net cash provided by investing activities61
 149
 358
 354
        
Cash Flows from Financing Activities       
Proceeds from debt
 875
 
 
Repayments of debt(83) (153) (754) (1,253)
Mandatory redemption of New Secured Notes(121) 
 
 
Debt fees paid(4) (35) (53) (31)
Repayments of debt to related party
 
 (39) (103)
Dividends paid to non-controlling interests
 
 
 (7)
Purchase of treasury shares
 
 
 (10)
Cash settlement of restricted stock units


 

(1)
Proceeds from issuance of shares
 200
 
 
Net cash (used in)/provided by financing activities(208) 887
 (846) (1,405)
        
Effect of exchange rate changes on cash and cash equivalents(1) (5) 5
 18
        
Net (decrease)/increase in cash and cash equivalents, including restricted cash(174) 818
 (84) 151
Cash and cash equivalents, including restricted cash, at beginning of the year2,177
 1,359
 1,443
 1,292
Cash and cash equivalents, including restricted cash, at the end of year2,003
 2,177
 1,359
 1,443
        
Supplementary disclosure of cash flow information       
Interest paid, net of capitalized interest(178) (38) (264) (400)
Taxes paid(16) (22) (119) (123)


See accompanying notes that are an integral part of these Consolidated Financial Statements.



F-10

Table of Contents
Seadrill Limited
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the year ended December 31, 2020 (Successor), December 31, 2019 (Successor), theperiod from July 2, 2018 through December 31, 2018 (Successor), and the period from January 1, 2018 through July 1, 2018 (Predecessor) and the years ended December 31, 2017 (Predecessor) and 2016 (Predecessor).
(In $ millions)

Common sharesAdditional paid in capitalContributed surplusAccumulated other comprehensive income/(loss)Retained EarningsTotal equity before NCINon-controlling interestTotal equity
 Common shares
 Additional paid in capital
 Contributed surplus
 Accumulated other comprehensive income/(loss)
 Retained Earnings
 Total equity before NCI
 Non-controlling interest
 Total equity
Balance at December 31, 2015 (Predecessor) 985
 3,275
 1,956
 (142) 3,379
 9,453
 615
 10,068
Purchase of treasury shares (8) (2) 
 
 
 (10) 
 (10)
Share-based compensation charge 
 7
 
 
 
 7
 
 7
Cash settlement of vested restricted stock units 
 (1) 
 
 
 (1) 
 (1)
Conversion of convertible bond 31
 27
 
 
 
 58
 
 58
Recognition of non-controlling interest 
 
 
 
 
 
 6
 6
Other comprehensive income 
 
 
 195
 
 195
 8
 203
Distributions to Non-controlling interests 
 
 
 
 
 
 (113) (113)
Net loss 
 
 
 
 (181) (181) 26
 (155)
Balance at December 31, 2016 (Predecessor) 1,008
 3,306
 1,956
 53
 3,198
 9,521
 542
 10,063
Share-based compensation charge 
 7
 
 
 
 7
 
 7
Other comprehensive income 
 
 
 5
 
 5
 
 5
Distributions to non-controlling interests 
 
 
 
 
 
 (14) (14)
Net loss 
 
 
 
 (2,973) (2,973) (129) (3,102)
Balance at December 31, 2017 (Predecessor) 1,008
 3,313
 1,956
 58
 225
 6,560
 399
 6,959
December 31, 2017 (Predecessor)December 31, 2017 (Predecessor)1,008 3,313 1,956 58 225 6,560 399 6,959 
ASU 2016-01 - Financial Instruments






(31)
31






ASU 2016-01 - Financial Instruments— — — (31)31  — 0 
ASU 2016-16 - Income Taxes








(59)
(59)
(25)
(84)ASU 2016-16 - Income Taxes— — — — (59)(59)(25)(84)
ASU 2016-09 - Revenue from contracts








7

7



7
ASU 2016-09 - Revenue from contracts— — — — 7 — 7 
Share-based compensation charge 
 9
 
 
 
 9
 
 9
Share-based compensation charge— — — — 9 — 9 
Reclassification of non-controlling interest 
 
 
 
 (43) (43) 43
 
Reclassification of non-controlling interest— — — — (43)(43)43 0 
Revaluation of redeemable non-controlling interest 
 
 
 
 127
 127
 (150) (23)Revaluation of redeemable non-controlling interest— — — — 127 127 (150)(23)
Net loss 
 
 
 
 (3,881) (3,881) (6) (3,887)Net loss— — — — (3,881)(3,881)(6)(3,887)
Balance at July 1, 2018 (Predecessor) 1,008

3,322

1,956

27

(3,593)
2,720

261

2,981
July 1, 2018 (Predecessor)July 1, 2018 (Predecessor)1,008 3,322 1,956 27 (3,593)2,720 261 2,981 
Cancellation of Predecessor equity (1,008)
(3,322)
(1,956)
(27)
3,593

(2,720)
(107)
(2,827)Cancellation of Predecessor equity(1,008)(3,322)(1,956)(27)3,593 (2,720)(107)(2,827)
Balance at July 1, 2018 (Predecessor) 











154

154
July 1, 2018 (Predecessor)July 1, 2018 (Predecessor)0 0 0 0 0 0 154 154 
Issuance of Successor common stock
10

3,491







3,501



3,501
Issuance of Successor common stock10 3,491 3,501 3,501 
Balance at July 2, 2018 (Successor) 10

3,491







3,501

154

3,655
July 2, 2018 (Successor)July 2, 2018 (Successor)10 3,491 0 0 0 3,501 154 3,655 
Revaluation of redeemable non-controlling interest








(9)
(9)


(9)Revaluation of redeemable non-controlling interest— — — — (9)(9)— (9)
Net Loss








(602)
(602)
(2)
(604)Net Loss— — — — (602)(602)(2)(604)
Other comprehensive loss






(7)


(7)


(7)Other comprehensive loss— — — (7)— (7)— (7)
Balance at December 31, 2018 (Successor) 10

3,491



(7)
(611)
2,883

152

3,035
December 31, 2018 (Successor)December 31, 2018 (Successor)10 3,491 0 (7)(611)2,883 152 3,035 
Net lossNet loss— — — — (1,219)(1,219)(1)(1,220)
Other comprehensive lossOther comprehensive loss— — — (6)— (6)— (6)
Fair Value adjustment AOD Redeemable NCIFair Value adjustment AOD Redeemable NCI— — — — (21)(21)— (21)
Share-based compensation chargeShare-based compensation charge— — — — 5 — 5 
December 31, 2019 (Successor)December 31, 2019 (Successor)10 3,496 0 (13)(1,851)1,642 151 1,793 
ASU 2016-13 - Measurement of credit losses on financial instrumentsASU 2016-13 - Measurement of credit losses on financial instruments— — — — (143)(143)— (143)
Net lossNet loss— — — — (4,659)(4,659)(3)(4,662)
Other comprehensive lossOther comprehensive loss— — — (13)— (13)— (13)
Fair Value adjustment AOD Redeemable NCIFair Value adjustment AOD Redeemable NCI— — — — 25 25 — 25 
Purchase option on non-controlling interestPurchase option on non-controlling interest— — — — —  (11)(11)
Deconsolidation of VIEDeconsolidation of VIE— — — — —  (137)(137)
Share-based compensation chargeShare-based compensation charge— — — — 9 — 9 
Cash settlement for cancellation of share schemeCash settlement for cancellation of share scheme(1)(1)— (1)
December 31, 2020 (Successor)December 31, 2020 (Successor)10 3,504 0 (26)(6,628)(3,140)0 (3,140)
 
See accompanying notes that are an integral part of these Consolidated Financial Statements.







F-11

Table of Contents
Seadrill Limited
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 – General information
Seadrill Limited is incorporated in Bermuda and is a publicly listed company on the New York Stock Exchange and the Oslo Stock Exchange. We provide offshore drilling services to the oil and gas industry.industry. As at December 31, 20182020 we owned and operated 3534 offshore drilling units and an option to acquire on semi-submersible rig. units. Our fleet consists of drillships, jack-up rigs and semi-submersible rigs for operations in shallow and deepwater areas, as well as benign and harsh environments. We also provide management services to our related parties Seadrill Partners, SeaMex, Northern DrillingOcean and SeaMex.

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

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

At the start of the year ended December 31, 2020 we were also listed on the New York Stock Exchange ("NYSE"). On March 26, 2020 we received a written notice from the NYSE that we were not in compliance with listing rules as our average closing share price had fallen below $1 over a period of 30 consecutive trading days. On April 8, 2020 we provided the required notice to the NYSE stating our intention to seek a cure of our non-compliance. However due to the impact of the coronavirus pandemic on the offshore drilling industry the Board of Directors determined that delisting was in the best interests of the Company. We announced our decision to delist on June 1, 2020 and filed a Form 25 with the SEC on June 11, 2020. We stopped trading on this exchange on June 19, 2020. Our common shares currently trade on the over-the-counter (OTC) market under the ticker symbol SDRLF. We will continue to be listed on the Oslo Stock Exchange.
Chapter 11 Proceedings and going concern
Since the mid-2010s, the industry has experienced a sustained decline in oil prices which has culminated in an industry-wide supply and demand imbalance. During this period, market dayrates for drilling rigs have been lower than was anticipated when the debt associated with acquiring our rigs was incurred. This challenging business climate was further destabilized by challenges that have arisen due to the COVID-19 pandemic. The actions taken by governmental authorities around the world to mitigate the spread of COVID-19 have had a significant negative effect on oil consumption. This has led to a further decrease in the demand for our services and has had an adverse impact on our business and financial condition.
Since the end of 2019, we have been working with senior creditors to provide a solution to Seadrill's high cash outflow for debt service. In June, 2020, we announced that we had appointed financial advisors to evaluate comprehensive restructuring alternatives to reduce debt service costs and overall indebtedness.
In September 2020, we ceased making interest payments on our secured credit facilities which constituted an event of default. Furthermore, this triggered cross-defaults on the senior secured notes and leasing agreements in respect of the West Hercules, West Linus and West Taurus with subsidiaries of SFL Corporation Limited. The events of default meant that amounts due on the secured credit facilities and senior notes became callable on demand. As of December 31, 2020, we had $6,177 million in principal amount of these debt obligations. Our available resources would not have been sufficient to repay these obligations were they called.
On February 7, 2021 and February 10, 2021 Seadrill Limited and most of its subsidiaries ("the Debtors") filed voluntary petitions for reorganization under Chapter 11, triggering a stay on enforcement of remedies with respect to our debt obligations. As part of the Chapter 11 Proceedings, the Debtors were granted “first-day” relief which enables us to continue operations without interruption. We are currently in negotiations to enter into a restructuring support agreement with certain lenders regarding a comprehensive restructuring transaction to be implemented pursuant to a plan of reorganization. The outcome of this process and future capital structure is not yet determined but it remains likely that it will involve significant equitization of debt and thereby material reductions to current shareholder positions.
As of December 31, 2020, Seadrill had cash and cash equivalents of $723 million of which $526 million was unrestricted and we have implemented, and will continue to implement, various measures to preserve liquidity. These include an increased focus on operating efficiency, reductions in corporate and overhead expenditures, and deferrals of capital expenditures. Whilst we believe this should provide sufficient liquidity for the 12 month period from the issuance of these financial statements to allow us to complete a comprehensive restructuring, the process is difficult to predict and subject to factors outside of our control. We are subject to numerous risks associated with the bankruptcy proceedings and there can be no assurance that we will agree a plan of reorganization that is acceptable to our creditors, nor that the Bankruptcy Court would confirm such a plan once agreed.
These conditions and events raise substantial doubt as to our ability to continue as a going concern for the twelve months after the date our financial statements are issued. Financial information in this report has been prepared on a going concern basis of accounting, which presumes that we will be able to realize our assets and discharge our liabilities in the normal course of business as they come due. Financial information in this report does not reflect the adjustments to the carrying values of assets, liabilities and the reported expenses and balance sheet classifications that would be necessary if we were unable to realize our assets and settle our liabilities as a going concern in the normal course of operations. Such adjustments could be material.

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Basis of presentation
The Consolidated Financial Statements are presented in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). The amounts are presented in United States dollar ("U.S. dollar"dollar" or "US$"US$") rounded to the nearest million, unless otherwise stated.
The accompanying Consolidated Financial Statements presentinclude the financial positionstatements of Seadrill Limited, theits consolidated subsidiaries and any variable interest entity ("VIE") in which we are the group’s interest in associated entities. Investmentsprimary beneficiary.
Basis of consolidation
We consolidate investments in companies in which we control or directly or indirectly holds more than 50% of the voting control are consolidated in the Consolidated Financial Statements, as well as certain variable interestrights.
We also consolidate entities of which we are deemed to be the primary beneficiary.

Basis of consolidation
The Consolidated Financial Statements include our assets and liabilities, our majority owned and controlled subsidiaries and certain variable interest entities, (“VIE”s) in which we hold a variable interest where we are deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated on consolidation.
beneficiary of the entity. A VIE is defined as a legal entity where either (a) the total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) equity interest holders as a group lack either (i) the power to direct the activities of the entity that most significantly impact on its economic success,performance, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the voting rights of some investors in the entity are not proportional to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. U.S. GAAP requiresWe are the primary beneficiary of a VIE to be consolidated by its primary beneficiary, being the interest holder, if any, which haswhen we have both (1) the power to direct the activities of the entity which most significantly impact on the entity’s economic performance, and (2) the right to receive benefits or the obligation to absorb losses from the entity which could potentially be significant to the entity. We evaluate our subsidiaries, and any other entities in which
Subsidiaries, even if fully owned, are excluded from the Consolidated Financial Statements if we hold a variable interest, in order to determine whether we are not the primary beneficiary ofunder the entity,variable interest model. All intercompany balances and where it is determined that we are the primary beneficiary we consolidate the entity.
Wetransactions have certain investments in the common stock or in-substance common stock of associated companies. Refer to Note 2 – Accounting policiesfor further information on our equity investments.

been eliminated.
Bankruptcy accounting

As set out in Note 4 - Chapter 11 Proceedings, weWe operated as a debtor-in-possession from September 12, 2017 to July 2, 2018. During this period, we prepared our Consolidated Financial Statements under Accounting Standards Codification 852, Reorganizations ("ASC 852"852"). ASC 852 required that the financial statements distinguished transactions and events that were directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that were realized or incurred in the bankruptcy proceedings were recorded in “Reorganization items" on our Consolidated Statements of Operations. In addition, ASC 852 required changes in the accounting and presentation of significant items on the Consolidated Balance Sheets, particularly liabilities. Pre-petition obligations that may have been impacted by the Previous Chapter 11 reorganization process were classified on the Consolidated Balance Sheets within "Liabilities subject to compromise". For details of the Previous Chapter 11 process, refer to Note 4- "Previous Chapter 11 Proceedings".


Fresh Start Reporting

Upon emergence from bankruptcy on July 2, 2018 (the "Effective Date""Effective Date"), in accordance with ASC 852, related to fresh start reporting, Seadrill Limited became a new entity for financial reporting purposes. Upon adoption ofThis meant fresh start reporting with our assets and liabilities were recorded at their fair values. For details of the fresh start reporting refer to Note 5 - "Fresh Start Accounting".
We elected to apply fresh start reporting effective July 2, 2018 (the “Convenience Date”Convenience Date) to coincide with the timing of our normal third quarter reporting period. We evaluated and concluded that events between July 1, 2018 and July 2, 2018 were immaterial and use of an accounting convenience date was appropriate. The fair values of our assets and liabilities differed materially from the recorded values of our assets and liabilities as reflected in the Predecessor historical Consolidated Balance Sheets. The effects of the Planreorganization plan and the application of fresh start accounting were applied as of July 2, 2018 and the2018. The new basis of our assets and liabilities are reflected in our Consolidated Balance Sheet as of December 31, 2018 and the related adjustments thereto were recorded in the Consolidated Statement of Operations of the Predecessor as "Reorganization items", with the related predominantly deferred tax effects through "Income tax expense", during the period from January 1, 2018 throughto July 1, 2018.

Accordingly, our Consolidated Financial Statements subsequent to July 2, 2018 are not and will not be comparable to the Predecessor Consolidated Financial Statements prior to the Convenience Date. Our Consolidated Financial Statements and related footnotes are presented with a black line division which delineates the lack of comparability between amounts presented on July 2, 2018 and dates prior. Our financial results for future periods following the application of fresh start accounting will beare different from historical trends and the differences may be material.

Going concern

In our Form 20-F covering our annual report for the fiscal year ended December 31, 2017, issued on April 12, 2018, we reported that uncertainties linked to our Chapter 11 Re-organization gave rise to a substantial doubt over our ability to continue as a going concern for a period of at least twelve months after the date the financial statements were issued.

As set out in Note 4 - Chapter 11 Proceedings, we emerged from the Chapter 11 and completed our plan of reorganization on July 2, 2018. This addressed our liquidity concerns as it provided for $1.08 billion of new capital, extinguished approximately $2.4 billion in unsecured bond obligations and approximately $250 million in unsecured interest rate and currency swaps, eliminated near-term amortization obligations and extended maturities on debt. We emerged from Chapter 11 with $2.2 billion of post emergence cash and $7.6 billion of outstanding debt principal. We believe that cash on hand, liquid investments, contract and other revenues will generate sufficient cash flow to fund our anticipated debt service and working capital requirements for the next twelve months. Therefore, there is no longer a substantial doubt over our ability to continue as a going concern for at least the twelve months after the date the financial statements are issued.

Out of period adjustment

The financial statements for the period from January 1, 2018 through July 1, 2018 (Predecessor) include an income tax expense of $18 million due to an adjustment in the income tax charge for a subsidiary related to prior years. We considered the effect of this prior period correction not to be material in the context of the overall results for the period from January 1, 2018 through July 1, 2018 (Predecessor), the year ended December 31, 2017 (Predecessor), or to any previously reported quarterly or annual financial statements.

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Presentation of rig management revenues and expenses
In 2019, we entered into management contracts with Sonadrill and Northern Ocean which increased the volume of activity where we are managing rigs on behalf of other parties. We have therefore separately presented the revenues and expenses relating to arrangements where we provide management or operational services as separate line items.
We have recast the comparative figures in the Consolidated Statement of Operations. The table below shows effects of this reclassification on the previously reported numbers.
Consolidated Statement of Operations for the year ended December 31, 2019 (Successor)
(In $ millions)  As previously reportedAdjustmentAs currently reported
Reimbursable revenues264 (223)41 
Management contract revenues338 338 
Other revenues127 (115)12 
Vessel and rig operating expenses(770)44 (726)
Reimbursable expenses(262)223 (39)
Management contract expenses(302)(302)
Selling, general and administrative expenses(130)35 (95)

Consolidated Statement of Operations for the period from July 2, 2018 through December 31, 2018 (Successor)
(In $ millions)  As previously reportedAdjustmentAs currently reported
Reimbursable revenues26 (10)16 
Management contract revenues56 56 
Other revenues46 (46)
Vessel and rig operating expenses(357)16 (341)
Reimbursable expenses(24)(15)
Management contract expenses(44)(44)
Selling, general and administrative expenses(62)19 (43)

Consolidated Statement of Operations for the period from January 1, 2018 through July 1, 2018 (Predecessor)
(In $ millions)  As previously reportedAdjustmentAs currently reported
Reimbursable revenues21 21 
Management contract revenues38 38 
Other revenues72 (38)34 
Vessel and rig operating expenses(407)(10)(417)
Reimbursable expenses(20)(18)
Management contract expenses(45)(45)
Selling, general and administrative expenses(100)53 (47)
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Note 2 – Accounting policies
The accounting policies set out below have been applied consistently to all periods in these Consolidated Financial Statements, unless otherwise noted.

Allowance for credit losses
UseWe adopted accounting standard update 2016-13 Measurement of estimatesCredit Losses on Financial Instruments effective January 1, 2020. The new guidance replaces the “incurred loss” model required under the previous guidance with a current “expected credit loss” (or CECL) model. The CECL model requires recognition of expected credit losses over the life of a financial asset upon its initial recognition. Comparative periods are presented under the previous guidance with an allowance against a receivable balance recognized only if it was probable that we would not recover the full amount due to us. We determined doubtful accounts on a case-by-case basis and considered the financial condition of the customer as well as specific circumstances related to the receivable such as customer disputes.

PreparationThe CECL model contemplates a broader range of financial statements in accordance with accounting principles generally accepted ininformation to estimate expected credit losses over the United Statescontractual lifetime of an asset. It also requires management to make estimatesconsider the risk of loss even if it is remote. We estimate expected credit losses based on relevant information about past events, including historical experience, current conditions, and assumptions thatreasonable and supportable forecasts of events which may affect the reported amountscollectability. We estimate the CECL allowance using a “probability-of-default” model, calculated by multiplying the exposure at default by the probability of assets and liabilities and disclosure of contingent assets and liabilities atdefault by the dateloss given default by a risk overlay multiplier over the life of the financial statementsinstrument (as defined by ASU 2016-13). Our critical judgements relate to internal credit ratings and maturities used to determine probability of default, the subordination of debt to determine loss given default and the reportedperformance status of the receivable that can impact any management overlay. We determine management risk overlay based on management assessment of defaults, overdue amounts and other observable events that provide information on collection. Our internal credit ratings are based on the Moody’s scorecard approach (based on several quantitative and qualitative factors) and our approach relies on statistical data from Moody’s ‘Default and Ratings Analytics’ to derive the expected credit loss. We monitor the credit quality of revenuesreceivables by re-assessing credit ratings, assumed maturities and expenses duringprobability-of-default on a quarterly basis. Due to the reporting period. Actual results could differ from those estimates.

Foreign currencies
inherent uncertainty around these judgmental areas, it is at least reasonably possible that a material change in the CECL allowance can occur in the near term.We grouped financial assets with similar risk characteristics based on their contractual terms, historical credit loss pattern, internal and external credit ratings, maturity, collateral type, past due status and other relevant factors.
The majorityCECL model applies to external trade receivables, related party receivables and other financial assets measured at amortized cost as well as to off-balance sheet credit exposures not accounted for as insurance. We have elected to calculate expected credit losses on the combined balance of our revenuesboth the amortized cost and expenses are denominatedaccrued interest from the unpaid principal balance.
The allowance for credit losses reflects the net amount expected to be collected on the financial asset. Any change in U.S. dollars and thereforecredit allowance is reflected in the majority of our subsidiaries use U.S. dollars as their functional currency. Our reporting currency is also U.S. dollars. For subsidiaries that maintain their accounts in currencies other than U.S. dollars, we use the current method of translation whereby theConsolidated Statement of Operations are translated usingbased on the average exchange rate for the year and the assets and liabilities are translated using the year-end exchange rate. Foreign currency translation gains or losses on consolidation are recorded as a separate component of other comprehensive income in shareholders' equity.

Transactions in foreign currencies are translated into U.S. dollars at the rates of exchange in effect at the datenature of the transaction. Foreign currency assetsfinancial asset receivable.
Amounts are written off against the allowance in the period when efforts to collect a balance have been exhausted. Any write-offs in excess of credit allowance by category of financial asset reduces the asset's carrying amount and liabilities are translated using rates of exchange at the balance sheet date. Gains and losses on foreign currency transactions are includedis reflected in the Consolidated StatementsStatement of Operations.

Related parties
Parties Expected recoveries will not exceed the amounts previously written-off or current credit loss allowance by financial asset category and are related if one party hasrecognized in the ability, directly or indirectly, to controlConsolidated Statement of Operations in the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also related if they are subject to common control or common significant influence. Refer to Note 30 – Related Party Transactions.

period of receipt.
Revenue from contracts with customers

The activities that primarily drive the revenue earned from our drilling contracts include (i) providing a drilling rig and the crew and supplies necessary to operate the rig, (ii) mobilizing and demobilizing the rig to and from the drill site and (iii) performing rig preparation activities and/or modifications required for the contract.contract with a customer. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue and reimbursement revenue. We account for these integrated services as a single performance obligation that is (i) satisfied over time and (ii) comprised of a series of distinct time increments.

increments of service.
We recognize considerationrevenues for activities that correspond to a distinct time increment of service within the contract term in the period when the services are performed. We recognize consideration for activities that are (i) not distinct within the context of our contracts and (ii) do not correspond to a distinct time increment of service, ratably over the estimated contract term.

We determine the total transaction price for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract. The amount estimated for variable consideration may be constrained and is only included in the transaction price to the extent that it is probable that a significant reversal of previously recognized revenue will not occur throughout the term of the contract. When determining if variable consideration should be constrained, we consider whether there are factors outside of our control that could result in a significant reversal of revenue as well as the likelihood and magnitude of a potential reversal of revenue. We re-assess these estimates each reporting period as required.Refer to Note 78 - Revenue"Revenue from Contractscontracts with Customers.customers".

Dayrate Drilling Revenuedrilling revenue - Our drilling contracts generally provide for payment on a dayrate basis, with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The dayrate invoices billed to the customer are typically determined based on the varying rates applicable to the specific activities performed on an hourly basis. Such dayrate consideration is allocated to the distinct hourly increment service it relates to within the contract term, and therefore,to. Revenue is recognized in line with the contractual rate billed for the services provided for any given hour.

Mobilization Revenuerevenue - We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the mobilization of our rigs. These activities are not considered to be distinct within the context of the contract and therefore, thecontract. The associated revenue is allocated to the overall performance
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obligation and recognized ratably over the expected term of the related drilling contract. We record a contract liability for mobilization fees received, which is amortized ratably to contract drilling revenue as services are rendered over the initial term of the related drilling contract.

Demobilization Revenuerevenue - We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the demobilization of our rigs. Demobilization revenue expected to be received upon contract completion is estimated as part of the overall transaction price at contract inception and recognized over the term of the contract. In most of our contracts, there is uncertainty as to the likelihood and amount of expected demobilization revenue to be received. For example, the amount may vary dependent upon whether or not the rig has additional contracted work following the contract. Therefore, the estimate for such revenue may be constrained, as described above, depending on the facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on past experience and knowledge of the market conditions.

Revenues Relatedrelated to Reimbursable Expensesreimbursable expenses - We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request in accordance with a drilling contract or other agreement. Such reimbursable revenue is variable and subject to uncertainty, as the amounts received and timing thereof are highly dependent on factors outside of our influence. Accordingly, reimbursable revenue is fully constrained and not included in the total transaction price until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of a customer. We are generally considered a principal in such transactions and record the associated revenue at the gross amount billed to the customer, at a point in time, as “Reimbursable revenues” in our Consolidated Statements of Operations.

Contract Balances - Accounts receivable is recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Contract asset balances consist primarily of demobilization revenues which have been recognized during the period but are contingent on future demobilization activities. Contract liabilities include payments received for mobilization as well as rig preparation and upgrade activities which are allocated to the overall performance obligation and recognized ratably over the initial term of the contract.

Local Taxestaxes - In some countries, the local government or taxing authority may assess taxes on our revenues. Such taxes may include sales taxes, use taxes, value-added taxes, gross receipts taxes and excise taxes. We generally record tax-assessed revenue transactions on a net basis.

Deferred Contract Costs contract expenses - Certain direct and incremental costs incurred for upfront preparation, initial mobilization and modifications of contracted rigs represent costs of fulfilling a contract as they relate directly to a contract, enhance resources that will be used in satisfying our performance obligations in the future and are expected to be recovered. Such costs are deferred and amortized ratably to contract drilling expense as services are rendered over the initial term of the related drilling contract.


Other revenues

Other revenues consist of related party revenues, leasing income from rigs leased to Gulfdrill, external management fees, and early termination fees. Refer to Note 89Other revenues."Other revenues". Revenue is recognized as the performance obligation is satisfied, which on our leased rigs is on a straight-line basis.

Related party revenues - Related party revenues relate to management support and administrative services provided to Seadrill Partners, Northern Drilling and SeaMex. External management fees relate to the operational, administrative and support services provided to third parties.

External management fees - External management fees relate to the operational, administrative and support services that we previously provided to Sapura Energy as part of the agreement that we entered into when we sold majority of the tender rig business.

Early termination fees - Other revenues also include amounts recognized as early termination fees under drilling contracts which have been terminated prior to the contract end date. Contract termination fees are recognized daily as and when any contingencies or uncertainties are resolved.

Management fees
Management fees - Revenues related to operation support and management services provided to Seadrill Partners, Seamex, Sonadrill, Gulfdrill and Northern Ocean. This includes both related and non-related companies.
Vessel and Rig Operating Expenses

Vessel and rig operating expenses are costs associated with operating a drilling unit that is either in operation or stacked and include the remuneration of offshore crews and related costs, rig supplies, insurance costs, expenses for repairs and maintenance and costs for onshore support personnel. We expense such costs as incurred.

On emergence, we classified certain costs as "vessel and rig operating expenses" that are directly attributable to rig activities and had previously been classified as "general"selling, general and administrative expenses" in our Consolidated Statements of Operations.

Mobilization and demobilization expenses
We incur costs to prepare a drilling unit for a new customer contract and to move the rig to a new contract location. We capitalize the mobilization and preparation costs for a rig's first contract as a part of the rig value and recognize them as depreciation expense over the expected useful life of the rig (i.e. 30 years). For subsequent contracts, we defer these costs over the expected contract term (see deferred contract costs above), unless we don'tdo not expect the costs to be recoverable, in which case we expense them as incurred.

We incur costs to transfer a drilling unit to a safe harbor or different geographic area at the end of a contract. We expense such demobilization costs as incurred. We also expense any costs incurred to relocate drilling units that are not under contract. 

Repairs, maintenance and periodic surveys
Costs related to periodic overhauls of drilling units are capitalized and amortized over the anticipated period between overhauls, which is generally five years. Related costs are primarily yard costs and the cost of employees directly involved in the work. We include amortization costs for periodic overhauls in depreciation expense. Costs for other repair and maintenance activities are included in vessel and rig operating expenses and are expensed as incurred.

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Income taxes
Seadrill is a Bermuda company that has subsidiaries and affiliates in various jurisdictions. Currently, Seadrill and our Bermudan subsidiaries and affiliates are not required to pay taxes in Bermuda on ordinary income or capital gains as they qualify as exemptexempted companies. Seadrill and our subsidiaries and affiliates have received written assurance from the Minister of Finance in Bermuda that we will be exempt from taxation until March 2035. Certain subsidiaries operate in other jurisdictions where taxes are imposed. Consequently, income taxes have been recorded in these jurisdictions when appropriate. Our income tax expense is based on our income and statutory tax rates in the various jurisdictions in which we operate. We provide for income taxes based on the tax laws and rates in effect in the countries in which operations are conducted and income is earned. Refer to Note 1214Taxation.

"Taxation".
The determination and evaluation of our annual group income tax provision involves interpretation of tax laws in various jurisdictions in which we operate and requires significant judgment and use of estimates and assumptions regarding significant future events, such as amounts, timing and character of income, deductions and tax credits. There are certain transactions for which the ultimate tax determination is unclear due to uncertainty in the ordinary course of business. We recognize tax liabilities based on our assessment of whether our tax positions are more likely than not sustainable, based solely on the technical merits and considerations of the relevant taxing authorities widely understood administrative practices and precedence. Changes in tax laws, regulations, agreements, treaties, foreign currency exchange restrictions or our levels of operations or profitability in each jurisdiction may impact our tax liability in any given year. While our annual tax provision is based on the information available to us at the time, a number of years may elapse before the ultimate tax liabilities in certain tax jurisdictions are determined.
Current income tax expense reflects an estimate of our income tax liability for the current year, withholding taxes, changes in prior year tax estimates as tax returns are filed, or from tax audit adjustments.

Income tax expense consists of taxes currently payable and changes in deferred tax assets and liabilities calculated according to local tax rules. We recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the Consolidated Statement of Operations as income tax expense (or benefit) in the period of sale or transfer occurs.


Deferred tax assets and liabilities are based on temporary differences that arise between carrying values used for financial reporting purposes and amounts used for taxation purposes of assets and liabilities and the future tax benefits of tax loss carry forwards.

Our deferred tax expense or benefit represents the change in the balance of deferred tax assets or liabilities as reflected on the balance sheet. Valuation allowances are determined to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. To determine the amount of deferred tax assets and liabilities, as well as at the valuation allowances, we must make estimates and certain assumptions regarding future taxable income, including where our drilling units are expected to be deployed, as well as other assumptions related to our future tax position. A change in such estimates and assumptions, along with any changes in tax laws, could require us to adjust the deferred tax assets, liabilities, or valuation allowances. The amount of deferred tax provided is based upon the expected manner of settlement of the carrying amount of assets and liabilities, using tax rates enacted at the balance sheet date. The impact of tax law changes is recognized in periods when the change is enacted.

Foreign currencies
EarningsThe majority of our revenues and expenses are denominated in U.S. dollars and therefore the majority of our subsidiaries use U.S. dollars as their functional currency. Our reporting currency is also U.S. dollars. For subsidiaries that maintain their accounts in currencies other than U.S. dollars, we use the current method of translation whereby items of income and expense are translated using the average exchange rate for the period and the assets and liabilities are translated using the year-end exchange rate. Foreign currency translation gains or losses on consolidation are recorded as a separate component of other comprehensive income in shareholders' equity.
Transactions in foreign currencies are translated into U.S. dollars at the rates of exchange in effect at the date of the transaction. Foreign currency denominated monetary assets and liabilities are remeasured using rates of exchange at the balance sheet date. Gains and losses on foreign currency transactions are included in the Consolidated Statements of Operations.
Loss per share
Basic earningsloss per share (“EPS”LPS) is calculated based on the income/(loss)loss for the period available to common stockholdersshareholders divided by the weighted average number of shares outstanding for basic EPS for the period.outstanding. Diluted EPSloss per share includes the effect of the assumed conversion of potentially dilutive instruments such as our restricted stock units. The determination of dilutive earningsloss per share may require us to make adjustments to net incomeloss and the weighted average shares outstanding. Refer to Note 13 15 Loss"Loss per share.share".

Fair value measurements
We estimate fair value at a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability. Hierarchy Levels 1, 2 and 3 are terms for the priority of inputs to valuation techniques used to measure fair value. Hierarchy Level 1 inputs are unadjusted quoted prices for identical assets or liabilities in active markets. Hierarchy Level 2 inputs are significant other observable inputs, including direct or indirect market data for similar assets or liabilities in active markets or identical assets or liabilities in less active markets. Hierarchy Level 3 inputs are significant unobservable inputs, including those that require considerable judgment for which there is little or no market data.. When a valuation requires multiple input levels, we categorize the entire fair value measurement according to the lowest level of input that is significant to the measurement even though we may have also utilized significant inputs that are more readily observable.
Current and non-current classification
Generally, assets and liabilities (excluding deferred taxes and liabilities subject to compromise) are classified as current assets and liabilities respectively if their maturity is within one year of the balance sheet date. In addition, we classify any derivative financial instruments whose fair value is a net liability as current. Current liabilities will include where amounts from lenders are payable on demand at their discretion due to event of default clauses being met.

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Generally, assets and liabilities are classified as non-current assets and liabilities respectively if their maturity is beyond one year of the balance sheet date. In addition, we classify loan fees based on the classification of the associated debt principal and we classify any derivatives financial instruments whose fair value is a net asset as non-current.
principal.
Cash and cash equivalents
Cash and cash equivalents consist of cash, bank deposits and highly liquid financial instruments with maturities of three months or less. Amounts are presented net of allowances for credit losses.
Restricted cash
Restricted cash consists of bank deposits which are subject to restrictions due to legislation, regulation or contractual arrangements. Restricted cash amounts with maturities longer thanthat are expected to be used after one year from balance sheet date are classified as non-current assets. Amounts are presented net of allowances for credit losses, which are assessed based on consideration of whether the balances have short-term maturities and whether the counterparty has an investment grade credit rating, limiting any credit exposure. Refer to Note 1416Restricted cash"Restricted cash".

Receivables
Receivables, including accounts receivable, are recorded in the balance sheet at their nominal amount less an allowance for doubtful accounts. We establish reserves for doubtful accounts on a case-by-case basis when it is unlikely that required paymentsnet of specific amounts will occur. In establishing these reserves, we consider the financial condition of the customer as well as specific circumstances related to the receivable such as customer disputes. Receivable amounts determined as being unrecoverable are written off.expected credit losses and write-offs. Interest income on receivables is recognized as earned. Refer to Note 1618"Accounts receivable".
Contract assets and liabilities
Accounts receivable.receivables are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. If we recognize revenue ahead of this point, we also recognize a contract asset. Contract assets balances relate primarily to demobilization revenues recognized during the period but are contingent on future demobilization activities.
Contract liabilities include payments received for mobilization, rig preparation and upgrade activities which are allocated to the overall performance obligation and recognized ratably over the initial term of the contract.
Related parties
Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also related if they are subject to common control or common significant influence. Amounts receivable from related parties are presented net of allowances for expected credit losses and write-offs. Interest income on receivables is recognized as earned. Refer to Note 32 –" Related party transactions" for details of balances and material transactions with related parties.
Equity investments

Investments in common stock are accounted for using the equity method of accounting if the investment gives uswe have the ability to exercise significantsignificantly influence, but not control, over, the investee. Significant influence is generally deemedpresumed to exist if our ownership interest in the voting stock of the investee is between 20% and 50%, although. We also consider other factors such as representation on the investee’s Boardboard of Directorsdirectors and the nature of commercial arrangements, are also considered. We classify our other equity investments eitherinvestees as "Marketable Securities" or "Investments in Associated Companies" depending on their nature.. We classifyrecognize our share of earnings or losses from our equity method investments in the Consolidated Statements of Operations as “Share in results from associated companies". We record gains or losses on investments held fair value as "Gains / (losses) on Marketable Securities". Refer to Note 1520Marketable securities and Note 18 – Investment"Investment in associated companies.companies".
We analyzeassess our equity method investments for impairment at each reporting period to evaluate whether an eventwhen events or change in circumstances has occurred insuggest that period that may have a significant adverse effect on the valuecarrying amount of the investment.investments may be impaired. We record an impairment charge for other-than-temporary declines in value when the value is not anticipated to recover above the cost within a reasonable period after the measurement date, unless there are mitigating factors that indicate impairment may not be required.date. We consider (1) the length of time and extent to which fair value is below carrying value, (2) the financial condition and near-term prospects of the investee, and (3) our intent and ability to hold the investment until any anticipated recovery. If an impairment chargeloss is recorded,recognized, subsequent recoveries in value are not reflected in earnings until sale of the equity method investee occurs.

Refer to Note 13- "Impairment loss on investments in associated companies" for details.
All other equity investments which consist ofincluding investments that do not givesgive us the ability to exercise significant influence as well asand investments in equity instruments other than common stock, are accounted for at fair value, if readily determinable. We classify our other equity investments as "marketable securities" with gains or losses on remeasurement to fair value recognized as "loss on marketable securities". Refer to Note 17 - "Marketable securities". If we can’tcannot readily ascertain the fair value, we record the investment at cost less impairment. We perform a qualitative impairment analysis for our equity investments recorded at

cost at each reporting period to evaluate whether an event or change in circumstances has occurred in that period that indicates that the investment'sinvestment is impaired. If an event or change in circumstances has occurred in that period that indicates that the investment's is impaired, then weWe record an impairment charge forloss to the difference betweenextent that the estimated fair valuecarrying amount of the investment andexceeds its carrying amount.

For periods before we adopted ASU 2016-01, we reviewed our marketable securities for other-than-temporary impairment at each reporting date. Refer to Note 11 - Impairment loss on marketable securities and investments in associated companies for details.

estimated fair value.
Newbuildings
Generally, the carrying value of drilling units under construction (“Newbuildings”) represents the accumulated costs at the balance sheet date. Cost components usually include payments for yard installments and variation orders, construction supervision, equipment, spare parts, capitalized interest, costs related to first time mobilization and commissioning costs. During construction, capitalized interest of newbuildings is based on accumulated expenditures for the applicable project at our current rate of borrowing. The amount of interest expense capitalized in an accounting period is determined by applying the interest rate (“the capitalization rate”) to the average amount of accumulated expenditures for the asset during the period. We don'tdo not capitalize amounts beyond the actual interest expense incurred in the period.
We ceased capitalization of interest on newbuildings when we operated as a debtor-in-possession as interest payments made during bankruptcy proceedings were treated as adequate protection payments. On emergence from the Previous Chapter 11, thethe Newbuildings
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carrying value was adjusted to a fair value of nil. In addition, weWe have not capitalized interest since emergence as work on our Newbuild projects had substantially ceased. Refer to Note 5Fresh"Fresh Start Accounting and Note 19 – Newbuildings.

Accounting".
Drilling units
Rigs, vessels and related equipment are recorded at historical cost less accumulated depreciation. The cost of these assets, less estimated residual value is depreciated on a straight-line basis over their estimated remaining economic useful lives. The estimated residual value is taken to be offset by any decommissioning costs that may be incurred. The estimated economic useful life of our floaters and, jack-up rigs, when new, is 30 years. Significant investments are capitalizedThe direct and depreciated in accordance with the natureincremental costs of the investment. Significant investments that are deemed to increase an asset’s value for its remaining useful lifesignificant capital projects, such as rig upgrades and reactivation projects, are capitalized and depreciated over the remaining life of the asset. Refer to Note 20 – Drilling units.

Drilling units recognized throughacquired in a business combination or through the application of fresh start accounting are measured at fair value as ofat the date of acquisition oracquisition. Drilling units were also remeasured to fair value when we applied fresh start accounting at the date of emergence, respectively.

emergence. Cost of property and equipment sold or retired, with the related accumulated depreciation and write-downs areimpairment is removed from the Consolidated Balance Sheet, and resulting gains or losses are included in the Consolidated Statement of Operations.

We re-assess the remaining useful lives of our drilling units when events occur which may impact our assessment of their remaining useful lives. These include changes in the operating condition or functional capability of our rigs, technological advances, changes in market and economic conditions as well as changes in laws or regulations affecting the drilling industry.
Repairs, maintenance and periodic surveys
Costs related to periodic overhauls of drilling units are capitalized and amortized over the anticipated period between overhauls, which is generally five years. Related costs are primarily yard costs and the cost of employees directly involved in the work. We include amortization costs for periodic overhauls in depreciation expense. Costs for other repair and maintenance activities are included in vessel and rig operating expenses and are expensed as incurred.
Equipment
Equipment is recorded at historical cost less accumulated depreciation and impairment and is depreciated over its estimated remaining useful life. The estimated economic useful life of equipment, when new, is between 3 and 5 years depending on the type of asset. Refer to Note 22 – "Equipment".
Assets held for sale

Assets are classified as held for sale when all of the following criteria are met: Management, having the authority to approve the action,management commits to a plan to sell the asset (disposal group), the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets, an active program to locate a buyer and other actions required to complete the plan to sell the asset (disposal group) have been initiated, the sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within 1 year. The term probable refers to a future sale that is likely to occur, the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Leases
On emergence from Chapter 11,Lessee - When we no longer hadenter into a new contract, or modify an existing contract, we identify whether that contract has a finance or operating lease component. We do not have, nor expect to have any assetsleases classified as heldfinance leases. We determine the lease commencement date by reference to the date the rig (or other leased asset) is available for sale. Referuse and transfer of control has occurred from the lessee. At the lease commencement date, we measure and recognize a lease liability and a right of use ("ROU") asset in the financial statements. The lease liability is measured at the present value of the lease payments not yet paid, discounted using the estimated incremental borrowing rate ("IBR") at lease commencement. The ROU asset is measured at the initial measurement of the lease liability, plus any lease payments made to Note 36 – Assets heldthe lessor at or before the commencement date, minus any lease incentives received, plus any initial direct costs incurred by us.
After the commencement date, we adjust the carrying amount of the lease liability by the amount of payments made in the period as well as the unwinding of the discount over the lease term using the effective interest method. After commencement date, we amortize the ROU asset by the amount required to keep total lease expense including interest constant (straight-line over the lease term).
Absent an impairment of the ROU asset, the single lease cost is calculated so that the remaining cost of the lease is allocated over the remaining lease term on straight-line basis. Seadrill assesses a ROU asset for sale.impairment and recognizes any impairment loss in accordance with the accounting policy on impairment of long-lived assets.

We applied the followingsignificant assumptions and judgments in accounting for our leases.
EquipmentWe apply judgment in determining whether a contract contains a lease or a lease component as defined by Topic 842.
We have elected to combine leases and non-lease components. As a result, we do not allocate our consideration between leases and non-lease components.
EquipmentThe discount rate applied to our operating leases is recorded at historical cost less accumulated depreciation and is depreciated over itsour incremental borrowing rate. We estimated remaining useful life. The estimated economic useful life of equipment, when new, is between 3 and 5 years dependingour incremental borrowing rate based on the typerate for our traded debt.
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Within the terms and conditions of some of our operating leases we have options to Note 21 – Equipment.extend or terminate the lease. In instances where we are reasonably certain to exercise available options to extend or terminate, then the option was included in determining the appropriate lease term to apply. Options to renew our lease terms are included in determining the right-of-use asset and lease liability when it is reasonably certain that we will exercise that option.
Where a leasing arrangement is a failed sale and leaseback transaction as no transfer of control has occurred as defined by Topic 606, any monies received will be treated as a financing transaction.
Lessor - When we enter into a new contract, or modify an existing contract, we identify whether that contract has a sales-type, direct financing or operating lease. We do not have, nor expect to have any leases classified as sales-type or direct financing. For our operating lease, the underlying asset remains on the balance sheet and we record periodic depreciation expense and lease revenue.
Impairment of long-lived assets
We review the carrying value of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be appropriate. We first assess recoverability of the carrying value of the asset by estimating the undiscounted future net cash flows expected to resultbe generated from the asset, including eventual disposal. If the undiscounted future net cash flows are less than the carrying value of the asset, then we compare the carrying value of the asset with the discounted future net cash flows, using a relevant weighted-average cost of capital. The impairment loss to be recognized during the period, will beis the amount by which the carrying value of the asset exceeds the discounted future net cash flows. Refer to Note 20 – Drilling units.

Other intangible assets and liabilities
Intangible assets and liabilities were recorded at fair value on the date of emergence from the Previous Chapter 11 less accumulated amortization. The amounts of these assets and liabilities less theany estimated residual value if any, is generallyare amortized on a straight-line basis over the estimated remaining economic useful life or contractual period. For periods after emergence we have applied a new accounting policy toWe classify amortization of these intangible assets and liabilities within operating expenses. Our intangible assets include favorable and unfavorable drilling contracts and management services contracts. Refer to Note 1719Other assets."Other assets". Our intangible liabilities include unfavorable drilling contracts and unfavorable leasehold improvements. Refer to Note 2324Other liabilities.

Prior to emergence, we classified the amortization of these intangible assets or liabilities within other revenues.

"Other liabilities".
Derivative financial instruments and hedging activities
On emergence from Chapter 11, we have an interest-rate capOur derivative financial instrument that hasinstruments are measured at fair value and are not been formally designated as a hedge and is recorded at fair value.hedging instruments. Changes in the fair value are recorded as a gain or loss as a separate line item within "financial items" in the Consolidated Statements of Operations. Refer to Note 3133Financial"Financial instruments and risk managementmanagement" andNote 3234 - Fair"Fair values of financial instrumentsinstruments".

Trade payables

Trade payables are recorded in the balance sheet to recognize a liabilityliabilities to a supplier for a good or service they have provided to us.

Deferred charges
Loan related costs, including debt issuance, arrangement fees and legal expenses, are capitalized and presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, amortized over the term of the related loan and theloan. The amortization is included in interest expense. On emergence from the Previous Chapter 11, our loan costs were reduced to nil and we recordednil. We recognized a discount againston our debt to reduce its carrying value to equal its fair value. The debt discount willwas due to be unwound over the remaining terms of the debt facilities. In September 2020 and December 2020, there were events of default that resulted in the expense of the remaining unamortized debt discount of $87 million. Refer to Note 5Fresh"Fresh Start AccountingAccounting" andNote 1011Interest expense.

"Interest expense".
Debt

We have financed a significant proportion of the cost of acquiring our fleet of drilling units through the issue of debt instruments. At the inception of a term debt arrangement, or whenever we make the initial drawdown on a revolving debt arrangement, we will incur a liability for the principal to be repaid. On emergence from the Previous Chapter 11, we issued new debt instruments and the carrying values of our third-party debt liabilities were adjusted to fair value.instruments. Refer to Note 5Fresh start accounting"Fresh Start Accounting" and Note 2223Debt"Debt" for more information on our debt instruments.

Pension benefits
We have several defined benefit pension plans, defined contribution pension plans and other post-employment benefit obligations which provide retirement, death and early termination benefits. We recordrecognize the service cost, as “Vessel and rig operating expenses” or as "General"Selling, general and administrative expenses" in our Consolidated Statements of Operations depending on the whether or not the related employee's role is directly attributable to rig activities.
Several defined benefit pension plans cover a number of our Norwegian employees that are all administered by a life insurance company. Our net obligation is calculated by estimating the amount of the future benefit that employees have earned in return for their cumulative service. The aggregated projected future benefit obligation is discounted to present value, from which the aggregated fair value of plan assets is deducted. The discount rate is the market yield at the balance sheet date on government bonds in the relevant currency and based on terms consistent with the post-employment benefit obligations.

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We record the actuarial gains and losses in the Consolidated Statements of Operations when the net cumulative unrecognized actuarial gains or losses for each individual plan at the end of the previous reporting year exceed 10 percent of the higher of the present value of the defined benefit obligation and the fair value of plan assets at that date. These actuarial gains and losses are recognized over the expected remaining working lives of the employees participating in the plans. Otherwise, recognition of actuarial gains and losses is included in other comprehensive income.  Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income.

On retirement, or when an employee leaves the company, the member’s pension liability is transferred to the life insurance company administering the plan, and the pension plan no longer retains an obligation relating to the leaving member. This action is deemed to represent a settlement under U.S. GAAP, as it represents the elimination of significant risks relating to the pension obligation and related assets. Under settlement accounting, the portion of the net unrealized actuarial gains/losses corresponding to the relative value of the obligation reduction is recognized through the Consolidated Statement of Operations. However, settlement accounting is not required if the cost of all settlements in a year is not deemed to be significant in the context of the plan. We deem the settlement not to be significant when the cost of settlements in the year is less than the sum of service cost and interest cost in the year.In this case, the difference between the reduction in benefit obligation and the plan assets transferred to the life insurance company is recognized within “other comprehensive income,” rather than being recognized in the Consolidated Statement of Operations.
Refer to Note 2931 - Pension benefits"Pension benefits" for more information on the accounting for these pension benefits / pension expense.

Loss contingencies

We recognize a loss contingency in the Consolidated Balance SheetSheets where we have a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Refer to Note 3335Commitments"Commitments and contingencies.

contingencies".
Treasury shares
Treasury shares are recognized at cost as a component of equity. We record the nominal value of treasury shares purchased as a reduction in share capital. The amount paid in excess of the nominal value is treated as a reduction of additional paid-in capital. On emergence from the Previous Chapter 11, we no longer havehad any treasury shares.

Share-based compensation
On emergenceSince emerging from the Previous Chapter 11, we had one Restricted Stock Unit (“RSU”)have made several awards under our employee benefit plan where(see Note 30 – "Share based compensation"), which have been cancelled in July 2020 for a cash payment. The compensation for our unvested awards at date of cancellation was based on the holder of an award is entitled to receive shares if still employed at the end of the three-year vesting period. There is no requirement for the holder to pay for the share on grant or vesting of the award. The fair value of the RSUShares at the cancellation date. The cash compensation paid to settle the award is calculated aswas charged directly to equity. For our cancelled awards any remaining unrecognized compensation cost for unvested awards was recognized immediately on the market share price on grantsettlement date. The
Before cancellation we expensed the fair value of stock-based compensation issued to employees and non-employees over the period the awards are expected to vestvest. The expense is recognizedclassified as compensation cost straight-lineand recognized ratably over the vestingperiod during which the individuals are required to provide service in exchange for the reward – the requisite service (vesting) period. WeNo compensation cost is recognized for stock-based compensation for which the individuals do not render the required service. To measure the fair values of granted or modified service-based restricted share units, we use the market price of our shares on the grant date or modification date. To measure the fair values of granted or modified stock options, we use the Black-Scholes-Merton option-pricing model and apply assumptions for the expected life, risk-free interest rate, expected volatility and dividend yield. To measure the fair values of granted or modified performance-based restricted share units subject to market factors, we use a Monte Carlo simulation model and, in addition to the assumptions applied for the Black-Scholes-Merton option-pricing model, we use a risk neutral approach and an average price at the performance start date. The offsetting entry is recorded directly to equity.
Guarantees
Guarantees issued by us, excluding those that are guaranteeing our own performance, are recognized at fair value at the time that the guarantees are issued and reported in "Other current liabilities" and "Other non-current liabilities". If it becomes probable that we will have madeto perform under a guarantee, we remeasure the electionliability if the amount of the loss can be reasonably estimated. The recognition of fair value is not required for certain guarantees such as the parent's guarantee of a subsidiary's debt to accounta third party. Financial guarantees written are assessed for forfeiturescredit losses and any allowance is presented as a liability for off-balance sheet credit exposures where the balance exceeds the collateral provided over the remaining instrument life. The allowance is assessed at the individual guarantee level, calculated by multiplying the balance exposed on an actual basis as they occur. Refer to Note 28 – Share Based Compensation.default by the probability of default and loss given default over the term of the guarantee.
 

Note 3 - Recent Accounting Standards

1) Recently adopted accounting standards
We adopted the following accounting standard updates ("ASUs"ASUs") in the year:

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ASU 2014-09 - Revenue from contracts with customers

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

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

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

See Note 7 - Revenue from contracts for further information.
ASU 2016-01 Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities

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

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

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

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

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

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


We adopted the new standard effective January 1, 2018 under the modified retrospective approach. As a result of the modified retrospective application, “Other Assets” was reduced in our Condensed Consolidated Balance Sheet with a cumulative adjustment to retained earnings of $59 million and non-controlling interests of $25 million.
ASU 2016-18 Statement of Cash Flows - Restricted Cash

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

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

Other ASUs

We adopted the following ASUs in the year, none of which had any impact on our Consolidated Financial Statements and related disclosures:

ASU 2016-15 Statement of Cash Flows (Topic 230) — Classification of Certain Cash Receipts and Cash Payments
ASU 2017-01 Business Combinations (Topic 805)— Clarifying the Definition of a Business
ASU 2017-03 Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323)
ASU 2017-04 Intangibles (Topic 350)— Simplifying the Test for Goodwill Impairment
ASU 2017-05 Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)
ASU 2017-07 Compensation - Retirement Benefits (Topic 715)
ASU 2017-09 Compensation - Stock Compensation (Topic 718)
ASU 2018-02 Income Statement—Reporting Comprehensive Income (Topic 220)
ASU 2018-03 Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10)
ASU 2018-04 Investments—Debt Securities (Topic 320) and Regulated Operations (Topic 980)
ASU 2018-05 Income Taxes (Topic 740)
ASU 2018-06 Codification Improvements to (Topic 942)
ASU 2018-19 Codification Improvements to (Topic 326)
Recently Issued Accounting Standards

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

ASU 2016-02 Leases (Topic 842) (also 2018-01, 2018-10, 2018-11. 2018-20)
ASU 2016-13 Financial Instruments — Credit Losses (Topic 326)
ASU 2018-07 Compensation-Stock Compensation (Topic 718)
ASU 2018-13 Fair Value Measurement (Topic 820)
ASU 2018-14 Compensation—Retirement Benefits—Defined Benefit Plans (Subtopic 715-20)
ASU 2018-15 Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)
ASU 2018-16 Derivatives and Hedging (Topic 815)
ASU 2018-17 Consolidation (Topic 810)

ASU 2016-02 - Leases (also 2018-01, 2018-10, 2018-11. 2018-20)

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

Effective January 1, 2019, we will adopt Topic 842 using the modified retrospective application through a cumulative-effect adjustment to retained earnings at January 1, 2019. We have elected the following transition practical expedients, which will be applied consistently to all leases that commenced before January 1, 2019:

1.We will not reassess whether any expired or existing contracts are or contain leases.
2.We will not reassess the lease classification for any expired or existing leases.

3.We will not reassess initial direct costs for any existing leases.
4.We will use hindsight in determining the lease term and in assessing impairment of the right-of-use assets.

We have determined that our drilling contracts contain a lease component, however, we have elected not to separate the drilling contract lease and non-lease components. We have determined that the non-lease component in our drilling contracts is the predominant component. As such, we will continue to account for our drilling contracts under the guidance in Topic 606. We do not expect our pattern of revenue recognition to change significantly compared to current accounting standards.

We have determined that adoption of this standard will result in increased disclosure of our leasing arrangements. Additionally, we will recognize lease liabilities and corresponding right-of-use assets for leasing arrangements where we are a lessee. We expect to recognize an aggregate lease liability of between $20 million to $40 million on adoption. We have provided a summary of our commitments under operating leases at December 31, 2018 in Note 34 - Operating leases.

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

(Also 2018-19, 2019-04 & 2019-11)
In June 2016, the FASBFinancial Accounting Standards Board (the “FASB”) issued ASU 2016-13 Financial Instruments—Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which revises guidanceand subsequent amendments, including ASU 2018-19, ASU 2019-04 and ASU 2019-11: Codification Improvements to Topic 326 ‘‘Financial Instruments-Credit Losses”. Topic 326 replaces the incurred loss impairment methodology (that recognizes losses when a probable threshold is met) with a requirement to recognize lifetime expected credit losses (measured over the contractual life of the instrument) immediately, based on information about past events, current conditions and forecasts of future economic conditions. Under the current expected credit loss ('CECL') measurement financial assets are reflected at the net amount expected to be collected from the financial asset, CECL measurement is applicable to financial assets measured at amortized cost as well as off-balance sheet credit exposures not accounted for as insurance (including financial guarantees).
Using the accountingmodified retrospective method, reporting periods beginning after January 1, 2020 are presented under Topic 326 while comparative periods continue to be reported in accordance with previously applicable GAAP and have not been restated. On adoption of the CECL approach we recognized an initial credit allowance of $143 million through opening retained earnings on January 1, 2020. The allowance for credit losses on financial instruments within its scope. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted only from January 1, 2019. Entities are required to apply the standard’s provisionsis presented as a cumulative-effect adjustment to retained earnings as atdeduction from the beginning ofasset’s amortized cost (or liability for off-balance sheet exposures) and the first reporting period in whichnet balance shown on the guidance is adopted.

We areConsolidated Balance Sheet with associated credit loss expense in the early stageConsolidated Statement of evaluating the impact of this standard update.Operations.
The ECL allowance related primarily to subordinated loan receivables due from related parties (refer to Note 32 - "Related party transactions"). Our external customers are mostly international oil companies,or national oil companies and large independent oil companies. Our financial assets are primarily held with counter parties with high credit standing and westanding. We have historically had a very low incidence of bad debt expense.credit losses from these customers. Therefore, we doadoption of the new guidance has not currently expect this guidance to significantly affecthad a material impact on receivables due from our Consolidated Financial Statements and related disclosures when we adopt it.customers.

ASU 2018-07 Compensation - Stock Compensation

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

We are in the process of evaluating the impact of this standard update on our Consolidated Financial Statements and related disclosures.

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

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework—ChangesFramework-Changes to the Disclosure Requirements for Fair Value Measurement. The update is intendedamendments in this ASU remove some disclosure requirements relating to improvetransfers between Level 1 and Level 2 of the effectiveness of disclosures infair value hierarchy and introduce new disclosure requirements for Level 3 measurements. We adopted the notesdisclosure improvements prospectively on January 1, 2020, which mainly relate to additional consolidated financial statements by facilitating clear communicationnotes disclosure for the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the US GAAP information requirements that are most important to users of an entity’s financial statements. The guidance will be effective for annualreporting period and interim periods beginning after December 15, 2019, with early adoption permitted.

We are in the process of evaluating the impact of this standard update on our Consolidated Financial Statements and related disclosures.

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

In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans- General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The update is intended to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communicationdisclosure of the US GAAP information requirements that are most importantrange and weighted average of significant unobservable inputs used to usersdevelop Level 3 fair value measurements (see Note 34- "Fair values of an entity’s financial statements. The guidance will be effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. We are in the process of evaluating the impact of this standard update on our Consolidated Financial Statements and related disclosures.instruments").

ASU 2018-15 Intangibles

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). The update is intended to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We are in the process of evaluating the impact of this standard update on our Consolidated Financial Statements and related disclosures.


ASU 2018-16 Derivatives and Hedging

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The update is intended to permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the direct Treasury obligations of the U.S. government, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association Municipal Swap Rate. The guidance will be effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted if an entity has already adopted ASU 2017-12. We are in the process of evaluating the impact of this standard update on our Consolidated Financial Statements and related disclosures.

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

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The update is intended to improve general purpose financial reporting by considering indirect interests held through related parties in common control arrangements on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. We are required to adopt the codification improvements retrospectively using a cumulative-effect method to retained earnings of the earliest period presented herein, but the amendment had no impact on historic consolidation assessments or retained earnings.
d) ASU 2020-03 Financial Instruments: Codification Improvements
In March 2020, the FASB issued ASU 2020-03 Financial Instruments (Topic 825) - Codification Improvements. The amendments in this ASU propose seven clarifications to improve the understandability of existing guidance, will beincluding that fees between debtor and creditor and third-party costs directly related to exchanges or modifications of debt instruments include line-of-credit or revolving debt arrangements. We adopted the codification improvements that were effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.

Effectiveon issuance from January 1, 2019, we will adopt ASU 2018-172020 under the specified transition approach connected with each of the codification improvements. This amendment has not had a material impact on a prospective basis and applyour consolidated financial statements or related disclosures, including retained earnings, as of January 1, 2020.
e) Other accounting standard updates
We additionally adopted the amendmentsfollowing accounting standard updates in the update to qualifying new or redesignated hedging relationships entered into on or after January 1, 2019. We doyear which did not expect this to have aany material impact on our Consolidated Financial Statements and related disclosures.disclosures:

ASU 2017-04 Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
ASU 2018-14 Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20):Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.
ASU 2018-15 Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.
ASU 2019-04 Codification Improvements to Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.
ASU 2019-08 Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606):Codification Improvements—Share-Based Consideration Payable to a Customer.

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2) Recently issued accounting standards
Recently issued ASUs by the FASB that we have not yet adopted but which could affect our Consolidated Financial Statements and related disclosures in future periods:
a) ASU 2019-12 Income Taxes (Topic 740): Simplifying the accounting for income taxes
In December 2019, the FASB issued ASU 2019-12. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The guidance will be effective from January 1, 2021 on a mainly prospective basis, with early adoption permitted. This amendment will have no material impact on our consolidated financial statements or related disclosures, including retained earnings, as of January 1, 2021.
b) ASU 2020-04 Reference Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued ASU 2020-04. The amendments provide temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The applicable expedients for us are in relation to modifications of contracts within the scope of Topics 310, Receivables, 470, Debt, and 842, Leases. This optional guidance may be applied prospectively from any date beginning March 12, 2020 and cannot be applied to contract modifications that occur after December 31, 2022.We are in the process of evaluating the impact of this standard update on our consolidated financial statements and related disclosures.
c) Other accounting standard updates issued by the FASB

As of March 28, 2019,19, 2021, the FASB have issued several further updates not included above. We do not currently expect any of these updates to affect our Consolidated Financial Statements and related disclosures either on transition or in future periods.


Note 4 - Previous Chapter 11 Proceedingsproceedings

In this note we have provided an overview of ourthe Previous Chapter 11 ReorganizationProceedings and related transactions.

transactions as entered into by the Predecessor Company in 2018. Please refer to Note 38 - "Subsequent events"for details of the Successor Company's filing for Chapter 11.
Overview

Prior to the filing of the Previous Chapter 11 Proceedings (as defined below), we were engaged in extensive discussions with our secured lenders, certain holders of our unsecured bonds and potential new money investors regarding the terms of a comprehensive restructuring. The objectives of the restructuring were to build a bridge to a recovery and achieve a sustainable capital structure. To achieve this, we had proposed an extension to our bank maturities, reduced debt amortization payments, amendments to financial covenants and raising of new capital.

On September 12, 2017, Old Seadrill Limited, certain of its subsidiaries (together "the "theCompany Parties") and certain Ship Finance companies entered into a restructuring support and lock-up agreement ("RSA") with a group of bank lenders, bondholders, certain other stakeholders, and new-money providers. In connection with the RSA, the Company Parties entered into an "Investment Agreement" under which Hemen Investments Limited, an affiliate of Old Seadrill Limited's largest shareholder Hemen Holding Ltd. and certain other commitment parties, committed to provide $1.06$1.1 billion in new cash commitments, subject to certain terms and conditions (the "Capital Commitment").

On September 12, 2017, to implement the transactions contemplated by the RSA and Investment Agreement, Old Seadrill Limited and certain of its subsidiaries (the "Debtors") commenced prearranged reorganization proceedings (the "PreviousChapter 11 Proceedings") under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas Victoria Division. During the bankruptcy proceedings, the Debtors continued to operate the business as debtors in possession.

After September 12, 2017, the Debtors negotiated with their various creditors and on February 26, 2018 announced a "Global Settlement", following which there were amendments to the RSA and Investment Agreement.Agreement were amended. These amendments provided for, amongst other things, the inclusion of certain other creditors as Commitment Parties, an increase of the Capital Commitment to $1.08$1.1 billion, increased recoveries for general unsecured creditors under the Plan and an agreement regarding allowed claims from certain newbuild shipyards.

On February 26, 2018, the Debtors filed a proposed Second Amended Joint Chapter 11 Plan of Reorganization (the "Plan") with the Bankruptcy Court. The Plan was confirmed by the Bankruptcy Court on April 17, 2018. The Plan became effective and the Debtors emerged from the Previous Chapter 11 Proceedings on July 2, 2018 (the "Effective Date").

The Plan extinguished approximately $2.4 billion in unsecured bond obligations, more than $1.0 billion in contingent newbuild obligations, substantial unliquidated guarantee obligations, and approximately $250 million in unsecured interest rate and currency swap claims, while extending near term debt maturities, providing Seadrill with over $1.0 billion in new capital and leaving employee, customer and ordinary trade claims largely unimpaired.unaffected.

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Key terms of the Plan of Reorganization

As set out above, the Plan was confirmed by the Bankruptcy Court on April 17, 2018 and became effective when the Debtors emerged from Previous Chapter 11 Proceedings on July 2, 2018. The Plan provided for, among other things, that:

There was a corporate reorganization whereby Seadrill Limited became the ultimate parent holding company of Old Seadrill Limited's subsidiaries.
There was a corporate reorganization whereby Seadrill Limited became the ultimate parent holding company of Old Seadrill Limited's subsidiaries.
The Commitment Parties and subscribers to an equity rights offering subscribed for a total 23,750,000 shares in Seadrill Limited for aggregate consideration of $200 million.
The Commitment Parties and subscribers to a notes rights offering subscribers purchased a total $880 million principal amount of New Secured Notes and were issued 54,625,000 shares in Seadrill Limited for an aggregate consideration of $880 million.
The holders of general unsecured claim were issued 14,250,000 shares in Seadrill Limited.
The former holders of Old Seadrill Limited Equity and certain other claimants were issued 1,900,000 shares in Seadrill Limited.
Certain Commitment Parties received a fee of 475,000 shares in Seadrill Limited and Hemen received a fee of 5,000,000 shares in Seadrill Limited.
An employee incentive plan was implemented (the “Employee Incentive Plan”) which reserved an aggregate of 10% of the Seadrill Limited Shares, for grants to be made from time to time to Seadrill employees and other parties.

The Commitment Parties and subscribers to an equity rights offering subscribed for a total 23,750,000 shares in Seadrill Limited for aggregate consideration of $200 million.
The Commitment Parties and subscribers to a notes rights offering purchased a total $880 million principal amount of New Secured Notes and were issued 54,625,000 shares in Seadrill Limited for an aggregate consideration of $880 million.
The holders of general unsecured claims were issued 14,250,000 shares in Seadrill Limited.
The former holders of Old Seadrill Limited Equity and certain other claimants were issued 1,900,000 shares in Seadrill Limited.
Certain Commitment Parties received a fee of 475,000 shares in Seadrill Limited and Hemen received a fee of 5,000,000 shares in Seadrill Limited.
An employee incentive plan was implemented (the “Employee Incentive Plan”) which reserved an aggregate of 10% of the Shares, for grants to be made from time to time to Seadrill employees and other parties.
This is summarized in the below table:
   PercentagePercentage
Recipient of Common Shares Number of shares
 Prior to dilution by Primary Structuring Fee and the shares reserved under the Employee Incentive Plan
 Prior to dilution by the shares reserved under the Employee Incentive Plan
 Fully diluted
Recipient of Common SharesNumber of sharesPrior to dilution by Primary Structuring Fee and the shares reserved under the Employee Incentive PlanPrior to dilution by the shares reserved under the Employee Incentive PlanFully diluted
Commitment Parties (in exchange for cash paid pursuant to the Investment Agreement) and Equity Rights Offering Subscribers 23,750,000
 25.00% 23.75% 21.38%Commitment Parties (in exchange for cash paid pursuant to the Investment Agreement) and Equity Rights Offering Subscribers23,750,000 25.00 %23.75 %21.38 %
Recipients of New Secured Notes (including Commitment Parties and Notes Rights Offering Subscribers) 54,625,000
 57.50% 54.63% 49.16%
Recipients of Senior Secured Notes (including Commitment Parties and Notes Rights Offering Subscribers)Recipients of Senior Secured Notes (including Commitment Parties and Notes Rights Offering Subscribers)54,625,000 57.50 %54.63 %49.16 %
Holders of General Unsecured Claims 14,250,000
 15.00% 14.25% 12.82%Holders of General Unsecured Claims14,250,000 15.00 %14.25 %12.82 %
Former Holders of Old Seadrill Limited Equity and Seadrill Limited 510(b) Claimants 1,900,000
 2.00% 1.90% 1.71%Former Holders of Old Seadrill Limited Equity and Seadrill Limited 510(b) Claimants1,900,000 2.00 %1.90 %1.71 %
Fees to Select Commitment Parties 475,000
 0.50% 0.47% 0.43%Fees to Select Commitment Parties475,000 0.50 %0.47 %0.43 %
All creditors, excluding Primary Structuring Fee 95,000,000
 100.00% 95.00% 85.50%All creditors, excluding Primary Structuring Fee95,000,000 100.00 %95.00 %85.50 %
Hemen (on account of Primary Structuring Fee) 5,000,000
 -
 5.00% 4.50%Hemen (on account of Primary Structuring Fee)5,000,000 -5.00 %4.50 %
Total, prior to dilution by shares reserved under the Employee Incentive Plan 100,000,000
 -
 100.00% 90.00%Total, prior to dilution by shares reserved under the Employee Incentive Plan100,000,000 -100.00 %90.00 %
Reserved for the Employee Incentive Plan 11,111,111
 -
 -
 10.00%Reserved for the Employee Incentive Plan11,111,111 --10.00 %
Total, fully diluted 111,111,111
 -
 -
 100.00%Total, fully diluted111,111,111 --100.00 %
Reorganization items

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

The following table summarizes the components included within reorganization items:

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 Successor PredecessorSuccessorPredecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 December 31, 2017
 December 31, 2016
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Professional and advisory fees (9) (187) (66) 
Professional and advisory fees(9)(187)
New investor commitment fees 
 
 (53) 
Loss on Newbuilding global settlement claim 
 
 (1,064) 
Loss on other pre-petition allowed claims 
 
 (3)  
Gain on liabilities subject to compromise 
 2,958
 
 
Gain on liabilities subject to compromise2,958 
Fresh start valuation adjustments 
 (6,142) 
 
Fresh start valuation adjustments(6,142)
Write-off of debt issuance costs 
 
 (66) 
Reversal of credit risk on derivatives 
 
 (89) 
Interest income on surplus cash invested 
 6
 4
 
Interest income on surplus cash invested
Total reorganization items, net (9) (3,365) (1,337) 
Total reorganization items, net0 0 (9)(3,365)

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

New investor commitment fees - Commitment fee of 5% of the committed funds agreed under the terms of the investment agreement.

Loss on Newbuilding global settlement claim - Under the Bankruptcy Code, the Debtors had the right to reject certain contracts, subject to the approval of the Bankruptcy Court and certain other conditions. Subject to certain exceptions, this rejection relieves the debtor from performing its future obligations under the contract but entitles the counterparty to assert a pre-petition general unsecured claim for damages. As part of the Global Settlement Agreement, it was agreed that the Debtors would reject and terminate the newbuild contracts for the drillships West Dorado, West Libra, West Aquila and West Libra. In return the newbuild shipyards Samsung and DSME received an allowed claim for $1,064 million. In addition to the re-organization expense shown above, we also recorded a non-cash impairment charge against these Newbuild assets of $696 million at December 31, 2017. Refer to Note 19 - Newbuildings for further details.

ii. Gain on liabilities subject to compromise -
On emergence from the Previous Chapter 11 Proceedings we settled our liabilities subject to compromise in accordance with the Plan. This includes settlement on our unsecured bonds, Newbuild global settlement claim (see above) and interest rate and cross-currency interest rate swaps. Refer to Note 5Fresh"Fresh Start AccountingAccounting" for further information.

iii. Fresh start valuation adjustments -
On emergence from the Previous Chapter 11 Proceedings, our assets and liabilities were recorded at fair value in accordance with ASC 852 related to fresh start reporting. The effects of the application of fresh start accounting were applied as of July 2, 2018 and the2018. The new basis of our assets and liabilities are reflected in the Consolidated Balance Sheet as of December 31, 2018 (Successor) and the related adjustments thereto were recorded in the Consolidated Statement of Operations in the Predecessor. Refer to Note 5Fresh"Fresh Start AccountingAccounting" for further information.

Write-off of debt issuance costs - On filing for Chapter 11, $66 million of unamortized debt issuance costs on the impaired secured credit facilities and unsecured bonds were expensed.

Reversal of credit risk on derivatives - The filing for Chapter 11 triggered an event of default under our derivative agreements, and therefore our interest rate and cross-currency interest rate swaps were held at a terminated value. As such, any credit risk adjustment on these arrangements was taken to the Consolidated Statement of Operations.

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


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Note 5 – Fresh Start Accounting

Fresh Start Accounting

Upon emergence of the Predecessor Company from bankruptcy,the Previous Chapter 11 Proceedings, we applied fresh start accounting to our financial statements in accordance with the provision set forth in ASC852 as (i) the holders of existing voting shares of the Company prior to emergence received less than 50% of the voting shares of the Company outstanding following its emergence from bankruptcy and (ii) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the post-petition liabilities and allowed claims.


We elected to apply fresh start accounting effective July 2, 2018 (the "Convenience Date"), to coincide with the timing of the normal third quarter reporting period, which resulted in Seadrill becoming a new entity for financial reporting purposes. We evaluated and concluded that events between July 1, 2018 and July 2, 2018 were immaterial and that the use of an accounting Convenience Date of July 1, 2018 was appropriate. The effects of the Plan and the application of fresh start accounting were applied as of July 2, 2018 and the new basis of our assets and liabilities are reflected in our Consolidated Balance Sheet as of December 31, 2018 and the related adjustments thereto were recorded in the Consolidated Statement of Operations of the Predecessor as "Reorganization items" during the period from January 1, 2018 through July 1, 2018. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the Consolidated Financial Statements for the period after July 2, 2018 (the “Successor”) will not be comparable with the Consolidated Financial Statements prior to that date.

Reorganization Value

Reorganization value represents the fair value of the Successor Company’s total assets and is intended to approximate to the amount a willing buyer would pay for the assets immediately after restructuring. Under fresh start accounting, we are required to allocate the reorganization value to individual assets based on their estimated fair values.

The fair values of our assets and liabilities differed materially from the recorded values of our assets and liabilities as reflected in the Predecessor historical Consolidated Balance Sheet.
The Plan presented on February 26, 2018, and confirmed by the Bankruptcy Court on April 17, 2018, estimated a range of distributable value for the Successor Company of between $10.2 billion and $11.8 billion. We derived the reorganization value based on the mid-point of this range of estimated distributable values. This was approximately $11.0 billion. Fair values are inherently subject to significant uncertainties and contingencies beyond our control.uncertainties. Accordingly, there can be no assurance that the estimates, assumptions, valuations, and financial projections will be realized, and actual results could vary materially.

Valuation of Drilling Units

Our principal assets comprise our fleet of drilling units. With the assistance of valuation experts, we determined a fair value of these drilling units based primarily on an income approach utilizing a discounted cash flow analysis. We established an estimate ofestimated future cash flows for the period ranging from emergence to the end of life for each rig and discounted the estimated future cash flows to present value. The expected cash flows used in the discounted cash flows were derived from earnings forecasts and assumptions regarding growth and margin projections.

A discount rate of 11.4% was estimated based on an after-tax weighted average cost of capital ("WACC") reflecting the rate of return that would be expected by a market participant. The WACC also takes into consideration a company specific risk premium reflecting the risk associated with the overall uncertainty of the financial projectsprojection used to estimate future cash flows. We used a replacement cost approach to value capital spares and other property plant, and equipment.

Valuation of Equity Method Investments

The fair value of equity method investments was derived using an income approach, which discounts future free cash flows. The estimated future free cash flows associated with the investments were primarily based on expectations aroundabout applicable day rates, drilling unit utilization, operating costs, capital and long-term maintenance expenditures, applicable tax rates and industry conditions. The cash flows were estimated over the remaining useful economic lives of the underlying assets but no longer than 30 years in total, and discounted using an estimated market participant WACC as follows:
InvestmentWACC
Seadrill Capricorn Holdings LLC11.4%
Seadrill Operating LP12.0%
Seadrill Deepwater Drillship Ltd12.0%
Seabras Sapura Holding14.3%
Seabras Sapura Participacoes13.7%
SeaMex12.7%

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

Valuation of debt

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

For further information on fresh start accounting, please refer to the Seadrill Limited Annual Report on Form 20-F for the year ended December 31, 2018.

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Reconciliation of distributable value to fair value of Successor common stock


The following table reconciles the distributable value to the estimated fair value of Successor common stock as at the Effective Date:
(In $ millions)As at July 2, 2018
Distributable value11,056
Less: non-controlling interest(154(154))
Less: fair value of debt(7,301(7,301))
Less: fair value of other non-operating liabilities(108(108))
Add: fair value of tax attributes8
Fair value of Successor common stock issued upon emergence3,501


Shares issued and outstanding on July 2, 2018100.0
Per share value35.01


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


The following table reconciles the distributable value to the estimated reorganization value as at the Effective Date: 
(In $ millions)As at July 2, 2018
Distributable value11,056
Add: other working capital liabilities478
Add: other non-current operating liabilities57
Add: fair value of tax attributes8
Add: redeemable non-controlling interest30
Total reorganization value11,629


Consolidated Balance Sheet


The adjustments included in the following Consolidated Balance Sheet reflect the effects of the consummation of the transactions contemplated by the Reorganization Plan (reflected in the column “Reorganization Adjustments”) as well as fair value adjustments as a result of the adoption of fresh start accounting (reflected in the column “Fresh Start Adjustments”). The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities as well as significant assumptions or inputs.
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Table of Contents
As of July 1, 2018July 1, 2018
(In $ millions)Predecessor Company
 Reorganization Adjustments
 Fresh Start Adjustments
 Successor Company
(In $ millions)Predecessor CompanyReorganization AdjustmentsFresh Start AdjustmentsSuccessor Company
ASSETS       ASSETS
Current assets       Current assets
Cash and cash equivalents809
 790
(a)
 1,599
Cash and cash equivalents809 790 (a)— 1,599 
Restricted cash409
 169
(a)
 578
Restricted cash409 169 (a)— 578 
Marketable securities121
 
 
 121
Marketable securities121 — — 121 
Accounts receivable, net272
 
 
 272
Accounts receivable, net272 — — 272 
Amount due from related parties - current181
 
 14
(l)195
Amount due from related parties - current181 — 14 (l)195 
Other current assets247
 
 181
(m)428
Other current assets247 — 181 (m)428 
Total current assets2,039
 959
 195
 3,193
Total current assets2,039 959 195 3,193 
Investment in associated companies1,615
 
 (687)(n)928
Investment in associated companies1,615 — (687)(n)928 
Newbuildings249
 
 (249)(o)
Newbuildings249 — (249)(o)
Drilling units12,531
 
 (5,734)(p)6,797
Drilling units12,531 — (5,734)(p)6,797 
Deferred tax assets8
 
 
 8
Deferred tax assets— — 
Equipment35
 
 (6)(q)29
Equipment35 — (6)(q)29 
Amount due from related parties - non-current565
 
 11
(r)576
Amount due from related parties - non-current565 — 11 (r)576 
Assets held for sale - non-currentAssets held for sale - non-current— — 
Other non-current assetsOther non-current assets— 95 (s)98 
Total assetsTotal assets17,045 959 (6,375)11,629 
LIABILITIES AND EQUITYLIABILITIES AND EQUITY
Current liabilitiesCurrent liabilities
Debt due within one yearDebt due within one year90 — (33)(t)57 
Trade accounts payableTrade accounts payable96 17 (b)— 113 
Amounts due to related parties - currentAmounts due to related parties - current(c)— 
Other current liabilitiesOther current liabilities229 100 (d)32 (u)361 
Total current liabilitiesTotal current liabilities419 121 (1)539 
Liabilities subject to compromiseLiabilities subject to compromise9,050 (9,050)(e)0 0 
Long-term debtLong-term debt856 6,292 (f)(104)(t)7,044 
Long-term debt due to related partiesLong-term debt due to related parties294 — (94)(v)200 
Deferred tax liabilitiesDeferred tax liabilities105 — (6)(w)99 
Other non-current liabilitiesOther non-current liabilities57 (b)(x)62 
Total non-current liabilitiesTotal non-current liabilities1,312 6,295 (202)7,405 
Redeemable non-controlling interestRedeemable non-controlling interest25  5 (y)30 
EquityEquity
Predecessor common sharesPredecessor common shares1,008 (1,008)(g)— — 
Predecessor additional paid-in capitalPredecessor additional paid-in capital3,316 (3,322)(g)— — 
(h)
Predecessor contributed surplusPredecessor contributed surplus1,956 (1,956)(g)— — 
Predecessor accumulated other comprehensive incomePredecessor accumulated other comprehensive income41 — (41)(z)— 
Predecessor (loss)/retained earningsPredecessor (loss)/retained earnings(146)7,110 (i)(6,964)(z)— 
Successor common sharesSuccessor common shares— 10 (j)— 10 
Successor contributed surplusSuccessor contributed surplus— 2,860 (j)631 (aa)3,491 
Total Shareholders' equityTotal Shareholders' equity6,175 3,700 (6,374)3,501 
Non-controlling interestNon-controlling interest64 (107)(k)197 (bb)154 
Total equityTotal equity6,239 3,593 (6,177)3,655 
Total liabilities and equityTotal liabilities and equity17,045 959 (6,375)11,629 


F-28

 As of July 1, 2018
(In $ millions)Predecessor Company
 Reorganization Adjustments
 Fresh Start Adjustments
 Successor Company
Assets held for sale - non-current
 
 
 
Other non-current assets3
 
 95
(s)98
Total assets17,045
 959
 (6,375) 11,629
LIABILITIES AND EQUITY       
Current liabilities       
Debt due within one year90



(33)(t)57
Trade accounts payable96

17
(b)

113
Amounts due to related parties - current4

4
(c)

8
Other current liabilities229

100
(d)32
(u)361
Total current liabilities419

121

(1)
539
Liabilities subject to compromise9,050

(9,050)(e)


Long-term debt856

6,292
(f)(104)(t)7,044
Long-term debt due to related parties294



(94)(v)200
Deferred tax liabilities105



(6)(w)99
Other non-current liabilities57

3
(b)2
(x)62
Total non-current liabilities1,312

6,295

(202)
7,405
        
Redeemable non-controlling interest25



5
(y)30
        
Equity       
Predecessor common shares1,008

(1,008)(g)


Predecessor additional paid-in capital3,316

(3,322)(g)


 

6
(h)


Predecessor contributed surplus1,956

(1,956)(g)


Predecessor accumulated other comprehensive income41



(41)(z)
Predecessor (loss)/retained earnings(146)
7,110
(i)(6,964)(z)
Successor common shares

10
(j)

10
Successor contributed surplus

2,860
(j)631
(aa)3,491
Total Shareholders' equity6,175

3,700

(6,374)
3,501
Non-controlling interest64

(107)(k)197
(bb)154
Total equity6,239

3,593

(6,177)
3,655
Total liabilities and equity17,045

959

(6,375)
11,629
Table of Contents

Reorganization Adjustments:


(a)    Adjustments to cash and cash equivalents including the following:
(a)Adjustments to cash and cash equivalents including the following:
Cash and Cash Equivalents
(In $ millions)
Proceeds from debt commitment (1)
875
Proceeds from equity commitment200
Payment to newbuild counterparty members(18(18))
Amendment consent fees to senior secured creditors(26(26))
Funding of the escrow account for NSNSenior Secured Notes collateral(227(227))
Payment of closing fees for the debt commitment(9(9))
Payment new commitment parties fee(1(1))
Payment to the bank coordinating committee(4(4))
Change in cash and cash equivalents790

(1)Pursuant to the Investment Agreement, on the Effective Date we received cash of $875 million for the issuance of NewSenior Secured Notes, consisting of $880 million par value notes net of $5 million pre-issuance accrued interest.
Restricted Cash
(In $ millions)
Funding of the escrow account per terms of NSNSenior Secured Notes227
Payment of post confirmation accrued professional fees in connection with emergence(31(31))
Payment of success fees incurred upon emergence(22(22))
Distribution from the cash pool to general unsecured claims(2(2))
Payment of unsecured creditor committee advisor fees(3(3))
Change in restricted cash169
(b)     Reflects the reinstatement of trade accounts payable and other non-current liabilities included as part of liabilities subject to compromise
(c)    Reflects the reinstatement of amounts due to related party included as part of liabilities subject to compromise.
(d)     Reflects the adjustment to other current liabilities upon emergence:
(b)Reflects the reinstatement of trade accounts payable and other non-current liabilities included as part of liabilities subject to compromise
(c)Reflects the reinstatement of amounts due to related party included as part of liabilities subject to compromise.
(d)Reflects the adjustment to other current liabilities upon emergence:
Other current liabilities upon emergence
(In $ millions)
Success fees accrued upon emergence28
Undistributed cash pool balance for general unsecured claims on emergence35
Cash payment made for post confirmation accrued professional fees in connection with emergence(31(31))
Reinstatement of other current liabilities as part of liabilities subject to compromise64
Amendment fees on SFL loans accrued upon emergence4
Change in other liabilities100
F-29

(e)    Liabilities subject to compromise were settled as follows in accordance with the Plan:
Gain on liabilities subject to compromise
(In $ millions)
Senior undersecured or impaired external debt5,266
Unsecured bonds2,334
Newbuild claims1,064
Accrued interest payable49
Derivatives previously recorded at fair value249
Accounts payable and other liabilities84
Amount due to related party4
Liabilities subject to compromise9,050
Less: Distribution from cash pool to holders of general unsecured claims on emergence(2(2))
Less: Undistributed cash pool balance for holders of general unsecured claims on emergence(35(35))
Less: Payment to newbuild counterparty members(17(17))
Less: Fair value of equity issued to holders of general unsecured claims(498(498))
Less: Reinstatement of amount due to related party(4(4))
Less: Reinstatement of trade accounts payable(84(84))
Less: Reinstatement of senior undersecured or impaired external debt(5,266(5,266))
Less: Recognition of adequate protection payments on senior undersecured or impaired external debt(186(186))
Gain on settlement of liabilities subject to compromise2,958
(f)    Increase in long-term debt includes reinstatement of certain liabilities subject to compromise as well as the issuance of Senior Secured Notes. The net increase reflects the following:
(f)Increase in long-term debt includes reinstatement of certain liabilities subject to compromise as well as the issuance of New Secured Notes. The net increase reflects the following:

(In $ millions)
Reinstated Senior undersecured or impaired external debt5,266
Recognition of adequate protection payments186
Lender consent fee(26(26))
Total reinstated senior secured credit facilities5,426
Issuance of NewSenior Secured Notes880
Capitalized pre-issuance interest for NewSenior Secured Notes for 8% paid-in kind10
Debt issuance cost in related to the issuance of the NewSenior Secured Notes(9(9))
Discount on NewSenior Secured Notes for the pre-issuance interest paid upon emergence (4% cash interest of $5 million and 8% paid-in kind interest of $10 million)

(15(15))
Net increase in long-term debt6,292
(g)    Reflects the cancellation of Predecessor Company common stock, contributed surplus, and additional paid in capital to retained earnings.
(h)    Represents the unamortized stock compensation recognized upon cancellation of the Predecessor Company common stock, contributed surplus, and additional paid in capital.
(i)    Reflects the change in predecessor retained (loss)/earnings
(g)Reflects the cancellation of Predecessor Company common stock, contributed surplus, and additional paid in capital to retained earnings
(h)Represents the unamortized stock compensation recognized upon cancellation of the Predecessor Company common stock, contributed surplus, and additional paid in capital.
(i)Reflects the change in predecessor retained (loss)/earnings
(In $ millions)
Gain on settlement of liabilities subject to compromise2,958
Cancellation of predecessor common stock, contributed surplus, and additional paid in capital6,286
Recognition of unamortized stock compensation expense upon cancellation of the Predecessor Company common stock, contributed surplus, and additional paid in capital(6(6))
Fair value of Successor Common Shares issued upon emergence(2,176(2,176))
Success fees incurred upon emergence(51(51))
New Commitment Parties, bank coordinating committee, and unsecured creditor committee advisor fees(8(8))
Elimination of NADL and Sevan non-controlling interest107
Total change in predecessor retained (loss)/earnings7,110
(j)Reflects the issuance of 24 million shares of common stock at a per share price of $8.42 in connection with the equity commitment, 55 million shares of common stock with estimated fair value of $35.01 per share issued in connection with the debt commitment, 14 million shares of common stock issued to the holders of general unsecured claims at an estimated fair value of $35.01 per share, 2 million shares of common stock issued to former holders of Predecessor equity at an estimated fair value of $35.01 per share, and 5 million shares of common stock issued for structuring fees to the select commitment parties and Hemen at an estimated fair value of $35.01 per share.
(k)As determined in the Plan, NADL and Sevan became wholly owned subsidiaries and the non-controlling interests of NADL and Sevan were eliminated.

F-30

(j)    Reflects the issuance of 23,750,000 common shares at a per share price of $8.42 in connection with the equity commitment, 55 million common shares with estimated fair value of $35.01 per share issued in connection with the debt commitment, 14 million common shares issued to the holders of general unsecured claims at an estimated fair value of $35.01 per share, 2 million common shares issued to former holders of Predecessor equity at an estimated fair value of $35.01 per share, and 5 million common shares issued for structuring fees to the select commitment parties and Hemen at an estimated fair value of $35.01 per share.
(k)    As determined in the Plan, NADL and Sevan became wholly owned subsidiaries and the non-controlling interests of NADL and Sevan were eliminated.

Fresh Start Adjustments
(l)
Adjustment to record the current portion of the contingent consideration receivable from Seadrill Partners related to the West Vela with the fair value of $14 million.
(l)    Adjustment to record the current portion of the contingent consideration receivable from Seadrill Partners related to the West Vela with the fair value of $14 million.
(m)     Adjustment to write-off $9 million of current deferred mobilization costs to fair value, which is offset by recording the fair value of certain favorable drilling contracts of $190 million. The value was based on the contracted rates compared to the prevailing market rates.
(n)     Adjustment to decrease the carrying value of the investments in associated companies to their estimated fair values determined using a discounted cash flow analysis utilizing the assumption noted above the Valuation of Equity Method Investments.
(o)    Adjustment to record the newbuildings at fair value based on the value derived from an income approach compared to the current contractual obligations remaining to be paid.
(m)Adjustment to write-off $9 million of current deferred mobilization costs to fair value, which is offset by recording the fair value of certain favorable drilling contracts of $190 million. The value was based on the contracted rates compared to the prevailing market rates.
(n)Adjustment to decrease the carrying value of the investments in associated companies to their estimated fair values determined using a discounted cash flow analysis utilizing the assumption noted above the Valuation of Equity Method Investments.
(o)Adjustment to record the newbuildings at fair value based on the value derived from an income approach compared to the current contractual obligations remaining to be paid.
(p)    Adjustment to the drilling units to record the fair value of the rigs and capital spares utilizing a combination of income-based and market-based approaches. The discount rate of 11.4% was used for the discounted cash flow analysis under the income-based approach. A cost-based approach was utilized to determine the fair value for the capital spares.
(q)Adjustment to record equipment at fair value based on a cost approach.
(r)
Adjustment to record the non-current portion of the contingent consideration receivable from Seadrill Partners related to the West Vela and West Polaris with the fair value of $17 million. This amount is offset with a $3 million reduction on the recoverability of the receivable due from Seabras Participacoes and $2 million adjustment to record the embedded conversion option component of the Archer convertible debt instrument at the emergence date fair value.
(s)Adjustment to write-off $2 million of deferred mobilization cost and $1 million of unamortized favorable contracts to fair value. These are offset by recording the fair value of certain favorable drilling and management service contracts of $98 million. The value was based on the contracted rates compared to the prevailing market rates.
(t)Fair value adjustment to record discount of $188 million on the senior secured credit facilities and Ship Finance loans. This reduction is offset by a $51 million write-off of discounts on the New Secured Notes, unamortized debt issuance cost and lender consent fees.

(q)    Adjustment to record equipment at fair value based on a cost approach.
(r)     Adjustment to record the non-current portion of the contingent consideration receivable from Seadrill Partners related to the West Vela and West Polaris with the fair value of $17 million. This amount is offset with a $3 million reduction on the recoverability of the receivable due from Seabras Participacoes and $2 million adjustment to record the embedded conversion option component of the Archer convertible debt instrument at the emergence date fair value.
(s)     Adjustment to write-off $2 million of deferred mobilization cost and $1 million of unamortized favorable contracts to fair value. These are offset by recording the fair value of certain favorable drilling and management service contracts of $98 million. The value was based on the contracted rates compared to the prevailing market rates.
(t)     Fair value adjustment to record discount of $188 million on the senior secured credit facilities and Ship Finance loans. This reduction is offset by a $51 million write-off of discounts on the Senior Secured Notes, unamortized debt issuance cost and lender consent fees.
(In $ millions)
July 2, 2018Senior Secured Notes Senior Secured Credit Facilities Ship Finance Loans Total
Carrying value after reorganization adjustments866 5,636 736 7,238 
Adjustments to record debt at fair value: 
Write-off of unamortized debt issuance costs26 36 
Write-off of discounts for pre-issuance accrued interest settled upon issuance of Senior Secured Notes (4% cash interest of $5 million and 8% paid-in kind interest of $10 million)15 — — 15 
Fair value adjustment to record discount on the senior secured credit facilities and Ship Finance Loans— (155)(33)(188)
Estimated fair value of debt at emergence890 5,507 704 7,101 

(u)     Adjustment to write-off $27 million, primarily related to deferred mobilization revenue, for which we have determined to have no future performance obligations. These are offset by recording the fair value of certain unfavorable drilling contracts of $59 million. The value was based on the contracted rates compared to the prevailing market rates.
(v)     Adjustment to reflect a fair value discount on the loans due to related parties. The value was based on an income approach using level 2 inputs.
(w)    Adjustments to the deferred tax liabilities as a result of applying fresh start accounting.
(x)     Adjustment to write-off $7 million of deferred mobilization revenue, for which we have determined to have no future performance obligations, offset by the fair value of certain unfavorable drilling contracts of $9 million. The value was based on the contracted rates compared to prevailing market rates.
(y)    Adjustment to record redeemable non-controlling interest to the emergence date fair value.
(z)     Reflects the fresh start accounting adjustment to reset retained (loss) earnings and accumulated other comprehensive income.
(aa)     Reflects the increase in fair value of the 24 million common shares issued in connection with the equity commitment from $8.42 to $35.01 per share.
(bb)     Adjustment to record the non-controlling interest in the Ship Finance SPV's and Seadrill Nigeria Operations Limited to fair value.

F-31
(In $ millions)    
As at July 2, 2018 New Secured Notes
 Senior Secured Credit Facilities
 Ship Finance Loans
 Total
Carrying value after reorganization adjustments866
5,636
736
7,238
Adjustments to record debt at fair value:



Write-off of unamortized debt issuance costs9
26
1
36
Write-off of discounts for pre-issuance accrued interest settled upon issuance of NSNs (4% cash interest of $5 million and 8% paid-in kind interest of $10 million)15


15
Fair value adjustment to record discount on the senior secured credit facilities and Ship Finance Loans
(155)(33)(188)
Estimated fair value of debt at emergence890
5,507
704
7,101


(u)Adjustment to write-off $27 million, primarily related to deferred mobilization revenue, for which we have determined to have no future performance obligations. These are offset by recording the fair value of certain unfavorable drilling contracts of $59 million. The value was based on the contracted rates compared to the prevailing market rates.
(v)Adjustment to reflect a fair value discount on the loans due to related parties. The value was based on an income approach using level 2 inputs.
(w)Adjustments to the deferred tax liabilities as a result of applying fresh start accounting.
(x)Adjustment to write-off $7 million of deferred mobilization revenue, for which we have determined to have no future performance obligations, offset by the fair value of certain unfavorable drilling contracts of $9 million. The value was based on the contracted rates compared to prevailing market rates.
(y)Adjustment to record redeemable non-controlling interest to the emergence date fair value.
(z)Reflects the fresh start accounting adjustment to reset retained (loss) earnings and accumulated other comprehensive income.
(aa)Reflects the increase in fair value of the 24 million shares of common stock issued in connection with the equity commitment from $8.42 to $35.01 per share.
(bb)Adjustment to record the non-controlling interest in the Ship Finance VIEs and Seadrill Nigeria Operations Limited to fair value.

Note 6 – Segment informationCurrent expected credit losses

Operating segmentsThe CECL model applies to our external trade receivables, related party receivables and other financial assets carried at amortized cost. Our external customers are international oil companies, national oil companies and large independent oil companies. The following table summarizes the movement in the allowance for credit losses for the year ended December 31, 2020.
 (In $ millions)
Allowance for credit losses - trade receivablesAllowance for credit losses - other current assetsAllowance for credit losses - related party STAllowance for credit losses related party LTTotal Allowance for credit losses
January 1, 202015 128 143 
Credit loss expense154 166 
December 31, 20200 3 169 137 309 
We provide drilling and related services toThe below table shows the offshore oil and gas industry. We have been organized into three operating segments:classification of the credit loss expense within the Consolidated Statements of Operations.

1.(In $ millions)
Floaters: Services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts relate to semi-submersible rigs and drillships for harsh and benign environments in mid-, deep- and ultra-deep waters;

Year ended December 31, 2020
2.Management contract expenses
Jack-up rigs: Services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts relate to jack-up rigs for operations in harsh and benign environments; and

142
3.Other financial items
Other: Operations including management services to third parties and related parties. Income and expenses from these management services are classified under this segment.
24
Total166

Changes in expected credit loss allowance for external and related party trade receivables and reimbursable amounts due are included in operating expenses, while changes in the allowances for related party loan receivables are included in other financial items. The increase in the allowance for the year ended December 31, 2020 was caused by a decline in credit ratings of our contemporaries, driven by deteriorated market conditions in the period especially following the outbreak of COVID-19, Seadrill Partners going into insolvency and an increase in expected maturities for receivables due from certain related parties. These factors led to a higher probability of default for certain related party receivables. Management applied risk overlay to receivables from Northern Ocean and Seadrill Partners. Refer to Note 32 – "Related party transactions" for details.

Note 7 – Segment information
We use the management approach to identify our operating segments. We identified the Board of Directors as the Group’s chief operating decision maker ("CODM") which regularly reviews internal reports when making decisions about allocation of resources to segments and in assessing their performance. In the second half of 2020, we implemented a new operating unit structure which had an increased focus on asset class. The rationale behind this change was to better benchmark our operational performance against so called ‘pure play’ peers who are product line focused, thereby enhancing transparency, efficiency, cost control and leadership focus by asset class. We have updated our reportable segments in line with this change.
We now have the following 3 reportable segments:
1.Harsh environment: Includes contract revenues, management contract revenue, reimbursable revenue and associated expenses for harsh environment semi-submersible and jack-up rigs.
2.Floaters: Includes contract revenues, management contract revenue, reimbursable revenue and associated expenses for benign environment semi-submersible rigs and drillships.
3.Jack-ups: Includes contract revenues, management contract revenue, reimbursable revenue and associated expenses for benign environment jack-up rigs.
We previously included revenues and expenses relating to management services in the "other" reportable segment. We have now allocated revenues relating to management contracts and associated expenses to the 3 operating segments based on the type of rig being managed. This is in line with how segment performance is now assessed by the CODM based on both owned and managed rigs results.
Segment results are evaluated on the basis of operating income and the information givenpresented below is based on information used for internal management reporting. The change in reportable segments has been reflected retrospectively. Corresponding items of segment information for earlier periods have been recast. The remaining incidental revenues and expenses not included in the reportable segments are included in the "other" reportable segment.
The below section splits out total operating revenue, depreciation, amortization of intangibles, operating net loss, drilling units and capital expenditures by segment:
Revenues
F-32


Total operating revenue
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment526 510 150 103 
Floaters358 625 273 476 
Jack-up rigs157 229 107 128 
Other18 24 11 
Total1,059 1,388 541 712 

Depreciation
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment93 125 78 134 
Floaters176 224 120 179 
Jack-up rigs48 48 23 58 
Other29 29 15 20 
Total346 426 236 391 

Amortization of intangibles
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment(13)
Floaters105 50 
Jack-ups29 21 
Total1 134 58 0 

Impairment of drilling units and intangible assets
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment419 414 
Floaters3,555 
Jack-ups86 
Other48 
Total4,108 0 0 414 
F-33

Operating revenues by operating segment are as follows:net loss
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment(396)(69)(59)(562)
Floaters(3,781)(201)(112)42 
Jack-ups(87)(2)(73)
Other(218)(23)(4)(20)
Operating loss(4,482)(295)(175)(613)
Unallocated items:   
Total financial items and other(176)(966)(422)(3,242)
Loss before income taxes(4,658)(1,261)(597)(3,855)
 Successor Predecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

Floaters322
 482
 1,387
 2,212
Jack-up rigs167
 193
 617
 865
Other52
 37
 84
 92
Total541
 712
 2,088
 3,169



Depreciation and amortization

Depreciation and amortization by operating segment are as follows:
 Successor Predecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

Floaters190
 298
 601
 600
Jack-up rigs46
 93
 197
 210
Total236
 391
 798
 810

Operating (loss)/incomeDrilling assets - net (loss)/income

Operating (loss)/income and (loss)/income by operating segment is as follows:
 Successor
Predecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018

Period from January 1, 2018 through July 1, 2018

Year ended December 31,
2017


Year ended December 31,
2016

Floaters(161) (446) (622) 759
Jack-up Rigs(16) (167) (112) 267
Other2
 
 6
 
Operating (loss)/income(175) (613) (728) 1,026
Unallocated items: 
    
  
Total financial items and other(422) (3,242) (2,308) (982)
(Loss)/income before income taxes(597) (3,855) (3,036) 44

Total assets

(In $ millions)December 31, 2020December 31, 2019
Harsh environment rigs1,032 1,537 
Floaters528 4,184 
Jack-up Rigs560 680 
Total Drilling Units2,120 6,401 
Unallocated items:
Investments in Associated companies248 389 
Marketable securities11 
Cash and restricted cash723 1,357 
Other assets862 1,121 
Total assets3,961 9,279 
Total assets by operating segment are as follows:
 Successor
 Predecessor
(In $ millions)December 31, 2018
 December 31, 2017
Floaters5,508
 9,956
Jack-up Rigs1,151
 3,508
Total Drilling Units and Newbuildings6,659
 13,464
Assets held for sale
 126
Investments in Associated companies800
 1,473
Marketable securities57
 124
Cash and restricted cash2,003
 1,359
Other assets1,329
 1,436
Total10,848
 17,982

Drilling units - Capital expenditures – fixed assets 1(1)(2)

SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Harsh environment26 34 41 
Floaters110 111 72 69 
Jack-ups12 17 19 
Total148 162 98 116 
Capital expenditure by operating segment are as follows:
 Successor
Predecessor
 Period from July 2, 2018 through December 31, 2018

Period from January 1, 2018 through July 1, 2018

December 31, 2017

December 31, 2016
(In $ millions)       
Floaters74
 93
 128
 192
Jack-up Rigs24
 24
 22
 35
Total98
 117
 150
 227
1(1)The successor period includesperiods include additions to equipment

(2)Capital expenditure includes long term maintenance projects.
F-34

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

Revenues

SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Norway480 469 117 82 
United States107 74 34 30 
Saudi Arabia98 130 78 79 
Angola89 215 29 100 
Brazil51 137 91 188 
Nigeria198 108 105 
Others (1)
234 165 84 128 
Total Revenue1,059 1,388 541 712 
Revenues by geographic area are as follows:(1)Other countries represent countries in which we operate that individually had revenues representing less than 10% of total revenues earned for any of the periods presented.
 Successor Predecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

Norway117
 82
 219
 475
Nigeria108
 105
 193
 431
Brazil91
 188
 358
 491
Saudi Arabia78
 79
 159
 200
United States34
 30
 291
 370
Angola29
 100
 482
 419
Others (1)
84
 128
 386
 783
Total Revenue541
 712
 2,088
 3,169

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


Fixed assets – drilling units (1)


Drilling unit fixed assets by geographic area are as follows:
(In $ millions)December 31, 2020December 31, 2019
Norway1,044 1,818 
Saudi Arabia234 244 
Malaysia185 805 
Qatar151 54 
USA87 644 
Brazil79 332 
Spain49 615 
Others (2)
291 1,889 
Total2,120 6,401 
(1)Asset locations at the end of a period are not necessarily indicative of the geographic distribution of the revenues or operating profits generated by such assets during such period.
(2)Other countries represent countries in which we operate that individually had fixed assets representing less than 10% of total fixed assets for any of the periods presented.
F-35

 Successor
 Predecessor
(In $ millions)December 31, 2018
 December 31, 2017
Norway1,326
 2,258
Malaysia1,070
 1,809
Spain875
 2,016
Brazil688
 1,816
USA658
 1,266
Others (2)
2,042
 4,051
Total6,659
 13,216


(1)
The fixed assets referred to in the table above exclude assets under construction. Asset locations at the end of a period are not necessarily indicative of the geographic distribution of the revenues or operating profits generated by such assets during such period.
(2)
Other countries represent countries in which we operate that individually had fixed assets representing less than 10% of total fixed assets for any of the periods presented.

Major customers
In the years ended December 31, 2020, the year ended December 31, 2019, the period from July 2, 2018 through December 31, 2018 (Successor), and the period from January 1, 2018 through July 1, 2018 (Predecessor) and the years ended December 31, 2017 (Predecessor) and 2016 (Predecessor), we had the following customers with contracttotal revenues greater than 10% in any of the years presented:

SuccessorPredecessor
SegmentYear ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
ConocoPhillipsHarsh Environment16 %11 %13 %%
EquinorHarsh Environment12 %16 %%%
Northern OceanHarsh Environment12 %12 %%%
Saudi AramcoJack-Ups%10 %14 %11 %
LLOGFloaters%%%%
PetrobrasFloaters%%10 %23 %
TotalFloaters%18 %24 %19 %
ExxonMobilFloaters%%10 %
Other35 %22 %26 %20 %
Total100 %100 %100 %100 %

  Successor
 Predecessor
  Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

Total 27% 20% 25% 18%
Saudi Aramco
17%
12%
8%
7%
ConocoPhillips
14%
9%
6%
5%
Petrobras
11%
27%
19%
17%
Equinor 12% 6% 4% 10%
LLOG
6%
5%
15%
13%
ExxonMobil % 11% 7% 13%



Note 78 - Revenue from Contractscontracts with Customerscustomers
The following table provides information about receivables, contract assets and contract liabilities from our contracts with customers:
(In $ millions)December 31, 2020 December 31, 2019
Accounts receivable, net125 173 
Current contract liabilities (deferred revenues) (1)
 (18)(20)
Non-current contract liabilities (deferred revenues) (1)
 (13)(9)
  Successor Predecessor
(In $ millions) December 31, 2018
 December 31, 2017
Accounts receivable, net 208
 295
Current contract assets (1)
 1
 7
Non-current contract assets (1)
 
 
Current contract liabilities (deferred revenues) (1)
 (12) (37)
Non-current contract liabilities (deferred revenues) (1)
 (9) (18)
(1)Current contract assets and liabilities balances are included in “Other current assets” and “Other current liabilities,” respectively in our Consolidated Balance Sheets as of December 31, 2018 (Successor).2020.




Significant changes in the contract assets and the contract liabilities balances during the period from January 1, 2018 through July 1, 2018 (Predecessor) and period from July 2, 2018 throughyear ended December 31, 2018 (Successor)2019 are as follows:
(In $ millions)  Contract AssetsContract LiabilitiesNet Contract
Balances
Net contract liability at January 1, 2019  1 (21)(20)
Amortization of revenue that was included in the beginning contract liability balance  — 14 14 
Cash received, excluding amounts recognized as revenue— (22)(22)
Cash received against the beginning contract asset balance  (1)— (1)
Net contract liability at December 31, 2019  0 (29)(29)
(In $ millions)
Net Contract
Balances

Contract assets at January 1, 2018 (Predecessor)7
Contract liabilities at January 1, 2018 (Predecessor)(55)
Net contract liability at January 1, 2018 (Predecessor)(48)
Decrease due to amortization of revenue that was included in the beginning contract liability balance25
Increase due to cash received, excluding amounts recognized as revenue(9)
Decrease due to recognized during the period but contingent on future performance9
Fresh start adjustment32
Net contract asset at July 1, 2018 (Predecessor)9
Contract assets at July 1, 2018 (Predecessor)9
Contract liabilities at July 1, 2018 (Predecessor)
Contract assets at July 2, 2018 (Successor)9
Contract liabilities at July 2, 2018 (Successor)
Net contract asset at July 2, 2018 (Successor)9
Decrease due to amortization of revenue that was included in the beginning contract liability balance
Increase due to cash received against contract assets recognized at July 2, 2018 (Successor)(9)
Increase due to cash received, excluding amounts recognized as revenue(21)
Decrease due to recognized during the period but contingent on future performance1
Fresh start adjustment
Net contract liability at December 31, 2018 (Successor)(20)
Contract assets at December 31, 2018 (Successor)1
Contract liabilities at December 31, 2018 (Successor)(21)


Certain direct and incremental costs that are expected to be recovered, relate directly to a contract, and enhance resources that will be used in satisfying our performance obligationsSignificant changes in the future. Such costs are deferredcontract assets and amortized ratably tothe contract drilling expense as services are rendered over the initial term of the related drilling contract. Deferred contract costsliabilities balances during the period from January 1, 2018 through July 1, 2018 (Predecessor) and period from July 2, 2018 throughyear ended December 31, 2018 (Successor)2020 are as follows:

(In $ millions)  Contract AssetsContract LiabilitiesNet Contract
Balances
Net contract liability at January 1, 2020  0 (29)(29)
Amortization of revenue that was included in the beginning contract liability balance  — 23 23 
Cash received, excluding amounts recognized as revenue— (25)(25)
Net contract liability at December 31, 2020  0 (31)(31)


(In $ millions)Net deferred contract costs
Opening deferred contract costs at January 1, 2018 (Predecessor)20
Additional deferred contract costs6
Amortization of deferred contract costs(15)
Fresh start adjustment (1)
(11)
Closing deferred contract costs at July 1, 2018 (Predecessor)
Additional deferred contract costs22
Amortization of deferred contract costs(7)
Closing deferred contract costs at December 31, 2018 (Successor)15

(1) Refer to Note 5 – Fresh Start Accountingfor further information.

Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the demobilization process. Costs incurred for rig modifications or upgrades required for a contract, which are considered to be capital improvements, are capitalized as drilling and other property and equipment and depreciated over the estimated useful life of the improvement. Refer to Note 20 – Drilling units for more information.


Deferred revenue - The deferred revenue balance of $12of $18 million reported in "Other current liabilities" at December 31, 2018 (Successor)2020 is expected to be realized within the next twelve months and $9$13 million reported in "Other non-current liabilities" is expected to be realized within the following next twelve months. The deferred revenue included above consists primarily of mobilization and upgrade revenue for both wholly and partially unsatisfied performance obligations as well as expected variable mobilization and upgrade revenue for partially unsatisfied performance obligations, which has been estimated for purposespurposes of allocating across the entire corresponding performance obligations. The amounts are derived from the specific terms within drilling contracts that contain such provisions, and the expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract based on information known at December 31, 2018. The actual timing of recognition of such amounts may vary due to factors outside of our control.


Practical expedient - We have applied the disclosure practical expedient in ASC 606-10-50-14A(b) and have not included estimated variable consideration related to wholly unsatisfied performance obligations or to distinct future time increments within our contracts, including dayrate revenue. The duration of our performance obligations varies by contract.
Impact of Topic 606 on Financial Statement Line Items - Adopting Topic 606 did not have a material effect on the Consolidated Statement of Operations, or Consolidated Statement of Cash Flows for the period from January 1, 2018 through July 1, 2018 (Predecessor) and period from July 2, 2018 through December 31, 2018 (Successor) or the Consolidated Balance Sheets as of December 31, 2018 (Successor). Refer to Note 2 – Accounting policies for more information on the recently adopted accounting pronouncements.

Note 89 – Other revenues
Other revenues consist of the following:
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Leasing revenues19 
Amortization of unfavorable contracts21 
Early termination fees11 11 13 
Total other revenues30 12 0 34 
 Successor Predecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018

Period from January 1, 2018 through July 1, 2018

Year ended December 31,
2017


Year ended December 31,
2016

Related party revenues46
 43
 110
 100
Amortization of unfavorable contracts
 21
 43
 65
External management fees with third parties
 
 1
 19
Early termination fees
 8
 8
 69
Total46
 72
 162
 253
Leasing revenues
Revenue earned on the charter of the West Castor, West Telesto and West Tucana to Gulfdrill.
Related party revenues - Related party revenue relate to management support and administrative services provided during the year to Seadrill Partners, SeaMex and Northern Drilling. Refer to Note 30 - Related party transactions for more information.

Amortization of unfavorable contracts-
We recognize an intangible asset or liability if we acquire a drilling contract in a business combination and the contract had a dayrate that was above or below market rates at the time of the business combination. For the periods before emergence from the Previous Chapter 11 Proceedings and the application of fresh start accounting, we classified the amortization of these intangible assets or liabilities within other revenues. For the periods after emergence from the Previous Chapter 11 Proceedings and the application of fresh start accounting, we have applied a new accounting policy, which is to classify amortization of these intangible assets and liabilities within operating expenses. The unfavorable contract values in the Predecessor periods arose from our acquisition of Sevan Drilling Limited.

External management fees - External management fees relate to the operational, administrative and support services that we provide to Sapura Energy as part of the agreement that Seadrill entered into when we sold majority of the tender rig business. As the associated rigs were not operational from April 2017 no further management fees were recognized after this date.

Early termination fees - Other revenues for the period from January 1, 2018 through July 1, 2018 and
The termination fee revenue in the year ended December 31, 2017 and2020 relates to the West Gemini, the year ended December 31, 2016 included early termination fee revenue. The termination fee revenue in2019 relates to the fees recognized for the West Jupiter and West Castor, and the period from January 1, 2018 through July 1, 2018 relates to the fees recognized for the West Pegasus, the termination revenue in 2017 relates to the West Hercules and in 2016 to the West Hercules and West Epsilon. The total termination fee for the West Hercules was $66 million, with $58 million of revenue recognized in 2016 and remaining $8 million recognized in 2017. Pegasus.



Note 9 – Loss on disposals
We have recognized the following loss on disposals:
(In $ millions)
 
Net proceeds/recoverable amount
 
Book value on
disposal

 Loss
Period from July 2, 2018 through December 31, 2018 (Successor):     
Total for period ended December 31, 2018
 


      
Period from January 1, 2018 through July 1, 2018 (Predecessor):     
Total for period ended July 1, 2018
 
 
      
Year ended December 31, 2017 (Predecessor):

 

 

Sale of West Triton
75
 109
 (34)
Sale of West Mischief
75
 146
 (71)
Sale of West Resolute
75
 136
 (61)
Disposal of Sevan Developer contract

 75
 (75)
Sale of West Rigel
126
 128
 (2)
Other

2


(2)
Total for year ended December 31, 2017351
 596
 (245)
      
Year ended December 31, 2016 (Predecessor):

 

 

Total for year ended December 31, 2016
 
 

Loss on disposals in 2017 (Predecessor)

Sale of West Triton, West Mischief and West Resolute

On April 29, 2017 we reached an agreement with Shelf Drilling to sell the West Triton, West Mischief and West Resolute for a total consideration of $225 million. The West Triton and West Resolute were delivered in May 2017, whilst the West Mischief was delivered in September 2017. The sale resulted in a loss on disposal of $166 million.

Disposal of Sevan Developer contract
In October 2014, Sevan entered an agreement with Cosco to defer the delivery date of the Sevan Developer for twelve months with four subsequent options to extend the date for further periods of six months, until October 2017. On October 30, 2015, April 15, 2016 and October 15, 2016 three of the options were enacted, with $26.3 million, or 5% of the contract price, plus associated costs, refunded to Sevan on each occasion.
On April 27, 2017, the final delivery deferral agreement for the Sevan Developer was deferred to May 31, 2017 to finalize negotiations. As an agreement was not reached, the remaining installment of $26.3 million was refunded to Sevan, taking the delivery installment back to the $526.0 million contract price.

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

West Rigel settlement agreement

On April 5, 2018, we entered into a settlement and release agreement, subject to Bankruptcy Court approval, with Jurong in respect of the West Rigel whereby we agreed that the share of sale proceeds from the sale of the West Rigel by Jurong would be $126 million. We recognized a $2 million loss on disposal in the year ended December 31, 2017, reflecting the share of sales proceeds as the value of the asset held for sale.

On May 9, 2018 the West Rigel was sold by Jurong and we received a share of proceeds totaling $126 million.


Note 10 – Other operating items
Other operating items consist of the following:
SuccessorPredecessor
 (In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Impairment of long lived assets (i)
(4,087)(414)
Impairment of intangibles (ii)
(21)
Gain on disposals (iii)
15 
Other operating income (iv)
39 21 
Total other operating items(4,084)39 21 (407)
i. Impairment of long lived assets
In the period from January 1, 2018 through July 1, 2018 (Predecessor), we determined that the continuing downturn in the offshore drilling market was an indicator of impairment on certain assets. Following an assessment of recoverability, we recorded an impairment charge of $414 million against 3 of our older rigs.
F-37

In the year ended 2020, we determined the global impact of the COVID-19 pandemic, and continued down cycle in the offshore drilling industry, were indicators of impairment on certain assets. Following assessments of recoverability in March 2020 and December 2020, we recorded total impairment charges of $4,087 million. Refer to Note 12 – "Impairment loss on drilling rigs" for further details.
ii. Impairment of intangibles
On December 1, 2020, Seadrill Partners announced it had filed a voluntary petition under Chapter 11. Under Chapter 11 we are required to continue to provide the management services only at market rate. We concluded that we no longer have a favorable contract and the intangible asset relating to Seadrill Partners has been fully impaired.
iii. Gain on disposals
On September 3, 2020, the harsh environment jack-up rig, West Epsilon, was sold for $12 million. Following impairments recognized at the start of the year, the rig had zero book value. The full consideration was recognized as a gain. The sale proceeds were paid directly from the purchaser to the holders of the $2,000 million facility who held this rig as collateral. Refer to Note 37 - "Supplementary cash flow information" for further details.
On August 31, 2020 Seadrill executed a sale of purchase agreement with GDI for the sale of spare parts on the West Telesto. The sale generated a gain of $3 million.
iv. Other operating income
Other operating income consist of the following:
SuccessorPredecessor
 (In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Loss of hire insurance settlement (a)
10 
Receipt of overdue receivable (b)
26 21 
Contingent consideration (c)
Settlement with shipyard
Total other operating income9 39 21 7 
a) Loss of hire insurance settlement
Settlement of a claim on our loss of hire insurance policy following an incident on the Sevan Louisiana.
b) Receipt of overdue receivables
Receipt of overdue receivables which had not been recognized as an asset as part of fresh start accounting.
c) Contingent consideration
Amounts recognized for contingent consideration from the sales of the West Vela and West Polaris to Seadrill Partners in 2014 and 2015. On emergence from the Previous Chapter 11 Proceedings we recognized receivables equal to the fair value of expected future cash flows under these arrangements and have therefore not recognized further income in the 2018 Successor period and year ended 2019.

F-38

Note 11 – Interest expense


Interest expense consists of the following:
SuccessorPredecessor
 (In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Cash and payment-in-kind interest on debt facilities (a)
(338)(440)(237)(37)
Unwind of discount debt (b)
(44)(47)(24)
Write off of discount on debt (c)
(87)
Other(1)
Interest expense(469)(487)(261)(38)
 Successor Predecessor
 (In $ millions)
Period from July 2, 2018 through December 31, 2018

Period from January 1, 2018 through July 1, 2018

Year ended December 31, 2017

Year ended December 31, 2016
Cash and payment-in-kind interest on debt facilities(237) (37) (286) (408)
Unwind of discount debt(24) 
 
 
Loan fee amortization
 (1) (27) (43)
Capitalized interest
 
 28
 39
Interest expense(261) (38) (285) (412)
(a) Cash and payment-in-kind interest on debt facilities

i.Cash and payment-in-kind interest on debt facilities
We incur cash and payment-in-kind interest on our debt facilities. This is summarized in the table below.
SuccessorPredecessor
 (In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Senior credit facilities and unsecured bonds(239)(327)(162)(116)
Less: adequate protection payments104 
Senior Secured Notes(60)(66)(50)
Debt of consolidated variable interest entities(39)(47)(25)(25)
Cash and payment-in-kind interest(338)(440)(237)(37)
 Successor Predecessor
 (In $ millions)
Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
 Year ended December 31, 2016
Senior credit facilities and unsecured bonds(162) (116) (320) (360)
Less: adequate protection payments
 104
 81
 
New secured notes(50) 
 
 
Debt of consolidated variable interest entities(25) (25) (47) (48)
Cash and payment-in-kind interest(237) (37) (286) (408)
We are charged interest on our senior credit facilities at LIBOR plus a margin. ThisFor periods after July 2, 2018, this margin increased by one1 percentage point when we emergedfollowing the emergence from the Previous Chapter 11 under the terms of the Plan. There has also been an increase in LIBOR rates over the second half of 2018. Both factors increased the effective interest rate on our senior credit facilities.Proceedings.
During the period we were in the Previous Chapter 11 Proceedings (September 12, 2017 to July 1, 2018), we recorded contractual interest payments against debt held as subject to compromise ("adequate protection payments") as a reduction to debt in the Consolidated Balance Sheet and not as an expense to the Consolidated Statement of Operations. We then expensed the adequate protection payments on emergence from the Previous Chapter 11 (classified under reorganization items - see section 5 below).Proceedings.
On emergence from the Previous Chapter 11 Proceedings we issued $880 million of NewSenior Secured Notes. We incur 4% cash interest and 8% payment-in-kind interest on these notes. On November 14, 2018 and April 10, 2019 there were two redemptions. After the two redemptions there was a remaining $476 million principal outstanding on the notes, which includes $18 million of accrued payment-in-kind interest on our Senior Secured Notes which was compounded on July 15, 2019 and additional notes were issued. During 2020, a further $39 million of accrued payment-in-kind interest on our senior secured notes was compounded and additional notes were issued leaving $515 million principal outstanding on the notes as at December 31, 2020.
Our Consolidated Balance Sheet includes approximately $1 billionIn the fourth quarter of debt facilities held by subsidiaries of2020 we deconsolidated the Ship Finance thatSPV's as we consolidate asare no longer primary beneficiary of the variable interest entities. OurAs a result, we no longer consolidate the external debt facilities or the interest expense includes the interest incurred byon these entitiesfacilities. Please refer to Note 36 - "Variable Interest Entities" for further information.
(b) Unwind of discount on those facilities.debt
ii.Unwind of discount on debt
On emergence from the Previous Chapter 11 Proceedings and application of fresh start accounting, we recorded a discount against our debt to reduce its carrying value to equal its fair value. The debt discount iswas due to be unwound over the remaining terms of the debt facilities.
iii.Loan fee amortization
We amortize loan issuance costs over the expected term
(c) Write off of the associateddiscount on debt facility. We expensed capitalized loan issuance costs for debt subject to compromise when we filed for Chapter 11 on
In September 12, 2017. Loan fee amortization expense is therefore not comparable between these periods.
iv.Capitalized interest
We capitalize the interest cost incurred to finance Newbuilds. We ceased capitalization2020 and December 2020, there were non-payments of interest on Newbuilds when we filed for Chapter 11 on September 12, 2017.our secured credit facilities that constituted an event of cross-default. The event of default resulted in the expense of unamortized debt discount of $87 million.



F-39

Note 1112Impairment lossLoss on marketable securitiesimpairment of long-lived assets

We review the carrying value of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be appropriate. In 2020 we concluded that impairment triggering events have occurred for our drilling unit fleet.

On assessment of asset recoverability through an estimated undiscounted future net cash flow we calculated the value to be lower than the carrying value for 15 rigs. This resulted in a full impairment of all long-term cold stacked units and significant impairment of all benign environment floaters. In addition, based on the terms of the proposed settlement agreement with Northern Ocean we determined that any amounts from the use of owned equipment made available to the West Mira would no longer be recoverable. In total, this resulted in impairment expenses of $4.1 billion during 2020 which were classified within "loss on impairment of long-lived assets" on our Consolidated Statement of Operations for the year ended December 31, 2020.

For fair value considerations refer to Note 21 –"Drilling units".

Note 13 – Loss on impairment of investments in associated companies

We have recognized the following impairments on our marketable securities and investments in associated companies:
 Successor Predecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018*
 Year ended December 31,
2017

 Year ended December 31,
2016

Impairments of Marketable securities (refer to Note 15)
       
Seadrill Partners - Common Units
 
 
 153
Total impairment of marketable securities investments (reclassification from OCI)
 
 
 153
        
Impairments of Investment in associated companies and joint ventures (refer to Note 18)
       
Seadrill Partners - Total direct ownership investments
 
 723
 400
Seadrill Partners - Subordinated units
 
 82
 180
Seadrill Partners - Seadrill member interest and IDRs
 
 
 73
SeaMex Limited
 
 36
 76
Itaunas Drilling, Camburi Drilling, and Sahy Drilling
 
 
 13
Total impairment of investments in associated companies and joint ventures
 
 841
 742



  


Total impairment of investments
 
 841
 895
*On emergence from Chapter 11, the carrying valueimpairment of our investments in associated companies and joint ventures were adjusted to fair value resulting in a loss recognized in the Consolidated StatementStatements of Operations in "Reorganization items" for the period from January 1, 2018 through July 1, 2018 (Predecessor). For further information, refer to Note 5- Fresh start accounting.

Impairment loss recognized for the year ended December 31, 2017 (Predecessor)

Seadrill Partners - Subordinated units and direct ownership interests - Impairment of Equity Method Investment
Whilst the investments in Seadrill Partners held under the equity method are not publicly traded, the value of the publicly traded units remained lower than the carrying value ascribed to the equity method investments using managements assumptions for a sustained period. We determined this to be representative of an indicator of other than temporary impairment and performed a test of impairment at December 31, 2017.

As at December 31, 2017, the carrying value of the subordinated units was found to exceed the fair value by $82 million, and the carrying value of the direct ownership interests was found to exceed the fair value by $723 million. We recognized this impairment of the investments within “Loss on impairment of investments” in the Consolidated Statement of Operations.

The fair value of these investments were derived using an income approach, which discounts future free cash flows (“DCF model”). The estimated future free cash flows associated with the investments are primarily based on expectations around applicable day rates, drilling unit utilization, operating costs, capital and long-term maintenance expenditures, applicable tax rates and industry conditions. The cash flows were estimated over the remaining useful economic lives of the underlying assets but no longer than 30 years in total and discounted using an estimated market participant weighted average cost of capital of 9.75%. The DCF model derived an enterprise value of the investments, after which associated debt was subtracted to provide equity values. The implied valuation of Seadrill Partners derived from the DCF model was crosschecked against the market price of Seadrill Partners’ common units. Due to the significant influence we have on Seadrill Partners, there is in implied significant influence premium, which represents the additional value we would place over and above the market price of Seadrill Partners in order to maintain this significant influence. This is similar in thought to an implied control premium. We have evaluated the difference by reviewing the implied control premium as compared to other market transactions within the industry. We deem the implied control premium to be reasonable in the context of the data considered.

The assumptions used in the DCF model were derived from significant unobservable inputs (representative of Level 3 inputs for Fair Value Measurement) and are based on management’s judgments and assumptions available at the time of performing the impairment test. We employ significant judgment in developing these estimates and assumptions including the following:
forecast dayrates for our drilling contracts;
utilization rates;
operating costs and overheads;

estimated annual capital expenditure, cost of rig replacement and/or enhancement programs;
estimated maintenance, inspections or other costs associated with a rig after completion/termination of the contract;
remaining useful life of each rig; and
estimated tax rates.

The underlying assumptions and assigned probabilities of occurrence for utilization and dayrate scenarios 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.

SeaMex Limited - Impairment of investment in Joint Venture
The deteriorating market conditions in the oil and gas industry and supply and demand conditions in the offshore drilling sector in which SeaMex operates is considered to be an indicator of impairment. We determined the length and severity of the deterioration of market conditions to be representative of an other than temporary impairment. As such we measured and recognized an other than temporary impairment of the investment in SeaMex as at December 31, 2017.

The fair value was derived using an income approach, which discounts future free cash flows (“DCF model”). The estimated future free cash flows associated with the investment were primarily based on expectations around applicable day rates, drilling unit utilization, operating costs, capital and long-term maintenance expenditures and applicable tax rates. The cash flows were estimated over the remaining useful economic lives of the underlying assets but no longer than 30 years in total and discounted using an estimated market participant weighted average cost of capital of 10.25%. The DCF model derived an enterprise value of the investments, after which associated debt was subtracted to provide equity values.

The carrying value of the investment was found to exceed the fair value by $36 million. We have recognized this impairment of the investments within “Loss on impairment of investments” in the Consolidated Statement of Operations.

The assumptions used in the DCF model were derived from unobservable inputs (level 3) and are based on management’s judgments and assumptions available at the time of performing the impairment test. The use of different assumptions, particularly with regard to the most sensitive assumptions concerning estimated future dayrates and utilization and the assumed market participant discount rate, would have a material impact on the impairment charge recognized and our Consolidated Statement of Operations. In addition, if actual events differ from management’s estimates, or to the extent that these estimates are adjusted in the future, our financial condition and results of operations could be affected in the period of any such change of estimate.

Impairment loss recognized for the year ended December 31, 2016 (Predecessor)

Seadrill Partners - Common Units - Impairment of marketable securities
During the period between September 30, 2015 and September 30, 2016, Seadrill Partners’ unit price fell by approximately 62%, on both a spot price and trailing three-month average basis. Management determined that the investment in Seadrill Partners’ common units was other than temporarily impaired due to the length and severity of the reduction in value below historic cost. As a result, we impaired the investment, recognizing an impairment charge of $153 million within "Loss on impairment of investments". This impairment charge includes a reclassification of losses previously recognized within Other Comprehensive Income.

SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Impairments of Investment in associated companies and joint ventures
Seadrill Partners - Direct ownership investments47 248 
Seadrill Partners - Seadrill member interest and IDRs54 
Total impairment of investments in associated companies and joint ventures47 302 0 0 

On December 1, 2020 Seadrill Partners - Subordinated unitshad entered into restructuring proceedings, as a result we concluded that we no longer had significant influence over its financial and direct ownership interests - Impairment of Equity Method Investment
Asoperating decisions as decisions now need court approval or are determined by the courts. Our investment in Seadrill Partners was therefore derecognized as an investment in associate and recognized as an available-for-sale security at September 30, 2016, the closing carrying value of the subordinated units was found to exceed the fair value by $180 million, and the carrying value of the direct ownership interests was found to exceed the fair value by $400 million. We recognized this impairment of the investments within “Loss on impairment of Investments” in the Consolidated Statement of Operations. In the period from September 30, 2016 to December 31, 2016 no additional impairment was recognized due to the increase in the value of the traded units.

The assumptions used in the DCF model were derived from unobservable inputs (classified as level 3) and are based on management’s judgments and assumptions available at the time of performing the impairment test.

Seadrill Partners - Member interest - Impairment of Cost method investments
As at September 30, 2016, the reduction in value of the Seadrill Partners common units was determined to be an indicator of impairment of the Seadrill member interest. The fair value was determined using the Monte Carlo model, updated for applicable assumptions as at September 30, 2016. The carrying value of the investment was found to exceed the fair value by $73 million. We recognized this impairment within “Loss on impairment of Investments” in the Consolidated Statement of Operations.

The assumptions used in the Monte Carlo model were derived from both observable and unobservable inputs (classified as level 3) and are based on management’s judgments and assumptions available at the time of performing the impairment test.

SeaMex Limited - Impairment ofequity investment in Joint Ventureassociate, being nil.
As at September 30, 2016, the deteriorating market conditions in the oil and gas industry and supply and demand conditions in the offshore drilling sector in which SeaMex operates is considered to be an indicator of impairment. We have determined the length and severity of the deterioration of market conditions to be representative of an other than temporary impairment. As such we measured and recognized an other than temporary impairment of the investment.

The fair value was derived using an income approach, which discounts future free cash flows (“DCF model”). The estimated future free cash flows associated with the investment were primarily basedFor further information on expectations around applicable day rates, drilling unit utilization, operating costs, capital and long-term maintenance expenditures and applicable tax rates. The cash flows were estimated over the remaining useful economic lives of the underlying assets but no longer than 30 years in total and discounted using an estimated market participant weighted average cost of capital of 11%. The DCF model derived an enterprise value of the investments, after which associated debt was subtracted to provide equity values.

The carrying value of the investment was found to exceed the fair value by $76 million. We recognized this impairment of the investments within “Loss on impairment of investments” in the Consolidated Statement of Operations.

Itaunas Drilling, Camburi Drilling, and Sahy Drilling - Impairment of investment in Joint Ventureassociated companies refer toNote 20 – "Investment in associated companies".    
Itaunas Drilling BV, Camburi Drilling BV and Sahy Drilling BV are joint ventures which each have a contract to construct one drillship. The joint ventures are owned 70% by Sete International (a subsidiary of Sete Brasil Participacoes SA) and 30% by us.


During the year ended December 31, 2016, due to the deteriorating market conditions in the offshore drilling industry, the uncertainty around the financial condition of Sete Brasil Participacoes SA, and the uncertainty around the recoverability of the investments, we recognized an other than temporary impairment of $13 million to write down the value of these investments to nil. We recognized this impairment within “Loss on impairment of investments” in the Consolidated Statement of Operations.

Note 1214 – Taxation
 
Income taxes consist of the following:

Successor Predecessor SuccessorPredecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018

Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Current tax expense:       
Current tax expense/(benefit):Current tax expense/(benefit):   
Bermuda
 
 
 
Bermuda0 0 0 
Foreign30
 34
 56
 151
Foreign12 22 30 34 
Deferred tax expense: 
    
  
Deferred tax expense/(benefit):Deferred tax expense/(benefit):
Bermuda
 
 
 
Bermuda
Foreign(22) (4) 10
 48
Foreign(7)(61)(22)(4)
Total tax expense8
 30
 66
 199
Total tax expense/(benefit)Total tax expense/(benefit)5 (39)8 30 
Effective tax rate(1.3)% (0.8)% (2.2)% 452.3%Effective tax rate(0.1)%3.1 %(1.3)%(0.8)%
 
F-40

The effective tax rate for the year ended December 31, 2020 (Successor), the year ended December 31, 2019 (Successor), the period from July 2, 2018 through December 31, 2018 (Successor) and the period from January 1, 2018 through July 1, 2018 (Predecessor) was (0.1)%, 3.1% (1.3)% and (0.8)% respectively. For the years ended December 31, 2017 (Predecessor) and December 31, 2016 (Predecessor) the rate was (2.2)% and 452.3%.

The rate reflects no tax relief on the majority of the following items within the Statement of Operations, due to these items largely falling within the zero tax rate Bermudan companies:

 Successor Predecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

Loss on marketable securities(64) (3) 
 
(Loss)/gain on derivative financial instruments(31) (4) 11
 (74)
Reorganization items, net(9) (3,365) (1,337) 
Loss on impairment of investments
 
 (841) (895)
Loss on disposals
 
 (245) 

There was additionally no tax relief on the $696 million impairment of newbuildings recognized within 'Impairment of long lived assets' on the Statement of Operations in the year ended December 31, 2017 (Predecessor).


We are incorporated in Bermuda, where a tax exemption has been granted until 2035. Other jurisdictions in which we and our subsidiaries operate are taxable based on rig operations. A loss in one jurisdiction may not be offset against taxable income in another jurisdiction. Thus, we may pay tax within some jurisdictions even though itwe might have losses in others.


Due to the CARES Act in the US, we recognized a tax benefit of $5 million which included the release of valuation allowances previously recorded and carrying back net operating losses to previous years.

The income taxes for the year ended December 31, 2020 (Successor), the year ended December 31, 2019 (Successor), the period from July 2, 2018 through December 31, 2018 (Successor), and the period from January 1, 2018 through July 1, 2018 (Predecessor) and the years ended December 31, 2017 (Predecessor) and 2016 (Predecessor) differed from the amount computed by applying the BermudanBermuda statutory income tax rate of 0% as follows:
 SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Effect of change on unrecognized tax benefits(1)(6)49 12 
Effect of unremitted earnings of subsidiaries(2)(17)(10)
Effect of taxable income in various countries(16)(31)18 
Total tax expense/(benefit)5 (39)8 30 
 Successor Predecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

Income taxes at statutory rate
 
 
 
Effect of change on uncertain tax positions relating to prior year 49
 12
 (5) 28
Effect of unremitted earnings of subsidiaries(10) 
 3
 (4)
Effect of taxable income in various countries(31) 18
 68
 175
Total tax expense8
 30
 66
 199


During the year ended December 31, 2015, we reviewed our assertion of indefinite reinvestment of unremitted earnings of subsidiaries and determined that we no longer consider such earnings to be indefinitely reinvested. As at December 31, 2018 (Successor) we have recognized a deferred tax liability balance of $27 million (December 31, 2017 (Predecessor): $37 million).


Deferred income taxes
 
Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. The net deferred tax assets/(liabilities) consist of the following:
 
Deferred tax assets:
(In $ millions)December 31, 2020 December 31, 2019
Pensions and stock options
Provisions31 30 
Net operating losses carried forward251 259 
Intangibles
Other
Gross deferred tax assets290 291 
Valuation allowance(219)(255)
Deferred tax assets, net of valuation allowance71 36 
 Successor
 Predecessor
(In $ millions)December 31,
2018

 December 31,
2017

Pensions and stock options4
 4
Provisions28
 49
Net operating losses carried forward263
 255
Other
 
Gross deferred tax assets295
 308
Valuation allowance(254) (230)
Deferred tax assets, net of valuation allowance41
 78



Deferred tax liabilities:
Successor
 Predecessor
(In $ millions)December 31,
2018

 December 31,
2017

(In $ millions)December 31, 2020 December 31, 2019
Property, plant and equipment49
 138
Property, plant and equipment30 30 
Unremitted Earnings of Subsidiaries27
 37
Unremitted Earnings of Subsidiaries10 
Deferred gainDeferred gain34 
Intangibles34
 
Intangibles
Gross deferred tax liabilities110
 175
Gross deferred tax liabilities72 44 
Net deferred tax (liability)/asset(69) (97)
Net deferred tax liabilityNet deferred tax liability(1)(8)
 
As at December 31, 2018 (Successor),2020, deferred tax assets related to net operating loss (“NOL”) carry forwards was $263$251 million (December 31, 2017 (Predecessor): $2552019: $259 million), which can be used to offset future taxable income. NOL carry forwards which were generated in various jurisdictions, include $257$241 million (December 31, 2017 (Predecessor): $2482019: $249 million) that will not expire and $6$10 million (December 31, 2017 (Predecessor): $72019: $10 million) that will expire between 20182021 and 20372040 if unutilized.not utilized.


F-41

As at December 31, 2018 (Successor),2020, deferred tax liability related to intangibles from the application of fresh start accounting was $34 millionNaN (December 31, 2017: nil)2019: $4 million).


We establish a valuation allowance for deferred tax assets when it is more likely than not that the benefit from the deferred tax asset will not be realized. The amount of deferred tax assets considered realizable could increase or decrease in the near-term if our estimates of future taxable income change. Our valuationvaluation allowance consists of $242$251 million on NOL carry forwards as at December 31, 2018 (Successor)2020 (December 31, 2017 (Predecessor): $2162019: $259 million).
 
Uncertain tax positions


As at December 31, 20182020 (Successor), we had uncertaina total amount of unrecognized tax positionsbenefits of $132$82 million excluding interest and penalties of $26 million, of which $1 million was included in other current liabilities and $73$61 million was included in other non-current liabilities, and $58$21 million was presented as a reduction of deferred tax assets. The changes to our uncertainbalance related to unrecognized tax positionsbenefits were as follows:

Successor
 PredecessorSuccessorPredecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Balance at the beginning of the period61
 55
 44
 9
Balance at the beginning of the period89 132 61 55 
Increases as a result of positions taken in prior periods69
 7
 23
 35
Increases as a result of positions taken in prior periods69 
Increases as a result of positions taken during the current period18
 1
 
 2
Increases as a result of positions taken during the current period29 18 
Decreases as a result of positions taken in prior periods(9) (2) (9) (2)Decreases as a result of positions taken in prior periods(4)(34)(9)(2)
Decreases as a result of positions taken in the current period
 
 
 
Decreases due to settlements(7) 
 (3) 
Decreases due to settlements(1)(46)(7)
Decreases as a result of a lapse of the applicable statute of limitationsDecreases as a result of a lapse of the applicable statute of limitations(3)
Balance at the end of the period132
 61
 55
 44
Balance at the end of the period82 89 132 61 
 
Accrued interest and penalties totalled $26totaled $18 million and $12 million as ofat both December 31, 20182020 (Successor) and December 31, 2017 (Predecessor) respectively2019 (Successor) and were included in "Other liabilities" on our Consolidated Balance Sheet.Sheets. We recognized expensesexpenses/(benefits) of ($1 million), ($7 million), $11 million and $3 million during the year ended December 31, 2020 (Successor), the year ended December 31, 2019 (Successor), the period from July 2, 2018 through December 31, 2018 (Successor) and the period from January 1, 2018 through July 1, 2018 (Predecessor), respectively, ($10 million expense recognized in the year ended December 31, 2017 (Predecessor) and $2 million in the year ended December 31, 2016 (Predecessor)), related to interest and penalties for unrecognized tax benefits on the income tax expense line in the accompanying Consolidated Statement of Operations.

As of December 31, 2018 (Successor) has recognized liabilities for uncertain2020 (Successor), $79 million of our unrecognized tax positionsbenefits, including penalties and interest, and penalties of $100 million. In the event that these issues are resolved for amounts less than provided, there would behave a favorable impact onto the Company’s effective tax rate.
The increase in our uncertain tax position was largely due to US taxes following a recently identified interpretation of the US tax code that appears to be an unintended consequence of the US tax reform. We understand that the US Department of Treasury is aware of this issue and that it could potentially be remediated with additional guidance in the future. However, in the meanwhile, the Company is considering its approach for future filings which may result in a mitigation of a portion of the liability that has been recorded.  At this stage, no cash payment is expected as a result of this uncertain tax position.



rate if recognized.
Tax returns and open years

We are subject to taxation in various jurisdictions. Tax authorities in certain jurisdictions examine our tax returns and some have issued assessments. We are defending our tax positions in those jurisdictions.

The Brazilian tax authorities have issued a series of assessments with respect to our returns for certain years up to 2012 for an aggregate amount equivalent to $161 million including interest and penalties. The relevant group companies are robustly contesting these assessments including filing relevant appeals. An adverse outcome on these proposed assessments could result in a material adverse impact on our Consolidated Balance Sheets, Statements of Operations or Cash Flows. InDuring the year ended December 31, 2020, the Company posted approximately $65 million collateral with a financial institution in order to continue the appeal against certain years, it will be necessary to posttax years. The collateral with a financial institutionis included in an amount totaling approximately $70 million, which is expected to be required in the second calendar quarter of 2019.

"Restricted Cash" on our Consolidated Balance Sheets.
The Nigerian tax authorities have issued a series of claims and assessments both directly and lodged through the Previous Chapter 11 processProceedings, with respect to returns for subsidiaries for certain years up to 2016 for an aggregate amount equivalent to $171 million. The relevant group companies are robustly contesting these assessments including filing relevant appeals in Nigeria and it is also intended that one or more formal objections against these claims for distribution purposes will be filed in the USU.S. court. An adverse outcome on these proposed assessments could result in a material adverse impact on our Consolidated Balance Sheets, Statements of Operations or Cash Flows.

F-42

The following table summarizes the earliest tax years that remain subject to examination by other major taxable jurisdictions in which we operate. 
JurisdictionEarliest Open Year
Angola2015
Nigeria2014
United States2016
Norway2016
Brazil2008
JurisdictionEarliest Open Year
Angola2015
Nigeria2014
United States2015
Norway2015
Brazil2008



Note 1315 – Loss per share
The computation of basic (loss)/earningsloss per share (“EPS”LPS) is based on the weighted average number of shares outstanding during the period. Diluted EPSLPS includes the effect of the assumed conversion of potentially dilutive instruments.

The components of the numerator for the calculation of basic and diluted EPSLPS are as follows:
Successor PredecessorSuccessorPredecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018

Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Net loss attributable to the parent(602) (3,881) (2,973) (181)Net loss attributable to the parent(4,659)(1,219)(602)(3,881)
Less: Allocation to participating securities
 
 
 
Less: Allocation to participating securities
Net loss available to stockholders(602) (3,881) (2,973) (181)Net loss available to stockholders(4,659)(1,219)(602)(3,881)
Effect of dilution
 
 
 
Effect of dilution
Diluted net loss available to stockholders(602) (3,881) (2,973) (181)Diluted net loss available to stockholders(4,659)(1,219)(602)(3,881)
The components of the denominator for the calculation of basic and diluted EPSLPS are as follows:
Successor PredecessorSuccessorPredecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018

Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Basic earnings per share:       
Basic loss per share:Basic loss per share:
Weighted average number of common shares outstanding100
 504
 505
 501
Weighted average number of common shares outstanding100 100 100 504 
Diluted earnings per share: 
    
  
Diluted loss per share:Diluted loss per share:   
Effect of dilution
 
 
 
Effect of dilution
Weighted average number of common shares outstanding adjusted for the effects of dilution100
 504
 505
 501
Weighted average number of common shares outstanding adjusted for the effects of dilution100 100 100 504 
The basic and diluted loss per share are as follows:
SuccessorPredecessor
(In $)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Basic loss per share(46.43)(12.18)(6.02)(7.71)
Diluted loss per share(46.43)(12.18)(6.02)(7.71)
ASC 260 ‘Earnings per Share’ requires the presentation of diluted earnings per share where a company could be called upon to issue shares that would decrease net earnings per share. As the Company reported net losses for the year ended December 31, 2020, the effect of including
F-43

 Successor Predecessor
(In $)Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

Basic loss per share(6.02) (7.71) (5.89) (0.36)
Diluted loss per share(6.02) (7.71) (5.89) (0.36)
potentially dilutive instruments in the calculation would result in a reduction in loss per share, which is anti-dilutive. Under these circumstances, these instruments are not included in the calculation due to their anti-dilutive effect and as a result the basic and diluted loss per share are equal.


Note 1416 – Restricted cash
 
Restricted cash consists of the following:
(In $ millions)December 31, 2020December 31, 2019
Accounts pledged as collateral for Senior Secured Notes (1)
30 24 
Accounts pledged as collateral for performance bonds and similar guarantees (2)
48 104 
Demand deposit pledged as collateral for tax related guarantee (3)
65 83 
Accounts pledged as collateral for leases(4)
22 
Other32 31 
Total restricted cash197 242 
 Successor
 Predecessor
(In $ millions)December 31, 2018
 December 31, 2017
Funding Escrow for NSN (1)
328
 
Cash pledged as collateral (2)
101
 76
Other32

28
Total restricted cash461
 104


(1)In 2019 and 2020, Seabras Sapura repaid $24 million and $6 million respectively of related party and shareholder loans, with the cash proceeds held in escrow against a future redemption of Senior Secured Notes.
(1) Restricted(2)On February 24, 2020 we agreed with Danske Bank to reduce our guarantee facility from $90 million to $45 million. As a result, the cash at December 31, 2018 included cashcollateral required to be held was reduced.
(3)We placed a total of 330 million Brazilian Reais of collateral with BTG Pactual under a letter of credit agreement. This related to long-running tax disputes which are currently being litigated through the Brazilian courts. This is held as collateral againstnon-current within the New Secured Notes. This included (i) $228 millionConsolidated Balance Sheet.
(4)Certain accounts are pledged to the Ship Finance SPV's for lease arrangements for the West Taurus, West Linus and West Hercules. Following an event of default in the initial proceeds from issuing the notes, (ii) $55 million deferred consideration payment from Sapura Energy and (iii) $43 million shareholder loan repayment from Seabras Sapura.fourth quarter of 2020, a block was placed on these accounts. As such these accounts were reclassified as restricted.


(2) Cash heldRestricted cash is presented in our Consolidated Balance Sheets as collateral against guarantees and other linked facilities we have with Danske Bank.follows:

(In $ millions)December 31, 2020December 31, 2019
Current restricted cash132 135 
Non-current restricted cash65 107 
Total restricted cash197 242 

Note 1517 – Marketable securities
Effective January 1, 2018, we adopted ASU 2016-01, which applies to equity investments that are neither (i) accounted for under the equity method or (ii) result in consolidation. Under ASU 2016-01 we record such investments at fair value and recognize any changes directly in net income, unless there is no readily ascertainable fair value, in which case we record the investment at cost less impairment. We hold investments in certain marketable securities which we account for at fair value through profit and loss per this guidance.loss. We use quoted market prices to determine the fair value of our marketable securities and categorize them as level 1 on the fair value hierarchy.

For fiscal periods beginning prior to January 1, 2018, marketable securities not accounted for under the equity method were classified as available-for-sale. Unrealized gains and losses on equity securities classified as available-for-sale were recognized in other comprehensive income. When we adopted ASU 2016-01 for the first time at January 1, 2018, we reclassified $31 million of previously recognized fair value gains from accumulated other comprehensive income to retained earnings on January 1, 2018.

The below table shows the carrying value of our investments in marketable securities for periods presented in this report.
(In $ millions)December 31, 2020December 31, 2019
Seadrill Partners- Common units
Archer
Total marketable securities8 11 
  Successor
 Predecessor
(In $ millions) December 31, 2018
 December 31, 2017
Seadrill Partners - Common units 45
 96
Archer 12
 28
Total marketable securities 57
 124

Note that our investments in Seadrill Partners subordinated units, direct interests in subsidiaries of Seadrill Partners and Seadrill Partners member interests and IDRs have been reclassified from Investments in Associated Companies at the year end as a result of a loss of significant influence triggered by Seadrill Partners voluntarily filing for Chapter 11 protection on December 1, 2020. At the time of reclassification the investments were carried at a nil value. Refer to Note 20 - "Investments in associated companies" for further information.
The below table shows the gain and losses recognized through net income for the periods presented in this report since the adoptionreport.
F-44

Table of ASU 2016-01.

 Successor
 Predecessor
SuccessorPredecessor
(In $ millions) Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Seadrill Partners - Common Units - unrealized loss on marketable securities (45) (5)Seadrill Partners - Common Units - unrealized loss on marketable securities(2)(43)(45)(5)
Archer - unrealized (loss)/gain on marketable securities (19) 2
Archer - unrealized (loss)/gain on marketable securities(1)(3)(19)
Total unrealized loss on marketable securities (64) (3)Total unrealized loss on marketable securities(3)(46)(64)(3)

The below table shows theThere was no gain and losses recognized through other comprehensive income for the periods presented in this report before the adoption of ASU 2016-01.
  Predecessor
 Predecessor
(In $ millions) Year ended December 31, 2017
 Year ended December 31, 2016
Seadrill Partners - Common Units - unrealized (loss) / gain on marketable securities (14)
17
Archer - unrealized gain on marketable securities 28


Total unrealized gain on marketable securities 14
 17

Until April 2017, we accounted for our investment in Archer under the equity method. However, as part of a financial restructuring, Archer completed two share issuances in March and April 2017, which diluted our ownership interest to 15.7%. Also, as part of this restructuring, we agreed with Archer to convert total outstanding subordinated loans, fees and interest provided to Archer, with a carrying value of $37 million, into a $45 million loan. The fair value of the new loan receivable at the date of conversion was $56 million resulting in a gain of $19 million on debt extinguishment, which is presented within “Gain on debt extinguishment” in our Predecessor Consolidated Statement of Operations.

As a result of these activities, we concluded that we no longer had significant influence over Archer's financial and operating decisions, primarily as a result of the reduction in our shareholding and the significant reduction in our interests in related debt and guarantees. We reclassified our equity method investment in Archer, which had a carrying value of nil, to an investment in marketable security, also with a carrying value of nil. We then revalued the investment in marketable security to fair value based on Archer's share price. We recognized the gain through other comprehensive income.

For periods before we adopted ASU 2016-01, we reviewed our marketable securities for other-than-temporary impairment at each reporting date. Please see Note 11 - Impairmentor loss on marketable securities andthe Seadrill Partners ownership interests reclassified from Investment in Associated Companies as these investments in associated companies for details.have a nil fair value.

Note 1618 – Accounts receivable
Accounts receivablesreceivable are held at their nominal amount less an allowance for doubtful accounts. Doubtfulexpected credit losses.
The adoption of ASC 326 on January 1, 2020 did not have a material impact on our third-party accounts receivable balances either on transition or at the year end. In calculating the expected credit losses we assumed that the accounts receivable are recognized when it is unlikely that required payments of specific amounts will occur asperforming, mature within three months, and have a result of the financial condition of the customer. Baa3 credit rating. Refer to Note 6 - "Current expected credit losses" for further information.

Note 19 – Other assets
As at December 31, 20182020 and 2019 (Successor) we had no allowances for doubtful accounts netted against our accounts receivable (December 31, 2017 (Predecessor): nil;, other assets included the following: 
(In $ millions)December 31, 2020December 31, 2019
Favorable drilling and management services contracts10 33 
Taxes receivable32 38 
Prepaid expenses (1)
67 33 
Right of use asset (2)
57 35 
Reimbursable amounts due from customers (3)
11 21 
Deferred contract costs14 12 
Derivative asset - interest rate cap (4)
Insurance receivable14 
Other (5)
37 28 
Total other assets232 217 
(1) As at December 31, 2016 (Predecessor): nil).2020 includes legal and advisory fees relating to the Chapter 11 process.

(2) Refer to Note 25 - "Leases" for further information.
We recognized no bad debt expense in the period from July 2, 2018 through December 31, 2018 (Successor) and $48 million in the period from January 1, 2018 through July 1, 2018. We did not recognize any bad debt expense in 2017, or 2016, but have instead reduced contract revenue for any disputed amounts.


Note 17 – Other assets
 Successor
 Predecessor
(In $ millions)As at December 31,
2018


As at December 31,
2017

Favorable drilling and management service contracts to be amortized186
 
Taxes receivable50
 24
Derivative asset - Interest rate cap (1)
39
 
Prepaid Expenses32
 87
Deferred mobilization cost15
 20
Reimbursable amounts due from customers10
 15
Deferred Consideration (2)

 80
Income tax effects of intercompany sales or transfers of assets (3)

 84
Other assets26
 28
Total other assets358
 338
(1) On May 11, 2018, Seadrill Limited bought an interest rate cap from Citigroup for $68 million. The interest rate mitigates our exposure to future increases in LIBOR rates. We have an exposure to LIBOR rates because we hold floating rate debt. For the period from January 1, 2018 through to July 1, 2018 and from July 2, 2018 through to December 31, 2018 there had been a net fair value adjustmenton the interest rate cap(3) Includes related party balances of $6 million and $22 million respectively to bring the asset value to $39 million.
(2) On April 30, 2013, we completed the disposal of the tender rig business to Sapura Energy. The total consideration consisted of a non-contingent deferred consideration of $145 million, bearing interest at LIBOR plus 5%, which was due in April 30, 2016. During the year ended December 31, 2016, Sapura Energy repaid $10 million of the principal and paid $25 million of interest. On August 28, 2017, this was converted into a formalized loan agreement whereby $5 million is repaid each month. During the year ended December 31, 2018, the full amount was repaid.
(3) Income tax effects following the sale of assets on divestment of North Atlantic Drilling Limited. The asset was expensed on January 1, 2018 following adoption of ASU 2016-16 - forfrom Northern Ocean. For further information refer to Note 332 - Recent accounting standards."Related party transactions".

(4) Refer to Note 33 - "Financial instruments and risk management".
(5) As at December 31, 2020 includes $17 million D&O insurance relating to tail back claims in the Chapter 11 process.
Other assets are presented in our Consolidated Balance SheetSheets as follows:
(In $ millions)December 31, 2020December 31, 2019
Other current assets186 158 
Other non-current assets46 59 
Total other assets232 217 
F-45

 Successor
 Predecessor
(In $ millions)As at December 31,
2018

 As at December 31,
2017

Other current assets322
 257
Other non-current assets36
 81
Total other assets358
 338

Intangible assets - Favorable Drilling Contracts and Management Services Contracts

On emergence from Chapter 11, we recognized favorable drilling contracts and management serviceservices contracts at fair value, which will be amortized over their remaining contract period. The amounts recognized represent the net present value of the existing contracts at the time of emergence compared to the current market rates at that time, discounted at the weighted average cost of capital.

The gross carrying amounts and accumulated amortization included in 'Other current assets' and 'Other non-current assets' for favorable contracts in the Consolidated Balance Sheet are as follows:

December 31, 2020December 31, 2019
(In $ millions)Gross Carrying AmountAccumulated amortizationNet carrying amountGross Carrying AmountAccumulated amortizationNet carrying amount
Favorable contracts
Balance at beginning of period287 (254)33 287 (101)186 
Impairment of favorable contracts(1)
(21)— (21)— 
Amortization of favorable contracts— (2)(2)— (153)(153)
Balance at end of period266 (256)10 287 (254)33 
(1) On December 1, 2020, Seadrill Partners announced it had filed a voluntary petition under Chapter 11. This triggered an impairment of the full favorable contract balance with Seadrill Partners. Refer to Note 10 - "Other operating items".
  Successor Predecessor
  As at December 31, 2018 As at December 31, 2017
(In $ millions) Gross Carrying Amount
Accumulated amortization
Net carrying amount
 Gross Carrying Amount
Accumulated amortization
Net carrying amount
Favorable contracts        
Balance at beginning of period 287

287
 


Amortization of favorable contracts 
(101)(101) 


Balance at end of period 287
(101)186
 




The amortization is recognized in the Consolidated Statements of Operations under "Amortization of favorable and unfavorable contracts"intangibles". The weighted average remaining amortization period for the favorable contracts is 419 years, 35 months.

The table below shows the amounts relating to favorable contracts that is expected to be amortized over the following periods:
(In $ millions)Period ended December 31,
20212022202320242025 and thereafterTotal
Amortization of favorable contracts1111610

  Period ended December 31,
(In $ millions) 2019
2020
2021
2022
2023 and after
Total
Amortization of favorable contracts 153
2
2
2
27
186

Note 1820 – Investment in associated companies
We have the following investments in associated companies:
Ownership percentageJoint venture partnerDecember 31, 2020December 31, 2019
Seadrill Partners and Seadrill Partner subsidiaries ("SDLP investments") (a) (b)
(a)(a)(a)
Seabras Sapura (b)
Sapura Energy50.0 %50.0 %
SeaMex Ltd. ("SeaMex") (b)
Fintech50.0 %50.0 %
Sonadrill (b)
Sonangol E.P.50.0 %50.0 %
Gulfdrill (b)
Gulf Drilling International50.0 %50.0 %
 Successor
 Predecessor
Ownership percentageDecember 31, 2018
 December 31, 2017
Seadrill Partners and Seadrill Partner subsidiaries ("SDLP investments") (a) (b)
(a)
 (a)
Seabras Sapura (b)
50.0% 50.0%
SeaMex Ltd. ("SeaMex") (b)
50.0% 50.0%
(a)
Refer to the Seadrill Partners subsidiaries paragraph below for additional information.
(b)
For transactions with related parties refer to Note 30 - Related party transactions.

(a)    Refer to the Seadrill Partners subsidiaries paragraph below for additional information. For transactions with related parties refer to Note 32 - "Related party transactions".
SDLP(b)    We own 50% equity interests in the above entities. The remaining 50% equity interest is owned by the above joint venture partners. We account for our 50% investments in the joint ventures under the equity method. For transactions with related parties refer to Note 32 - "Related party transactions".

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

Seadrill Partners has issued 3 categories of equity instruments: 2 classes of stock (“common units” and “subordinated units”) and incentive distribution rights (“IDRs”). The holders of these equity instruments have varying rights to receive distributions from Seadrill Partners. The common units and subordinated units have equal rights to distributed profits, subject to the common units being entitled to a minimum quarterly distribution before the subordinated units may receive a dividend. The holders of the following:IDRs do not receive a share of the

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Seadrill Partners distributions until a target distribution level has been achieved. The IDRs receive an increasing share of the distribution once this has been met.

We have several investments in Seadrill Partners. These include (i) 100% of the subordinated units (1.6 million units) representing 18% of the limited partner interests in Seadrill Partners; (ii) 35% of the common units (2.5 million out of 7.5 million total units) and (iii) 100% of the incentive distribution rights. In addition, we have investments in the common stock of 4 operating subsidiaries controlled by Seadrill Partners: (i) 42% interest in Seadrill Operating LLP which wholly owns 4 rigs and has a 56% interest in 1 rig; (ii) 49% interest in Seadrill Capricorn LLC which wholly owns 4 rigs and (iii) 39% interest in Seadrill Deepwater Drillship Ltd and 49% interest in Seadrill Mobile Units (Nigeria) Ltd which, together, own a 44% interest in 1 rig.

Seadrill Partners common units do not meet the definition of common stock under US GAAP as they are not the lowest class of stock because they have an additional right to dividends compared to the subordinated units. The IDRs do not meet the definition of stock. Therefore, neither category of investment is accounted for under the equity method.
(a) Subordinated units - Our holdings of subordinated units of Seadrill Partners are accounted for under the equity method on the basis that the subordinated units arewere considered to be ‘in-substance common stock’. The subordination period will end on the satisfaction of various tests as prescribed in the Operating Agreement of Seadrill Partners. Upon the expiration of the subordination period, the subordinated units will convert into Common Units. Our holding in the subordinated units represents 18% of the limited partner interests in Seadrill Partners.

(b) Direct ownership interests - All of our direct ownership interests in subsidiaries of Seadrill Partners are accounted for under the equity method. We deem these investments to represent significant influence over the investees through their voting rights and by virtue of Seadrill’s representation on the Board of Seadrill Partners. We hold ownership interests in the following entities controlled by Seadrill Partners as at December 31, 2018:

i.
42% in Seadrill Operating LP: Seadrill Operating LP is a limited partnership and is controlled by its General Partner, Seadrill Operating GP LLC, which is wholly owned by Seadrill Partners.
ii.
49% Seadrill Capricorn Holdings LLC: Seadrill Capricorn Holdings LLC is a limited liability company. There is only one class of member interest which is deemed to represent voting common stock.
iii.
39% in Seadrill Deepwater Drillship Ltd and 49% indirect interest in Seadrill Mobile Units (Nigeria) Ltd.: Both entities are limited companies and only have one class of stock, which is deemed to represent voting common stock.

(c) Member interestsand IDR's - Seadrill applies the cost method to account for its investment in Seadrill member interestPartners common units and Incentive Distribution Rights (“IDR’s”) on the basis that they do not represent common stock interests and their fair value is not readily determinable. The investments are held at cost less impairment.

On December 1, 2020, Seadrill Partners announced it had filed a voluntary petition under Chapter 11. Seadrill Partners assets and business operations are, therefore, under the supervision of the court and for the benefit of creditors. As a result Seadrill no longer has significant influence from this point. On emergence from Chapter 11, we expect our equity interest to be diluted to an extent our shareholding is minimal and significantly reduce our Board representation. From the date of losing significant influence the above investments were classified as market marketable securities on the Consolidated Balance Sheet, consistent with the investment held in the common units of Seadrill Partners. Refer to Note 17 - "Marketable securities" for further information. This reclassification has not resulted in a gain or loss in the Consolidated Statement of Operations as these investments have previously been impaired down to nil and the investments have nil fair value as the date we lost significant influence and at December 31, 2020 based on the year end share price of Seadrill Partners and the financial difficulty of the investees.
The 'Summary of Consolidated Statements of Operations' has not been included for Seadrill Partners for the period ending December 1, 2020 in the information below. Seadrill Partners on the date of issuance of these consolidated financial statements have yet to issue consolidated statements for the year ending December 31, 2020 that comply with U.S. GAAP and would be impractical to obtain the results for the year ended December 31, 2020. Furthermore, our associated investment was substantially written down through impairment in the year ending December 31, 2019 and was fully impaired to nil carrying value in the first quarter of 2020 and thus our share in results of Seadrill Partners did not incorporate results for the period from April 1, 2020 to December 1, 2020.
SeaMex
SeaMex is a joint venture that owns and operates 5 jack-up drilling units located in Mexico under contract with Pemex. As of February 28, 2021, we have a 50% ownership stake in SeaMex. The remaining 50% interest is owned by an investment fund controlled by Fintech Investment Limited, ("Fintech").
Seabras Sapura
Seabras Sapura is a group of related companies that own and operate 6 pipe-laying service vessels in Brazil. As of February 28, 2021, we have a 50% ownership stake in each of these companies. The remaining 50% interest is owned by Sapura Energy Berhad ("Sapura Energy").
Gulfdrill
Gulfdrill is a joint venture that manages and 50% owned by Seadrill. We account for our 50% investmentoperates 5 premium jack-ups in Seabras Sapura under the equity method.

SeaMex
We ownQatar with Qatargas. As of February 28, 2021, we have a 50% equity interestownership stake in SeaMex.Gulfdrill. The remaining 50% interest is owned by Fintech.Gulf Drilling International ("GDI"). We account forlease 3 of our 50% investment injack-up rigs to the joint venture, underwith the equity method.additional 2 units being leased from a third party shipyard.

Sonadrill

Sonadrill is a joint venture that will operate 4 drillships focusing on opportunities in Angolan waters. As of February 28, 2021, we have a 50% ownership stake in Sonadrill. The remaining 50% interest is owned by Sonangol EP ("Sonangol"). Both Seadrill and Sonangol will bareboat 2 units into the joint venture. On October 1, 2019, the first bareboat and management agreements for the Sonangol drilling unit, Libongos, became effective. The rig commenced its first drilling contract on October 10, 2019.
Share in results from associated companies
Our share in results of our associated companies (net of tax) were as follows:
 Successor
Predecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018
Period from January 1, 2018 through July 1, 2018


Year ended December 31, 2017
Year ended December 31, 2016
Seadrill Partners - Direct ownership interests(82)77
82
216
Seadrill Partners - Subordinated units(20)22
22
44
Seabras Sapura24
46
80
62
SeaMex(12)4

20
Archer

(10)(59)
Total share in results from associated companies (net of tax)(90)149
174
283

Summary of Consolidated Statements of Operations for our equity method investees

Fresh start accounting
On emergence from bankruptcy, our equity method investments were measured at fair value which resulted in a different basis from the underlying carrying values of the investees' net assets at the date of emergence. The basis differences comprise of (i) drilling unit basis
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differences which are depreciated over the remaining useful life of the associated asset and (ii) contract basis differences which are amortized over the remaining term of the contract. The unwinding of the basis difference is recognized as a "Share in results from associated companies" in the Consolidated Statement of Operations.

Share in results from associated companies
Our share in results of our associated companies (net of tax) were as follows:
SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Seadrill Partners - Direct ownership interests(75)(107)(82)77 
Seadrill Partners - Subordinated units(17)(20)22 
Seabras Sapura20 29 24 46 
SeaMex(22)(19)(12)
Sonadrill(2)(1)
Gulfdrill
Total share in results from associated companies (net of tax)(77)(115)(90)149 

Summary of Consolidated Statements of Operations for our equity method investees
The results of the Direct ownership interests in the SDLP companiesSeadrill Partners and its subsidiaries and our share in those results (net of tax) were as follows:
Seadrill PartnersSuccessorPredecessor
(In $ millions)Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Operating revenues (1)
750 426 612 
Net operating (loss)/income (1)
51 100 257 
Net (loss)/income (1)
(187)(127)201 
Net (loss)/income allocated to subsidiaries of Seadrill Partners (1)
(92)(59)77 
Losses not recognized— — — 
Amortization of basis differences(15)(23)
Share in results of Seadrill Partners (net of tax)(107)(82)77 
Net (loss)/income allocated to SDLP subordinated units(17)(15)22 
Amortization of basis differences(5)
Share in results of the subordinated units of Seadrill Partners (net of tax)(17)(20)22 
SDLPSuccessor
Predecessor
(in $ millions)Period from July 2, 2018 through December 31, 2018
Period from January 1, 2018 through July 1, 2018
Year ended
December 31, 2017

Year ended
December 31, 2016

Operating revenues426
612
1,128
1,600
Net operating income100
257
464
818
Net income(127)201
235
546
     
Net (loss)/income allocated to SDLP direct ownership interests(59)77
93
254
Amortization of basis differences(23)
(11)(38)
Share in results of SDLP direct investments(82)77
82
216
     
Net (loss)/income allocated to SDLP subordinated units(15)22
24
49
Amortization of basis differences(5)
(2)(5)
Share in results of SDLP subordinated units(20)22
22
44

(1) The 'Summary of Consolidated Statements of Operations' has not been included for Seadrill Partners for the period ending December 1, 2020. Seadrill Partners on the date of issuance of these consolidated financial statements have yet to issue consolidated statements for the year ending December 31, 2020 that comply with U.S. GAAP and would be impractical to obtain the results for the year ended December 31, 2020. Furthermore, our associated investment was substantially written down through impairment in the year ending December 31, 2019 and was fully impaired to nil carrying value in the first quarter of 2020 and thus our share in results of Seadrill Partners did not incorporate results for the period from April 1, 2020 to December 1, 2020. The share in results of a loss of $75 million represents Seadrill's share for the period before the investment was reduced to nil.
The results of the Seabras Sapura companies and our share in those results (net of tax) were as follows:

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Table of Contents
Seabras SapuraSuccessor
PredecessorSeabras SapuraSuccessorPredecessor
(in $ millions)Period from July 2, 2018 through December 31, 2018
Period from January 1, 2018 through July 1, 2018
Year ended
December 31, 2017

Year ended
December 31, 2016

(In $ millions)(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Operating revenues232
241
487
389
Operating revenues360 434 232 241 
Net operating income124
125
244
201
Net operating income103 198 124 125 
Net income88
92
160
124
Net income75 113 88 92 
   
Seadrill ownership percentage50%50%50%Seadrill ownership percentage50 %50 %50 %50 %
Share of net income44
46
80
62
Share of net income38 57 44 46 
   
Amortization of basis differences(20)


Amortization of basis differences(18)(28)(20)
Total basis difference(20)


Share in results from Seabras Sapura (net of tax)24
46
80
62
Share in results from Seabras Sapura (net of tax)20 29 24 46 


The results of the SeaMex companies and our share in those results (net of tax) were as follows:
SeaMexSuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Operating revenues234 232 118 121 
Net operating income49 70 40 40 
Net (loss)/income(13)18 
Seadrill ownership percentage50 %50 %50 %50 %
Share of net (loss) / income(6)9 2 4 
Amortization of basis differences(16)(28)(14)
Share in results from SeaMex (net of tax)(22)(19)(12)4 

The results of the Sonadrill companies and our share in those results (net of tax) were as follows:
SonadrillSuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Operating revenues56 22 
Net operating income(2)(1)
Net income(5)(2)
Seadrill ownership percentage50 %50 %%%
Share of net income(2)(1)0 0 
Share in results from Sonadrill (net of tax)(2)(1)0 0 

The results of the Gulfdrill companies and our share in those results (net of tax) were as follows:
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Table of Contents
SeaMexSuccessor
Predecessor
(in $ millions)Period from July 2, 2018 through December 31, 2018
Period from January 1, 2018 through July 1, 2018
Year ended
December 31, 2017

Year ended
December 31, 2016

GulfdrillGulfdrillSuccessorPredecessor
(In $ millions)(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Operating revenues118
121
239
280
Operating revenues44 
Net operating income40
40
80
119
Net operating income
Net income4
7

40
Net income
   
Seadrill ownership percentage50%50%50%Seadrill ownership percentage50 %50 %%%
Share of net income2
4

20
Share of net income2 0 0 0 
   
Amortization of basis differences(14)


Total basis difference(14)


Share in results from SeaMex (net of tax)(12)4

20
Share in results from Gulfdrill (net of tax)Share in results from Gulfdrill (net of tax)2 0 0 0 



Book value of our investments in associated companies

At the year end, the book values of our investments in our associated companies were as follows:
 Successor
 Predecessor
(In $ millions)December 31, 2018
 December 31, 2017
Seadrill Partners - Direct ownership interests479
 857
Seadrill Partners subsidiaries - Subordinated units17
 97
Seadrill Partners subsidiaries - IDRs54
 64
Seabras Sapura209
 353
SeaMex41
 102
Total800
 1,473

(In $ millions)December 31, 2020December 31, 2019
Seadrill Partners - Direct ownership interest122 
Seabras Sapura103 98 
Seabras Sapura Holding GmbH - shareholder loans held as equity121 123 
SeaMex Ltd22 
Sonadrill22 24 
Gulfdrill
Total248 389 
Quoted market prices for all of our other equity investments are not available because, other than Seadrill Partners Common Units, these companies are not publicly traded. Seadrill Partners subordinated units are not traded as we own 100% of them and hence have no quoted market price.

available.
Summarized Consolidated Balance sheets for our equity method investees

The summarized balance sheets of the directly owned SDLPsubsidiaries of Seadrill Partners and our share of equity in those companies was as follows:
Seadrill Partners
(In $ millions)December 31, 2019
Current assets833 
Non-current assets4,847 
Current liabilities(533)
Non-current liabilities(2,623)
Net Assets (2)
2,524
Seadrill share of book equity1,305 
Basis difference allocated to rigs (1)
(1,220)
Basis difference allocated to contracts (1)
37 
Book equity allocated to direct investments in subsidiaries of Seadrill Partners122
(1)In 2020, an impairment of $47 million (December 31, 2019: $302 million) was recognized against the Seadrill Partners direct ownership interests and IDRs in the Consolidated Statements of Operations within "Loss on impairment of investments" reducing the balance of our investment in Seadrill Partners to nil. See Note 13 – "Impairment loss on investments in associated companies".
(2)The 'Summary Consolidated Balance sheet' has not been included for Seadrill Partners as at December 1, 2020. Seadrill Partners on the date of issuance of these consolidated financial statements have yet to issue consolidated statements for the year ending December 31, 2020
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that comply with U.S. GAAP and would be impractical to obtain the results for the year ended December 31, 2020. Furthermore, our associated investment was substantially written down through impairment in the year ending December 31, 2019 and was fully impaired to nil carrying value in the first quarter of 2020.
The summarized balance sheets of the Seabras Sapura companies and our share of recorded equity in those companies was as follows:

Seabras Sapura
(In $ millions, unless otherwise stated)December 31, 2020December 31, 2019
Current assets207 195 
Non-current assets1,474 1,495 
Current liabilities(541)(510)
Non-current liabilities(419)(504)
Net Assets721 676 
Seadrill ownership percentage50 %50 %
Seadrill share of book equity361 338 
Shareholder loans held as equity (1)
121 123 
Basis difference allocated to rigs(351)(369)
Basis difference allocated to contracts93 129 
Total adjustments(137)(117)
Book value of Seadrill investment224 221 
SDLPSuccessor
 Predecessor
(in $ millions)December 31, 2018
 December 31, 2017
Current assets1,110
 1,214
Non-current assets5,076
 5,317
Current liabilities(433) (546)
Non-current liabilities(3,039) (3,284)
Net Assets2,714
 2,701
    
Seadrill share of book equity1,399
 1,398
Basis difference allocated to rigs(1,019) 
Basis difference allocated to contracts99
 
Prior period impairments and other adjustments
 (541)
SDLP book equity allocated to direct investments479
 857
    
SDLP book equity allocated to subordinated units (1)
17
 97
(1)    Seadrill Partners subordinated units have In 2020, Seabras Sapura repaid $2 million (December 31, 2019: $9 million) of shareholder loans, with the cash proceeds held in escrow against a lock-up period during which they have subordinated liquidation and dividend rights. On applicationfuture redemption of fresh start accounting the units were valued with reference to the market price of common units and adjusted for a discount for lack of marketability (because of the subordination period). The value of the subordinated units on application of fresh start accounting was $37 million. Since application of fresh start accounting we allocated a share of the net loss incurred by Seadrill Partners to the subordinated units using a Hypothetical Liquidation at Book Value methodology. We allocated a net loss of $20 million for the period from July 2, 2018 through December 31, 2018. After allocating this loss the remaining balance of the investment in subordinated units at December 31, 2018 was $17 million.

Senior Secured Notes.
The summarized balance sheets of the Seabras SapuraSeaMex companies at the year and our share of recorded equity in those companies was as follows:
SeaMex
(In $ millions)December 31, 2020December 31, 2019
Current assets291 260 
Non-current assets898 939 
Current liabilities(174)(141)
Non-current liabilities(555)(586)
Net Assets460 472 
Seadrill ownership percentage50 %50 %
Seadrill share of book equity230 236 
Basis difference allocated to rigs(325)(341)
Basis difference allocated to contracts95 127 
Total adjustments(230)(214)
Book value of Seadrill investment0 22 
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Seabras SapuraSuccessor
 Predecessor
(in $ millions)December 31, 2018
 December 31, 2017
Current assets255
 467
Non-current assets1,567
 1,630
Current liabilities(599) (673)
Non-current liabilities(637) (1,014)
Net Assets586
 410
Seadrill ownership percentage50% 50%
Seadrill share of book equity293
 205
    
Shareholder loans held as equity125
 148
Basis difference allocated to rigs(387) 
Basis difference allocated to contracts178
 
Total adjustments(84) 148
Book value of Seadrill investment209
 353
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The summarized balance sheets of the SeaMexSonadrill companies at the year and our share of recorded equity in those companies was as follows:

Sonadrill
(In $ millions)December 31, 2020December 31, 2019
Current assets54 57 
Non-current assets
Current liabilities(11)(9)
Non-current liabilities
Net Assets43 48 
Seadrill ownership percentage50 %50 %
Seadrill share of book equity22 24 
Book value of Seadrill investment22 24 

SeaMexSuccessor
 Predecessor
(in $ millions)December 31, 2018
 December 31, 2017
Current assets253
 294
Non-current assets977
 1,036
Current liabilities(149) (222)
Non-current liabilities(627) (666)
Net Assets454
 442
Seadrill ownership percentage50% 50%
Seadrill share of book equity227
 221
    
Prior period impairments and other adjustments
 (119)
Basis difference allocated to rigs(357) 
Basis difference allocated to contracts171
 
Total adjustments(186) (119)
Book value of Seadrill investment41
 102
The summarized balance sheets of the Gulfdrill companies and our share of recorded equity in those companies was as follows:

Gulfdrill
(In $ millions)December 31, 2020December 31, 2019
Current assets67 
Non-current assets102 
Current liabilities(135)
Non-current liabilities(31)
Net Assets3 0 
Seadrill ownership percentage50 %50 %
Seadrill share of book equity
Book value of Seadrill investment2 0 


Note 19 – Newbuildings

Newbuildings consist of the following:
(In $ millions)


Opening balance as at January 1, 2017 (Predecessor)
1,531
Additions
5
Capitalized interest and loan related costs
28
Disposals (1)

(620)
Impairment (2)

(696)
Closing balance as at December 31, 2017 (Predecessor)
248
Additions
1
Closing balance as at July 1, 2018 (Predecessor)
249
Fresh Start adjustments (3)

(249)
Opening balance as at July 2, 2018 (Successor)
Additions

Closing balance as at December 31, 2018 (Successor)


(1)
In July 2017, Sevan Drilling and Cosco reached agreement to defer the Sevan Developer delivery period until June 30, 2020. The contract amendment included a termination clause for Cosco and therefore it was deemed that Sevan had lost control of the asset. The Newbuild asset and corresponding construction obligation were derecognized. Refer to Note 9 - Loss on disposals for further information.
(2)
As part of the Chapter 11 proceedings, the Debtors negotiated and announced a global settlement with various creditors, including Samsung Heavy Industries ("Samsung") and Daewoo Shipbuilding & Marine Engineering ("DSME"). The global settlement included an agreement regarding the allowed claim of the newbuild shipyards Samsung and DSME, and the Debtors’ rejection and recognized termination of the newbuild contracts for the West Dorado, West Draco, West Aquila and the West Libra. As the Plan anticipated the rejection and termination of the newbuild contracts we recognized an impairment of the newbuild assets related to the West Dorado, West Draco, West Aquila and the West Libra, totaling $696 million, in the year ended December 31, 2017 (Predecessor).
(3)
Adjustment to record the newbuildings at fair value based on the value derived from an income approach compared to the current contractual obligations remaining to be paid. Refer to Note 5- Fresh Start Accounting for further information.


Note 2021 – Drilling units

Changes in drilling units for the periods presented in this report were as follows:
 (In $ millions)
CostAccumulated depreciationNet book value
January 1, 20196,890 (231)6,659 
Additions158 — 158 
Depreciation— (416)(416)
December 31, 20197,048 (647)6,401 
Additions147 — 147 
Depreciation— (341)(341)
Impairment(4,087)— (4,087)
December 31, 2020 (1)(2)
3,108 (988)2,120 
 (In $ millions)
  Cost
 Accumulated depreciation
 Net book value
Opening balance as at January 1, 2017 (Predecessor)  17,753
 (3,477) 14,276
Additions  110
 
 110
Depreciation  
 (779) (779)
Disposals  (528) 137
 (391)
Closing balance as at December 31, 2017 (Predecessor)  17,335
 (4,119) 13,216
Additions  117
 
 117
Depreciation  
 (388) (388)
Impairment  (414) 
 (414)
Closing balance as at July 1, 2018 (Predecessor)  17,038
 (4,507) 12,531
Fresh Start adjustments  (10,241) 4,507
 (5,734)
        
        
Opening balance as at July 2, 2018 (Successor)  6,797
 
 6,797
Additions  93
 
 93
Depreciation  
 (231) (231)
Closing balance as at December 31, 2018 (Successor)  6,890
 (231) 6,659

On emergence from Chapter 11, the carrying(1) Book value of our drilling units were adjusted to fair value, through a combination of income-based and market-based approaches, with accumulated depreciation being reset to nil. The total net fair value adjustment to our drilling units was $5,734 million, resulting in a loss recognizedrigs in the Consolidated Statement of Operations in "Reorganization items"Balance Sheet under leasing arrangements with the Ship Finance SPV's as at December 31, 2020 was $484 million (December 31, 2019: $784 million).

Impairment of long-lived assets

We review(2) On November 25, 2019, March, 15 2020 and November 15, 2020 we leased the carryingWest Castor,West Telesto and West Tucana to Gulfdrill. Book value of rigs in the Consolidated Balance Sheet under leasing arrangements with our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amountjoint venture Gulfdrill as at December 31, 2020 was $151 million (December 31, 2019: $53 million).
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Table of an asset may no longer be appropriate. In our reported period ended July 1, 2018 (Predecessor), we observed contracted dayrates to be below forecasted levels assumed, which was deemed an indicator of potential impairment. On assessment of asset recoverability through an estimated undiscounted future net cash flow we calculated the value to be lower than the carrying value, resulting inContents
We recognized an impairment expense of $414 million$4.1 billion which was classified within "Loss on impairment of long-lived assets" on our Consolidated Statement of Operations for the period from January 1, 2018 through July 1, 2018 (Predecessor)year ended December 31, 2020. Please refer toNote 12 - "Impairment loss on drilling units".


We derived the fair value of the rigs using an income approach based on updated projections of future dayrates, contract probabilities, economic utilization, capital and operating expenditures, applicable tax rates and asset lives. The cash flows were estimated over the remaining useful economic lives of the assets and discounted using an estimated market participant weighted average cost of capital of 11.4%. To estimate these fair values, we were required to use various unobservable inputs including assumptions related to the future performance of our rigs as explained above. We based all estimates on information available at the time of performing the impairment test.


Note 2122 – Equipment
 
Equipment consists of office equipment, software, furniture and fittings. Changes in equipment balances for the periods presented in this report were as follows:
 (In $ millions)
CostAccumulated depreciationNet book value
January 1, 201934 (5)29 
Additions— 
Depreciation— (10)(10)
December 31, 201938 (15)23 
Additions— 
Depreciation— (5)(5)
December 31, 202039 (20)19 
 (In $ millions)
  Cost
 Accumulated depreciation
 Net book value
Opening balance as at January 1, 2017 (Predecessor)  77
 (36) 41
Additions  7
 
 7
Depreciation  
 (19) (19)
Closing balance as at December 31, 2017 (Predecessor)  84
 (55) 29
Additions  9
 
 9
Depreciation  
 (3) (3)
Closing balance as at July 1, 2018 (Predecessor)  93
 (58) 35
Fresh Start adjustments  (64) 58
 (6)
        
        
Opening balance as at July 2, 2018 (Successor)  29
 
 29
Additions  5
 
 5
Depreciation  
 (5) (5)
Closing balance as at December 31, 2018 (Successor)  34
 (5) 29


On emergence from Chapter 11, the carrying value of our equipment was adjusted to fair value based on a cost-based approach, with accumulated depreciation being reset to nil. Refer to Note 5 - Fresh start accounting for further information. The total net fair value adjustment to our drilling units was $6 million, resulting in a loss recognized in the Consolidated Statement of Operations in "Reorganization items".


Note 2223 – Debt

As at December 31, 2018 (Successor)2020 and 2017 (Predecessor),2019, we had the following liabilities for third party debt agreements:
 Successor
 Predecessor
(In $ millions) December 31, 2018
 December 31, 2017
(In $ millions)December 31, 2020December 31, 2019
Secured credit facilities 5,662
 5,581
New secured notes 769
 
Secured credit facilities (a)
Secured credit facilities (a)
5,662 5,662 
Senior Secured Notes (b)
Senior Secured Notes (b)
515 476 
Credit facilities contained within variable interest entities 655
 786
Credit facilities contained within variable interest entities621 
Unsecured bonds 
 2,334
Total debt principal 7,086
 8,701
Total debt principal6,177 6,759 
Less: debt discount and fees
(172)
(2)Less: debt discount and fees(136)
Carrying value 6,914
 8,699
Carrying value6,177 6,623 
This was presented in our Consolidated Balance SheetSheets as follows.
(In $ millions)December 31, 2020December 31, 2019
Debt due within one year6,177 343 
Long-term debt6,280 
Total debt principal6,177 6,623 
  Successor
 Predecessor
(In $ millions) December 31, 2018
 December 31, 2017
Debt due within one year 33
 509
Long-term debt 6,881
 485
Liabilities subject to compromise 
 7,705
Total debt principal 6,914

8,699
The outstanding debt as at December 31, 2020 is repayable as follows:

(In $ millions)December 31, 2020
20216,177 
2022 and thereafter
Total debt principal6,177 
As set out in Note 4 - Chapter 11 Proceedings,
In September 2020 and December 2020, we filed for Bankruptcy and operated as a debtor-in-possession from September 12, 2017 to July 2, 2018. The Chapter 11 reorganization had several impactsdefaulted on payments of interest on our debt as set out in the sections below. Further, whilst we were in Chapter 11 we prepared our Consolidated Financial Statements under ASC 852 "Reorganizations". This caused us to make the following accounting adjustments for our debt obligations:

On filing for Chapter 11, we recorded an impairment of $66 million against unamortized issuance costs on our impairedsenior secured credit facilities which was not cured within the waiver period. This has triggered the cross-default covenant for the Senior Secured Notes. As in default these amounts are callable on demand by the lender and unsecured bonds. This expensehave been classified as current. Although a forbearance agreement was classified within reorganization itemsin place at December 31, 2020 for certain debt facilities (see Note 4below) the waiver was not for further details).
more than one year from balance sheet date. We also considered it not probable that the violation would be cured in this forbearance waiver period and does not impact our current classification for these debt facilities.
Whilst in Bankruptcy, we classified debt liabilities for our impaired secured credit facilities and unsecured bonds in our Consolidated Balance Sheet as liabilities subject to compromise.
During Bankruptcy, we continued to make interest payments on our secured credit facilities. These were treated as adequate protection payments which we recognized as a reduction in the principal balance of secured credit facilities held within "Liabilities subject to compromise". On emergence we expensed the $185 million of adequate protection payments we made during Chapter 11. We classified this expense within reorganization items (see Note 4 for further details).
On emergence from Chapter 11, we recorded a discount against our debt to reduce its carrying value to equal its fair value. The debt discount is unwound over the remaining termsGiven that renegotiation of the debt facilities. For fair value considerations,facilities as part of our restructuring under Chapter 11 will likely result in significantly modified future cash flows associated with these debt facilities we recognized the remaining unamortized debt discount of $87 million as expense in the Consolidated Statement of Operations for the period ending December 31, 2020.
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The decrease in our credit facilities contained within variable interest entities is attributable to the deconsolidation of our Ship Finance SPV's. Please refer to Note 3236 - Fair values"Variable Interest Entities" for more information.
As the timing of financial instruments.
payment of the restricted cash is linked to the Senior Secured Notes, we reclassified it from non-current to current for the year ended December 31, 2020. Refer to Note 16 - "Restricted cash" for more information.

In the next sections we cover key terms of our debt facilities at December 31, 2018, including any changes that resulted from the Chapter 11 Reorganization.2020:

(a) Secured Credit Facilities

The terms of our secured credit facilities were amended either through our Chapter 11 reorganization or, in the case of the $360 million facility, through a separate restructuring agreement. The main changes to the terms of our facilities that applied on emergence from Chapter 11 were as follows:

Amortization payments were deferred until 2020;
Maturities were extended to fall due between June 2022 and December 2024;
There was a 1% increase in margin.

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

We have summarized the key terms of our secured credit facilities as at December 31, 20182020 in the table below:

  Facility name
Maturity (1)
Total ACE drawdowns ($m)Main facility
($m)
Total ($m)
Margin on LIBOR floating interest (2)
Collateral vesselsBook value of collateral vessels ($m)Notes
$400 million facility4Q 202217 121 138 3.50%West Cressida West Callisto West Leda142 
$2,000 million facility1Q 202380 832 912 3.00%West Alpha West Venture West Phoenix West Navigator West Elara548 
$440 million facility3Q 202360 66 4.25%West Telesto54 
$1,450 million facility4Q 202313 316 329 3.35-4.00%West Tellus79 (3)
$360 million facility4Q 202318 99 117 3.75%AOD I AOD II AOD III183 
$300 million facility1Q 2024141 147 4.00%West Tucana West Castor97 
$1,750 million facility1Q 202470 824 894 3.50-3.90%Sevan Driller Sevan Brasil Sevan Louisiana(3)
$450 million facility2Q 202224 246 270 3.50%West Eminence
$1,500 million facility4Q 202440 1,106 1,146 2.70-4.78%West Saturn West Neptune West Jupiter206 (3)
$1,350 million facility4Q 202438 923 961 3.00%West Pegasus West Gemini West Orion55 
$950 million facility4Q 202438 539 577 3.00-4.42%West Eclipse West Carina51 (3)
$450 million facility (2015)4Q 202496 105 3.85%West Freedom West Vigilant West Prospero West Ariel82 
Total secured credit facilities5,662 
(1)The maturities above are based on the contractual maturities, before taking into account the event of default.
(2)The margins above relate to the main facility contractual rates and do not account for the higher margins attributable to the ACE facility.
(3)Certain debt facilities are split into different tranches set at different margins.
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  Facility nameMaturityRepayments before maturity ($m)
Final Repayment ($m)
Total ($m)
Margin on LIBOR floating interestCollateral vesselsBook value of collateral vessels ($m)
Notes
$400 million facility4Q 202251
84
135
3.50%West Cressida
West Callisto
West Leda
157
(1) 
$2,000 million facility1Q 2023268
640
908
3.00%West Alpha
West Venture
West Phoenix
West Navigator
West Epsilon
West Elara
794
 
$440 million facility3Q 202324
40
64
4.25%West Telesto58
(2) 
$1,450 million facility4Q 202387
235
322
1.2% - 4.0%West Tellus337
(3) 
$360 million facility4Q 202378
132
210
3.75%AOD I
AOD II
AOD III
201
(4) 
$300 million facility1Q 202448
96
144
4.00%West Tucana
West Castor
111
 
$1,750 million facility1Q 2024316
559
875
2.5% - 2.9%Sevan Driller
Sevan Brasil
Sevan Louisiana
910
 
$450 million facility4Q 202460
205
265
3.50%West Eminence290
 
$1,500 million facility4Q 2024355
770
1,125
2.38% - 3.25%West Saturn
West Neptune
West Jupiter
1,051
(5) 
$1,350 million facility4Q 2024351
594
945
3.00%West Pegasus
West Gemini
West Orion
917
 
$950 million facility4Q 2024207
359
566
2.12% - 3%West Eclipse
West Carina
659
(6) 
$450 million facility (2015)4Q 202463
40
103
3.85%West Freedom
West Vigilant
West Prospero
West Ariel
186
 
Total secured credit facilities5,662
    
In September 2020 and December 2020 respectively, we defaulted on our scheduled payments of $54 million of interest and fees on our secured credit facilities ($108 million in total). According to the provisions of our secured credit facilities, these amounts were converted to loan principal tranches and incur payment-in-kind interest at their original rates plus an additional 2%.

(1)
In May 2017, we completed the sale of the West Triton to Shelf Drilling. Shelf Drilling subsequently repaid the tranches related to the West Triton in full, amounting to $47 million.
(2)
In August 2017, Seadrill Partners amended certain credit facilities to insulate itself from Seadrill. This resulted in a $109 million repayment in respect of this facility. Please refer to Note 30 "Related party transactions" for further information.
(3)
In August 2017, Seadrill Partners completed amendments to this facility to insulate itself from Seadrill Limited and therefore Seadrill no longer provided an indemnity to Seadrill Partners for any payments or obligations related to this facility that are not related to the West Auriga and West VelaPer the terms of our senior secured credit facilities, we can elect to defer up to $500 million of principal payments through draw downs under the Amortization Conversion Election ('ACE') facility (subject to the satisfaction of certain covenants). As at December 31, 2020, the total principal payments we had elected to defer amounted to $489 million, $359 million of which had been drawdown under the ACE facility. In the year ended December 31, 2020, we elected to defer $130 million with respect to principal payments falling due in 2021. Amounts drawn down under the ACE facility attract a margin of 5.5% (in lieu of the respective original margins, set out in the above table).
(4)
The facility is held by AOD, by which we hold a 67% ownership.
(5)
This facility has a CIRR fixed interest rate of 2.38%
(6)
This facility has a CIRR fixed interest rate of 2.12% and guarantee fee to the export credit agency of 1.30%.

NewIn September 2020 we sold the West Epsilon for net proceeds of $12 million that were used to make a mandatory repayment of principal and the associated accrued interest under the $2,000 million facility, as the rig was held as collateral. These proceeds were paid directly from the buyer of the rig to the lenders in the $2,000 million facility and therefore this was a non-cash financing activity. Refer to Note 37 - "Supplementary cash flow information".
In December 2020, the lenders in the $360 million facility utilized $96 million of cash held in restricted bank accounts (pledged to their facility as security) to prepay a corresponding amount of principal outstanding.
(b) Senior Secured Notes

On July 2, 2018, we raised $880 million of aggregate principleprincipal amount of 12.00% senior secured notesSenior Secured Notes due in 2025. The notes bear interest at the annual rate of 4.00% payable in cash plus 8.00% payment-in-kind. The principal borrowed on the notes included the initial $880 million principal value of the notes plus $10 million of payment-in-kind interest that was compounded into the principal on emergence from the Previous Chapter 11.11 Proceedings.

Per the terms of the NewSenior Secured Notes, we were required to redeem a proportion of the principal and interest outstanding on the notes using our share of the West Rigel sale proceeds. We received $126 million proceeds from the sale of the West Rigel on May 9, 2018 and used this to make a mandatory redemption of $121 million of principal and $5 million of accrued interest on November 1, 2018.

We were also required to make an offer to repurchase a proportion of the NewSenior Secured Notes using proceeds from a deferred consideration arrangement relating to the sale of our tender rig business to Sapura Energy in 2013. We made an offer to purchase up to $56 million of the NewSenior Secured Notes on October 10, 2018. On expiry of the offer, $0.1 million in aggregate principal amount of the notes were validly tendered. We accepted and made payment for the tendered notes on November 14, 2018.

On April 10, 2019, we repurchased $311 million of our principal Senior Secured Notes for $342 million. The $31 million additional cash paid represents the 7% purchase premium and settlement of accrued payment-in-kind and cash interest. On July 15, 2019, $18 million of accrued payment-in-kind interest on our senior secured notes was compounded and additional notes were issued.
AfterDuring the two redemptionsyear ended December 31, 2020, $39 million of accrued payment-in-kind interest on our senior secured notes was compounded and additional notes were issued.
As at December 31, 2020 there was a remaining $769$515 million principal outstanding on the notes.

In January 2021 we failed to make a cash interest payment on our senior secured notes resulting in an event of default. This is a secondary event of default as a cross-default violation had previously occurred by December 31, 2020, with failure to interest on our secured credit facilities.
The NewSenior Secured Notes are secured by, among other things, our investments in Seadrill Partners, SeaMex and Seabras Sapura. Loan balances receivable from these joint ventures are also held as collateral to be redeemable for notes. Refer to Note 1820 - Investment"Investment in associated companiescompanies" and Note 32 - "Related party transactions" for further information.

Credit facilities contained within variable interest entities

We consolidate three legal subsidiariesAlong with this the Senior Secured Notes are also secured by cash collateral $66 million, of Ship Finance that own the West Taurus, West Hercules and West Linus.which $30 million is classified as restricted cash Please refer to Note 3516 - "Restricted cash" for further details of this arrangement. These facilities were also amended duringmore information on the period to conform with the charter payment schedules which were amended as part of the RSA linked to our reorganization.

The terms of these facilities are set out in the below table:
  Facility NameMaturityRepayments before maturity ($m)
Final Repayment ($m)
Total ($m)
Margin on LIBOR floating interestCollateral vesselsBook value of collateral vessels ($m)
$390 million facility4Q 202260
144
204
Margin not disclosedWest Taurus286
$375 million facility2Q 202361
149
210
Margin not disclosedWest Hercules343
$475 million facility2Q 202362
179
241
Margin not disclosedWest Linus194
Total credit facilities within VIEs655
   

Unsecured Bonds

We ceased recording interest on unsecured bond facilities when we filed for Chapter 11 on September 12, 2017. The unsecured bonds were extinguished when we emerged from Chapter 11. Refer to Note 5 - Fresh start accounting for further information.

Debt maturities

The outstanding debt as at December 31, 2018 is repayable as follows:
(In $ millions) December 31, 2018
2019 33
2020 407
2021 570
2022 973
2023 1,748
2024 and thereafter 3,355
Total debt principal 7,086

restricted cash.
Covenants and restrictions contained in our debt facilities

We have provided a summary of the main debtfinancial covenants contained within our debt facilities below:

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

Aggregated minimum liquidity requirement for the Group: In summary, and as more particularly set out in the credit facilities, to maintain cash and cash equivalents of at least $525 million within the Group at any time during the period from and including the Effective Date to and including December, 31 December 2018; and $400 million at any time during the period from and including 1 January 2019 to the final maturity date of the credit facilities;facilities. Breach of this covenant leads to an event of default.
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Net leverage ratio: to maintain a ratio of net debt to EBITDA as set out below (which will be tested on each financial quarter commencing with the financial quarter ending on March 31, 2022 until the final maturity date of the credit facilities):
Twelve months endedNet leverage ratio
March 31, 20224.5x
June 30, 20224.2x
September 30, 20223.9x
December 31, 20223.7x
March 31, 20233.4x
June 30, 20233.3x
September 30, 20233.1x
December 31, 20233.0x
March 31, 20242.8x
June 30, 20242.7x
September 30, 20242.4x
December 31, 20242.2x

Debt service coverage ratio: in summary to maintain a ratio of EBIDTAEBITDA to debt services (being all finance charges and principal, as more particularly set out in the credit facilities) equal to or greater than 1:1 (which will be tested on each financial quarter commencing with the financial quarter ending on March 31, 2022 until the final maturity date of the credit facilities).

In addition, forFor the periods ended March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021 a margin increase of 0.25% per quarter, which is capped at 1%, will be enacted if:
Debt service coverage ratio is less than 0.8:1 in respect of the applicable period; and/or
Net leverage ratio is greater than:
Twelve months endedNet leverage ratio
March 31, 20217.3x
June 30, 20216.6x
September 30, 20216.2x
December 31, 20215.8x

In addition to the above there are various non-financial covenants.
The covenants included in the NewSenior Secured Notes agreements limit our ability to:

Pay dividends or make certain other restricted payments or investments;
Incur additional indebtedness and issue disqualified shares;
Create liens on assets;
Amalgamate, merge, consolidate or sell substantially all our, NSNCo's, IHCo's, RigCo's and their respective subsidiaries and the guarantors' assets;
Enter into certain transactions with affiliates;
Create restrictions on dividends and other payments by our subsidiaries; and
Guarantee indebtedness by our subsidiaries.

The above covenants are subject to important exceptions and qualifications.

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Note 2324 – Other liabilities
 Successor
 Predecessor
(In $ millions)As at December 31,
2018

 As at December 31,
2017

Accrued expenses107
 103
Taxes Payable42
 70
Accrued interest expense (1)
61
 3
Employee withheld taxes, social security and vacation payments40
 15
Unfavorable contracts to be amortized27
 23
Deferred mobilization revenue (2)
19
 55
Other liabilities135
 66
Total Other Liabilities (3)
431
 335
(1) Interest was settled monthly during the filing period.
(2) Residual deferred mobilization revenue was recognized in the predecessor on fresh start.
(3) Balances held asAs at December 31, 2017 exclude2020 and December 31, 2019, other liabilities that were subject to compromise, which were reclassified to a separate line withinincluded the Consolidated Balance Sheet. This represents our estimate at 31 December, 2017 of known or potential pre-petition claims to be resolved in connection with the Chapter 11 proceedings. Refer to Note 1 - General information.following:  

(In $ millions)December 31, 2020December 31, 2019
Taxes payable29 33 
Contract liabilities31 29 
Unfavorable drilling contracts
Employee withheld taxes, social security and vacation payments47 51 
Accrued interest expense38 40 
Accrued expenses110 137 
Lease liabilities68 36 
Uncertain tax positions79 83 
Other liabilities27 33 
Total Other Liabilities436 450 
Other liabilities are presented in our Consolidated Balance Sheet as follows:
Successor
 Predecessor
(In $ millions)As at December 31,
2018

 As at December 31,
2017

(In $ millions)December 31, 2020December 31, 2019
Other current liabilities310
 268
Other current liabilities316 322 
Other non-current liabilities121
 67
Other non-current liabilities120 128 
Total Other Liabilities431
 335
Total Other Liabilities436 450 
Unfavorable contracts

On emergence from Chapter 11 and application of fresh start accounting, we recognized intangible assets and liabilities for favorable and unfavorable drilling contracts at fair value. The amounts recognized represent the net present value of the existing contracts at the time of emergence compared to the current market rates at the time of acquisition, discounted at the weighted average cost of capital. We amortize these assets and liabilities over the remaining contract period and classify the amortization under operating expenses. For periods before emergence from Chapter 11 and application of fresh start accounting we recognized intangible assets or liabilities only where we acquired a drilling contract in a business combination. The accounting policy we applied in the Predecessor was to classify amortization expense for such contracts within other revenues.

The gross carrying amounts and accumulated amortization included in 'Other current liabilities' and 'Other non-current liabilities' for unfavorable contracts in the Consolidated Balance Sheets as follows:

 Successor Predecessor
 December 31, 2018 December 31, 2017December 31, 2020December 31, 2019
(In $ millions) Gross Carrying Amount
Accumulated amortization
Net carrying amount
 Gross Carrying Amount
Accumulated amortization
Net carrying amount
(In $ millions)Gross Carrying AmountAccumulated amortizationNet carrying amountGross Carrying AmountAccumulated amortizationNet carrying amount
Unfavorable contracts  
   Unfavorable contracts
Balance at beginning of period (66)
(66) (444)378
(66)Balance at beginning of period(66)58 (8)(66)39 (27)
Amortization of unfavorable contracts 
39
39
 
43
43
Amortization of unfavorable contracts— — 19 19 
Balance at end of period (66)39
(27) (444)421
(23)Balance at end of period(66)59 (7)(66)58 (8)
The amortization is recognized in the Consolidated Statement of Operations under "Amortization of favorable and unfavorable contracts"intangibles". For periods before emergence from Chapter 11 and application of fresh start accounting we recognized intangible liabilities only where we acquired

a drilling contract in a business combination. We classified amortization expense for such contracts within other revenues in the Predecessor. The weighted average remaining amortization period for the unfavorable contracts is 26 years, 119 months.

The table below shows the amounts relating to unfavorable contracts that is expected to be amortized over the following periods:
(In $ millions)Period ended December 31,
20212022202320242025 and thereafterTotal
Amortization of unfavorable contracts111137

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  Period ended December 31,
(In $ millions) 2019
2020
2021
2022
2023 and after
Total
Amortization of unfavorable contracts (19)(1)(1)(1)(5)(27)

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Note 25 - Leases
We have operating leases relating to our premises, the most significant being our offices in London, Liverpool, Oslo, Stavanger, Singapore, Houston, Rio de Janeiro and Dubai. In accordance with Topic 842, we record a lease liability and associated right-of-use asset for our portfolio of operating leases.
In August 2019, we entered into an agreement to establish a 50:50 joint venture ("Gulfdrill") with Gulf Drilling International ("GDI"), to provide drilling services in Qatar. GDI was awarded 5 long-term drilling contracts in Qatar which it has novated to Gulfdrill. We have leased 3 of our benign environment jack-up rigs, West Castor, West Telesto and West Tucana to Gulfdrill for use under these contracts and have secured bareboat charters for a further 2 rigs from a third-party shipyard. GDI will manage and operate all rigs on behalf of the joint venture. In March 2020, the Lovanda (formerly Zhenhai 5) rig charter agreement was novated into the Gulfdrill joint venture, having previously been recognized as a Seadrill agreement with a third-party shipyard from November 2019.
In March, 2020, Seadrill was awarded a contract to provide drilling services for 10 firm wells and 4 optional well. To fulfill this contract Seadrill entered a charter agreement to lease the West Bollsta rig from Northern Ocean. The rig was mobilized and commenced operations in early October after being available at the drill location in September, 2020. This operating lease arrangement resulted in the recognition of a lease liability and offsetting right of use asset.

Seadrill has entered into sale and leaseback arrangements for the West Hercules semi-submersible rig with SFL Hercules Ltd (“Hercules”) in 2008, the West Linus Jack-up rig with SFL Linus Ltd (“Linus”) in 2014, and the West Taurus semi-submersible rig with SFL Deepwater Ltd (“Deepwater”) in 2008, all wholly owned subsidiaries of SFL Corporation Ltd ("Ship Finance"), a related party. Refer to Note 32 – “Related party transactions” for further information.
For operating leases where we are the lessee, our future undiscounted cash flows are as follows:
(In $ millions)Year ended December 31, 2020
202160 
202216 
2023
2024 and thereafter
Total79 
The following table gives a reconciliation between the undiscounted cash flows and the related operating lease liability recognized in our Consolidated Balance Sheet as at December 31, 2020:
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019
Total undiscounted cash flows79 45 
Less short term leases(1)
Less discount(11)(8)
Operating lease liability68 36 
Of which:
Current51 12 
Non-current17 24 

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The following table gives supplementary information regarding our lease accounting at December 31, 2020:
(In $ million)Year ended December 31, 2020Year ended December 31, 2019
Operating Lease Cost:
Operating lease cost19 12 
Short-term lease cost
Total lease cost21 13 
Other information:
Cash paid for amounts included in the measurement of lease liabilities- Operating Cash flows21 13 
Right-of-use assets obtained in exchange for operating lease liabilities during the period53 19 
Weighted-average remaining lease term in months1918
Weighted-average discount rate32 %13 %
On November 25, 2019, March, 15 2020 and November 15, 2020 we leased the West Castor,West Telesto and West Tucana to Gulfdrill. The estimated future undiscounted cash flows on these leases are as follows:
(In $ millions)Year ended December 31, 2020
202128 
202228 
202328 
202422 
2025 and thereafter19 
Total125 
Refer to Note 9 - "Other revenues" for comparative information on income from operating leases.

Note 2426 – Common shares
Changes in common shares for the periods presented in this report were as follows:
 Issued and fully paid share capital $0.10 par value each Issued and fully paid share capital $2.00 par value each Treasury shares held by the Company - $2.00 par value each
 Shares
 $ millions
 Shares
 $ millions
 Shares
 $ millions
At January 1, 2016 (Predecessor)
 
 493,078,680
 986
 (318,740) (1)
Share for debt exchange
 
 15,684,340
 31
 
 
Repurchase of shares
 
 
 
 (4,000,000) (8)
At December 31, 2016 (Predecessor)
 
 508,763,020
 1,017
 (4,318,740) (9)
Cancellation of shares
 
 
 
 74,660
 
At December 31, 2017 (Predecessor)
 
 508,763,020
 1,017
 (4,244,080) (9)
At July 1, 2018 (Predecessor)
 
 508,763,020
 1,017
 (4,244,080) (9)
Cancellation of Predecessor Company common stock
 
 (508,763,020) (1,017) 4,244,080
 9
Successor Company share issuance100,000,000
 10
 
 
 
 
            
            
At July 2, 2018 (Successor)100,000,000
 10
 
 
 
 
At December 31, 2018 (Successor)100,000,000
 10
 
 
 
 

 Issued and fully paid share capital $0.10 par value each
Shares$ millions
December 31, 2018100,000,000 10 
RSU share issuance234,973 — 
December 31, 2019100,234,973 10 
RSU share issuance149,462  
December 31, 2020100,384,435 10
Common share transactions after July 2, 2018 (Successor)for periods presented
As at December 31, 2018 (Successor) ourOn June 5, 2019 an additional 27,768,889 common shares were listed on the Oslo Stock Exchange and the New York Stock Exchange. On emergence,approved at a par value of $0.10. This increased our authorized share capital was $11 million consisting of 111,111,111to 138,880,000 common shares.
On September 4, 2019, 234,973 common shares each withwere issued to employees following a par valuevesting of $0.10, of which 100,000,000 common shares are currently in issue. The Board of Directors has reserved the remaining 11,111,111 common shares for issuancerestricted stock units awarded under our employee incentive plan in accordance with theEmployee Incentive Plan.

On February 10, 2020 and June 17, 2020, a total of 149,462 common shares were issued to employees following a vesting of restricted stock units awarded under our Employee Incentive Plan.
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Key terms of shares issued and outstanding
All our issued and outstanding common shares are and will be fully paid. Subject to the Bye-Laws, the Board of Directors is authorized to issue any of the authorized but unissued common shares. There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote in the Company's common shares.

Holders of common shares have no pre-emptive, redemption, conversion or sinking fund rights. Holders of common shares are entitled to one vote per common share on all matters submitted to a vote of holders of common shares. Unless a different majority is required by law or the Bye-Laws, resolutions to be approved by holders of common shares require the approval by an ordinary resolution (being a resolution approved by a simple majority of votes cast at a general meeting at which a quorum is present). Under the Bye-Laws, each common share is entitled to dividends if, as and when dividends are declared by the Board of Directors, subject to any preferred dividend right of the holders of any preference shares.

In the event of liquidation, dissolution or winding up of the Company, the holders of common shares are entitled to share equally and ratably in the Company's assets, if any, remaining after the payment of all its debts and liabilities, subject to any liquidation preference on any issued and outstanding preference shares.


Common share transactions prior to July 2, 2018 (Predecessor)
Our predecessor Company was incorporated on May 10, 2005 and 6,000 ordinary shares of par value $2.00 each were issued. From incorporation to July 2, 2018 when the plan was confirmed by the Bankruptcy Court, the number of shares issues from our Predecessor company increased from 6,000 to 508,763,020 of par value $2.00 each.


A share repurchase program for our Predecessor shares was approved by the Board in 2007 giving us the authorization to buy back shares. Shares bought back under the authorization could be cancelled or held as treasury shares. Treasury shares may be held to meet our obligations relating to the share option plans. This share repurchase program was cancelled on July 2, 2018 when the plan was confirmed by the Bankruptcy Court. As at December 31, 2017 (Predecessor) we held 4,244,080 Treasury shares.

During the year ended December 31, 2016, as a result of the share-for-debt exchange the number of our predecessor common shares outstanding increased by 15,684,340 shares.

On September 5, 2016 we repurchased 4,000,000 shares in settlement of our total return swap agreements. This was completed at a strike price of NOK20.3.


Note 2527 – Non-controlling interest
Changes in non-controlling interestinterests for the years ended December 31, 2018 (Successor), 2017 (Predecessor) and 2016 (Predecessor) areperiods presented in this report were as follows:
(In $ millions)North Atlantic Drilling LtdSevan Drilling LimitedAsia Offshore Drilling LtdShip Finance SPV'sSeadrill Nigeria Operations LimitedTotal
January 1, 20190 0 0 145 7 152 
Net (loss)/income attributable to non-controlling interest in 2019(5)(1)
December 31, 20190 0 0 140 11 151 
Net loss attributable to non-controlling interest in 2020(3)(3)
Share buyback of Heirs Holding shares in Seadrill Nigeria Operations(11)(11)
Deconsolidation of Ship Finance SPV's(137)(137)
December 31, 20200 0 0 0 0 0 
(In $ millions)North Atlantic Drilling Ltd
 Sevan Drilling Limited
 Asia Offshore Drilling Ltd
 Ship Finance International Ltd VIEs
 Seadrill Nigeria Operations Limited
 Total
 
December 31, 2015 (Predecessor)179
 282
 140
 14
 
 615
 
Changes in 20167
 
 
 (112) 6
 (99) 
Net income attributable to non-controlling interest in 2016(21) 9
 9
 29
 
 26
 
December 31, 2016 (Predecessor)165
 291
 149
 (69) 6
 542
 
Changes in 2017
 
 
 (14) 
 (14) 
Net income attributable to non-controlling interest in 2017(89) (65) 
 24
 1
 (129) 
December 31, 201776
 226
 149
 (59) 7
 399
 
Adoption of new accounting standard ASU 2016-16 - Income Taxes(25) 
 
 
 
 (25) 
Net income attributable to non-controlling interest in period from January 1, 2018 to July 1, 2018
(160) (10) 1
 7
 2
 (160) 
Redeemable non-controlling interest
 
 (150) 
 
 (150) 
July 1, 2018 (Predecessor)(109) 216
 
 (52) 9
 64
 
Elimination of NCI of North Atlantic Drilling Ltd and Sevan Drilling Limited109
 (216) 
 
 
 (107) 
Fair value adjustment of the non-controlling interest in the Ship Finance VIEs and Seadrill Nigeria Operations Limited
 
 
 199
 (2) 197
 
             
             
July 2, 2018 (Successor)
 
 
 147
 7
 154
 
Net income attributable to non-controlling interest in period from July 2, 2018 to December 31, 2018
 
 
 (2) 
 (2) 
December 31, 2018
 
 
 145
 7
 152
 

On emergence from Chapter 11 the non-controlling interest was adjusted to fair value. Refer to Note 5 - Fresh"Fresh Start AccountingAccounting" for further information.

North Atlantic Drilling Ltd and Sevan Drilling Limited

In the predecessor, company we held a 70.36% interest in NADLNorth Atlantic Drilling Ltd. and a 50.11% interest in Sevan. The amount of shareholders' equity not attributable to us was included in non-controlling interests. As determined in the plan of reorganization, both companies became wholly owned subsidiaries of Seadrill and the non-controlling interests were eliminated prior to emergence on July 2, 2018.


Asia Offshore Drilling Ltd
In the predecessor companyPrior to August 2020 we held a 66.24% interest in Asia Offshore Drilling Ltd. TheAOD. In the Predecessor, the amount of shareholders' equity not attributable to us was included in non-controlling interests. Subsequent to filing bankruptcy petitions, the predecessorPredecessor executed a Transaction Support Agreement on April 4, 2018, which includedgave a put option to the holders of the non-controlling interest shares.shares, Mermaid. This redemption feature caused the fair value of the non-controlling interest held in AOD to be reclassified from equity to 'Redeemable non-controlling interest' withinin the Consolidated Balance Sheet. ReferSheets.
In August 2020, Mermaid exercised their put option to Note 26 - Redeemablesell their non-controlling interest of 34% in AOD for further information.

an agreed valuation of $31 million. This eliminated the non-controlling interest and AOD is now a wholly-owned subsidiary. For details of movements in the redeemable non-controlling interest, refer to Note 28 - "Redeemable non-controlling interest".
Ship Finance International Ltd VIEsSPV's

In 2007, 2008 and 20082014, we entered into sale and leaseback arrangements for drilling units with Ship Finance InternationalSFL Corporation Ltd, who incorporated subsidiary companies for the sole purpose of owning and leasing the drilling units. We had recognizedPrior to 4Q20, we were the primary beneficiary of these subsidiary companies as VIEs and concluded that we are their primary beneficiary. Accordingly, these subsidiary companies are included in our Consolidated Financial Statements,therefore consolidated them under the variable interest model with the Ship Finance InternationalSFL Corporation Ltd equity in these companies included in non-controlling interest.
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In September 2020, we triggered an event of default that meant we were no longer the primary beneficiary and the Ship Finance SPV's were deconsolidated. Refer to Note 35 – Variable36 - "Variable Interest Entities for more information.

During the predecessor years ended December 31, 2017 and 2016 dividends, of $14 million and $113 million were declared by VIEs to Ship Finance and was settled against related party balances with Ship Finance.

On emergence from Chapter 11 the non-controlling interest was adjusted to fair value. Refer to Note 5 – Fresh Start Accounting for further information.

Entities".
Seadrill Nigeria Operations Limited

On December 5, 2016 (Predecessor), our wholly owned subsidiary, Seadrill UK Ltd., acquired a 10% interest that an unrelated party, HH Global Alliance Investments Limited (“HHL”("Heirs Holdings") held, an unrelated party registered in Seadrill Mobile Units (Nigeria) Ltd, the service company for West Capella, forNigeria, owns a fair valuenon-controlling interest in one of $6 million. Following the completion of this transaction Seadrill UK Ltd. owns 49% of Seadrill Mobile Units Nigeria Limited, with the remaining 51% being owned byour subsidiaries, of Seadrill Partners. Simultaneously HHL acquired from Seadrill UK Ltd. a 49% interest in Seadrill Nigeria Operations Limited the service company for West Jupiter for("Seadrill Nigeria") holds a fair value of $6 million. The impact of these transactions was to increase Seadrill’s direct ownership10% interest in Seadrill Partners by $6 million,our drillship West Jupiter and previously supported the West Jupiter's operations whilst it was under contract with Total in Nigeria. The equity attributable to recognize HHL’sHeirs Holdings is classified as a non-controlling interest in Seadrill Nigeria Operations Ltd of $6 million. Duringour consolidated balance sheet. In February 2020, we paid $11 million to Heirs Holdings for an option to buy the year ended December 31, 2017 (Predecessor), HHL acquirednon-controlling interest at any point in the future for a further 2% interest in Seadrill Nigeria Operations Ltd for total consideration of $0.3 million.$1 purchase price.


Note 2628 - Redeemable non-controlling interest

Changes in redeemable non-controlling interestinterests for the period from January 1, 2018 through July 1, 2018 (Predecessor) and period from July 2, 2018 through December 31, 2018 (Successor) areperiods presented in this report were as follows:
(In $ millions) Asia Offshore Drilling Ltd
As at December 31, 2017 (Predecessor)
Reclassification from non-controlling interest150
Fair value adjustment on initial recognition(127)
Net income attributable to redeemable non-controlling interest2
Fresh start fair value adjustment5
As at July 1, 2018 (Predecessor)30
As at July 2, 2018 (Successor)30
Fair value adjustment9
January 1, 201938
Net loss attributable to redeemable non-controlling interest(1(2))
As at Fair value adjustment21 
December 31, 2018 (Successor)20193857
Net loss attributable to redeemable non-controlling interest(1)
Fair value adjustment(25)
Acquisition of NCI(31)
December 31, 20200

Prior to September 11, 2020, we held a 66.24% interest in AOD, which owns the benign environment jack-up rigs AOD 1, AOD 2 and AOD 3. The remaining 33.76% interest was owned by Mermaid.
Subsequent to filing bankruptcy petitions,On April 4, 2018, the Predecessor executed a Transaction Support Agreement (“TSA”) on April 4, 2018which provided Mermaid with a minority shareholder of one of Seadrill Limited's subsidiaries, Asia Offshore Drilling Limited (“AOD”). The purpose of the TSA was to provide a framework for a monetization event for the minority shareholder of AOD as well as obtain unanimous approval of the AOD board of directors (which included the minority shareholder) in order for AOD to become a party to the RSA and participate in Seadrill’s broader debt restructuring under its Chapter 11 reorganization.

The TSA executed between the parties provided a put option that gave them the right to the holders ofsell their non-controlling interest shares. The put option gave the holders the right (with no obligation)shares to sell the shares it owns to Seadrill subject to a price ceiling. After the end of the effective period of the put option, if the right remains unexercised, Seadrill gets the right (with no obligation) to purchase the non-controlling interest in AOD at a price subject to

the floor price (“Call Option”). While the call option provides for a redemption mechanism, the redemption option is made by Seadrill. The put option, however, generates a redemption feature for the non-controlling interest holder thatrepurchase price is outside the control of Seadrill.

This redemption feature causedbased on the fair value of the shares, determined by a valuation expert, subject to a price ceiling of $125 million. The exercise window for the put option ended on September 30, 2020.
If Mermaid did not exercise their option, Seadrill would have a call option that gives them the right to buy Mermaid's shares at fair value, subject to a price floor of $75 million. The exercise window for the call option started on October 1, 2020 and ends on March 31, 2021.
The put option generated a redemption feature for Mermaid that was outside the control of Seadrill. The fair value of Mermaid's non-controlling interest held in AOD to beshares was reclassified from equity to "Redeemable non-controlling interest" withinin the Consolidated Balance Sheets. Any fair value adjustments to generate an expected redemption value have been recognized through retained earnings.

In theSheet. Each reporting period, from January 1, 2018 through July 1, 2018 (Predecessor), we reclassified $150 million(i) attributed Mermaid's share of non-controlling interest from equity to redeemable non-controlling interest on the date of the TSA (April 4, 2018) and recorded a fair value adjustment of $127 million on initial recognition. We attributed $2 million of net incomeAOD's profit or loss to the redeemable non-controlling interest covering the period April 2018and (ii) made an adjustment to July 1, 2018, and a fair value adjustment on initial recognition of $5 million, resulting inremeasure the redeemable non-controlling interest having aat fair value, with the offsetting entry to equity. See the table above.
On September 11, 2020, Mermaid served notice on July 1, 2018 (Predecessor) of $30 million. Subsequent changes inSeadrill that it was exercising the put option. The fair value are recognised in retained earnings.

Inof the period from July 2, 2018 through December 31, 2018 (Successor), we recognized a net loss attributable to redeemable non-controlling interest of $1AOD was agreed at $31 million which was settled in cash by Seadrill. The exercise of the put option resulted in the increase of the ownership interest in AOD to 100% and a fair value adjustmentde-recognition of $9 million, resulting in the redeemable non-controlling interest having a fair value on December 31, 2018 (Successor)from the Consolidated Balance Sheet.

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Table of $38 million.Contents

Note 2729 – Accumulated other comprehensive income/(loss)

Accumulated other comprehensive income consists of the following:
(In $ millions)Unrealized gain on marketable securities
 Unrealized gain on foreign exchange
 Actuarial gain/(loss) relating to pension
 Share in unrealized gains from associated companies
 Change in unrealized gain on interest rate swaps in VIEs
 Change in debt component on Archer facility
 Total
Balance at December 31, 2015 (Predecessor)(151) 36
 (38) 11
 
 
 (142)
Other comprehensive income before reclassifications168
 
 15
 12
 
 
 195
Balance as at December 31, 2016 (Predecessor)17
 36
 (23) 23
 
 
 53
Other comprehensive income before reclassifications14
 
 (3) 2
 2
 
 15
Amounts reclassified from accumulated other comprehensive income
 
 
 (10) 
 
 (10)
Balance as at December 31, 2017 (Predecessor)31
 36
 (26) 15
 2
 
 58
Adoption of accounting standard update(31) 
 
 
 
 
 (31)
Balance as at January 1, 2018 (Predecessor)
 36
 (26) 15
 2
 
 27
Reset accumulated other comprehensive (loss)/income
 (36) 26
 (15) (2) 
 (27)
Balance as at July 1, 2018 (Predecessor)
 
 
 
 
 
 
              
              
Other comprehensive income before reclassifications
 
 1
 (5) 
 (3) (7)
Balance as at December 31, 2018 (Successor)
 
 1
 (5) 
 (3) (7)
In January 2016, the FASB issued ASU 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities" to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. ASU 2016-01 became effective for fiscal years and interim periods beginning after December 15, 2017. We adopted ASU 2016-01 starting from January 1, 2018 on a modified retrospective basis, with no changes recognizedChanges in the prior year comparatives and a cumulative catch up adjustment recognized in the Predecessor opening retained earnings.

Upon adoption of ASU 2016-01, we reclassified $31 million of unrealized gains related to our marketable securities from accumulated other comprehensive income to retained earnings in the Predecessor. As a result of the adoption of this guidance we are required to recognize the movement in the fair value of our marketable securities in the Consolidated Statement of Operations. Refer to Note 15 "Marketable securities" for further information.


On emergence from Chapter 11, the accumulated other comprehensive income of the Predecessor was reset to nil. For further information refer to Note 5 - Fresh start accounting.

The applicable amount of income taxes associated with each component of other comprehensive income in the Successor is nil, other than on the actuarial loss on pension, due to the fact that the items relate to companies domiciled in non-taxable jurisdictions. For actuarial loss related to pension, the accumulated applicable amount of income taxes is nilincome/(loss) for the period from July 2, 2018 to December 31, 2018 ($1 million for the period from January 1, 2018 to July 1, 2018 and $1 million for the year ended December 31, 2017 (Predecessor))periods presented in this report were as this item is related to companies domiciled in Norway where the tax rate is 23% (December 31, 2017 (Predecessor): 24%).follows:

(In $ millions)Actuarial gain/(loss) relating to pensionShare in unrealized losses from associated companiesChange in debt component on Archer facilityTotal
January 1, 20191 (5)(3)(7)
Other comprehensive (loss)/income(1)(8)(6)
December 31, 20190 (13)0 (13)
Other comprehensive (loss)/income(2)(15)(13)
December 31, 2020(2)(28)4 (26)

Note 2830 – Share based compensation
The share-based compensation expense for our Predecessor share options and Restricted Stock Unit ("RSU") plans in the Consolidated StatementStatements of Operations for the period from January 1, 2018 through July 1, 2018 and years ended December 31, 2017 and 2016 was $9 million, $7 million, and $7 million respectively. are as follows:
SuccessorPredecessor
 (In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Share-based compensation expense (1)
Total share-based compensation expense8 5 0 9 
(1)The $9 million expense for the period from January 1, 2018 through July 1, 2018 included a charge of $6 million for schemes cancelled on emergence from the Previous Chapter 11.11 Proceedings. This was classified within reorganization items.

On August 16, 2018, we established an employee incentive plan with a limit of 11.1 million shares in Seadrill Limited. of our common shares.
On September 4, 2018 we made a grant of 0.5 million Restricted Stock Units.RSUs to certain employees and directors under the employee incentive plan. The share-based compensation expense recognizedawards were subject to a service condition and vest 33% per year over the three-year period to September 4, 2021. On September 4, 2019, the first tranche of RSUs vested and 0.2 million of our common shares were issued to employees and directors.
On April 26, 2019, we made a grant of 1.7 million performance shares to certain employees under our employee incentive plan. The awards are subject to service and performance conditions and the vesting period ends on March 31, 2022.
On August 23, 2019, we made a grant of 0.3 million restricted stock units to directors. The awards were subject to a service condition and vest 33% per year over the three-year period to August 23, 2022.
On July 29, 2020, we made a one-off compensatory cash payment to holders of performance share unit and restricted share unit awards that had been granted under our company incentive plans that amounted to $0.5 million. On cancellation of the schemes the remaining charge relating to the unvested awards have been expensed to the consolidated statement of operations. Company Directors and Senior Management held 510,234 performance share units and 188,369 restricted stock units, which resulted in the Consolidated Statementa cash payment of Operations for the period from July 2, 2018 through December 31, 2018 (Successor) was nil. $0.2 million.
The compensation cost for non-vested awards not yet recognized as at December 31, 20182020 is NaN (December 31, 2019: $9 million, with a weighted average vesting period of 2 years and 9 months.million).


Note 2931 - Pension benefits


Defined benefit plans

We have several defined benefit pension plans covering a number of our Norwegian employees. All the plans are administered by a life insurance company. Our net obligation is calculated separately for each plan by estimating the amount of the future benefit that employees have earned in return for their cumulative service. The aggregated projected future benefit obligation is discounted to present value, from which the aggregated fair value of plan assets is deducted. The discount rate is the market yield at the balance sheet date on government bonds in the relevant currency and based on terms consistent with the post-employment benefit obligations.

Actuarial gains and losses are recognized in the Consolidated Statement of Operations when the net cumulative unrecognized actuarial gains or losses for each individual plan at the end of the previous reporting year exceed 10 percent of the higher of the present value of the defined benefit obligation and the fair value of plan assets at that date. These gains and losses are recognized over the expected remaining working lives of the employees participating in the plans. Otherwise, recognition of actuarial gains and losses is included in other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income.

On retirement, or when an employee leaves the company, the member’s pension liability is transferred to the life insurance company administering the plan, and the pension plan no longer retains an obligation relating to the leaving member. This action is deemed to represent a settlement under U.S. GAAP, as it represents the elimination of significant risks relating to the pension obligation and related assets. Under settlement accounting, the portion of the net unrealized actuarial gains/losses corresponding to the relative value of the obligation reduction is recognized through the Consolidated Statement of Operations. However, settlement accounting is not required if the cost of all settlements in a year is not deemed to be significant in the context of the plan. We deem the settlement not to be significant when the cost of settlements in the year is less than the sum of service cost and interest cost in the year. In this case, the difference between the reduction in benefit obligation and the plan assets transferred to the life insurance company is recognized within “other comprehensive income,” rather than being recognized in the Consolidated Statement of Operations.


For onshore employees in Norway, who are participants in the defined benefit plans, the primary benefits are a retirement pension of approximately 66 percent of salary at retirement age of 67 years, together with a long-term disability pension. The retirement pension per employee is capped at an annual payment of 66 percent of the total of 12 times the Norwegian Social Security Base. Most employees in this group may choose to retirestart a pre-retirement pension at 62 years of age on a pre-retirement pension.age.


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Consolidated Balance Sheet position

 Successor
 Predecessor
(In $ millions)December 31, 2018
 December 31, 2017
Accrued pension liabilities - Non-current liabilities4
 6
Less: Deferred tax (Asset)(1) (2)
Shareholders' equity3
 4
Net defined benefit pension asset/(obligation) is as follows:
(In $ millions)December 31, 2020December 31, 2019
Defined benefit obligation - Non-current liabilities(2)
Deferred tax asset
Net defined benefit pension asset/(obligation)1 (1)
 
Annual pension cost

We record pension costs in the period during which the services are rendered by the employees.

SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Service cost
Interest cost on prior years’ benefit obligation
Gross pension cost for the year1 4 3 1 
Expected return on plan assets(1)(1)
Net pension cost for the year1 3 2 1 
Impact of settlement/curtailment of defined benefit plans0
Total net pension cost2 3 2 1 
 Successor Predecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018

Period from January 1, 2018 through July 1, 2018

Year ended December 31, 2017

Year ended December 31, 2016
Service cost2
 1
 2
 7
Interest cost on prior years’ benefit obligation1
 
 2
 3
Gross pension cost for the year3
 1
 4
 10
Expected return on plan assets(1) 
 (1) (4)
Net pension cost for the year2
 1
 3
 6
Social security cost
 
 
 1
Amortization of actuarial gains/losses
 
 
 1
Impact of settlement/curtailment funded status
 
 (1) (1)
Total net pension cost2
 1
 2
 7


The funded status of the defined benefit plan

 Successor
 Predecessor
(In $ millions)December 31, 2018
 December 31, 2017
Projected benefit obligations at end of period37
 38
Plan assets at market value(33) (33)
Accrued pension liability exclusive social security4
 5
Social security related to pension obligations
 1
Accrued pension liabilities4
 6
Funded defined benefit pension obligation is as follows:

(In $ millions)December 31, 2020December 31, 2019
Projected defined benefit obligations(16)(40)
Plan assets at market value16 39 
Funded defined benefit pension obligation0 (1)

Change in projected benefit obligations

Change in projected benefit obligation is as follows:
(In $ millions)December 31, 2020December 31, 2019December 31, 2018
Projected benefit obligations at beginning of period40 37 36 
Interest cost
Service cost
Benefits paid(1)(2)(1)
Change in unrecognized actuarial gain
Settlement (1)
(25)
Foreign currency translations(1)(2)
Projected benefit obligations at end of period16 40 37 
(1)Two Norwegian defined benefit plans were settled and paid out in the year ending 31 December, 2020.
F-63

 Successor
 Predecessor
(In $ millions)December 31, 2018
 June 30, 2018
December 31, 2017
Projected benefit obligations at beginning of period36
 38
60
Interest cost1
 
2
Service cost1
 1
2
Benefits paid(1) (1)(2)
Change in unrecognized actuarial gain2
 (2)(3)
Settlement
 
(24)
Foreign currency translations(2) 
3
Projected benefit obligations at end of period37
 36
38
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Change in pension plan assets

 Successor
 Predecessor
(In $ millions)December 31, 2018
 June 30, 2018
December 31, 2017
Fair value of plan assets at beginning of year33
 33
58
Estimated return1
 
1
Contribution by employer
 2
1
Administration charges
 

Benefits paid(1) (1)(2)
Actuarial gain2
 (1)(5)
Settlement
 
(23)
Foreign currency translations(2) 
3
Fair value of plan assets at end of year33
 33
33
Change in pension plan assets is as follows:

(In $ millions)December 31, 2020December 31, 2019December 31, 2018
Fair value of plan assets at beginning of year39 33 33 
Estimated return
Contribution by employer
Benefits paid(1)(2)(1)
Actuarial gain
Settlement (1)
(27)
Foreign currency translations(1)(2)
Fair value of plan assets at end of year16 39 33 

(1)Two Norwegian defined benefit plans were settled and paid out in the year ending 31 December, 2020.

The accumulated benefit obligation for all defined benefit pension plans was $33$15 million and $33$37 million at December 31, 20182020 (Successor) and 2017 (Predecessor)December 31, 2019 (Successor), respectively.


Pension obligations are actuarially determined and are critically affected by the assumptions used, including the expected return on plan assets, discount rates, compensation increases and employee turnover rates. We periodically review the assumptions used and adjust them and the recorded liabilities as necessary.
 
During the year ended December 31, 2017, a number of employees left and as a result, the defined benefit scheme transferred the pension liability for these employees to the life insurance company administering the scheme. The difference between the reduction in benefit obligation and the plan assets transferred to the life insurance company has been recognized within “Other comprehensive income.” The settlement is not deemed to be significant in the context of the overall scheme and as such net unrecognized actuarial losses have not been recycled as a result of the settlement.

The expected rate of return on plan assets and the discount rate applied to projected benefits are particularly important factors in calculating our pension expense and liabilities. We evaluate assumptions regarding the estimated rate of return on plan assets based on historical experience and future expectations on investment returns, utilizing the asset allocation classes held by the plan’s portfolios. The discount rate is based on the covered bond rate in Norway. Changes in these and other assumptions used in the actuarial computations could impact the projected benefit obligations, pension liabilities, pension expense and other comprehensive income.


Assumptions used in calculation of pension obligations
SuccessorPredecessor
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Rate of compensation increase at the end of year2.25 %2.25 %2.75 %2.50 %
Discount rate at the end of year1.70 %2.30 %2.60 %2.40 %
Prescribed pension index factor1.20 %2.00 %2.00 %2.00 %
Expected return on plan assets for the year2.60 %2.60 %2.60 %2.40 %
Employee turnover4.00 %4.00 %4.00 %4.00 %
Expected increases in Social Security Base2.00 %2.50 %2.50 %2.25 %
 Successor Predecessor
 Period from July 2, 2018 through December 31, 2018

Period from January 1, 2018 through July 1, 2018

Year ended December 31, 2017

Year ended December 31, 2016
Rate of compensation increase at the end of year2.75% 2.50% 2.50% 2.50%
Discount rate at the end of year2.60% 2.40% 2.40% 2.10%
Prescribed pension index factor2.00% 2.00% 1.50% 1.20%
Expected return on plan assets for the year2.60% 2.40% 2.40% 3.00%
Employee turnover4.00% 4.00% 4.00% 4.00%
Expected increases in Social Security Base2.50% 2.25% 2.25% 2.25%


The weighted-average asset allocation of funds related to our defined benefit plan at December 31, was as follows:


Pension benefit plan assets
December 31, 2020December 31, 2019
Equity securities7.2 %13.6 %
Debt securities68.2 %58.4 %
Real estate13.6 %11.0 %
Money market10.6 %16.5 %
Other0.4 %0.5 %
Total100.0 %100.0 %
 Successor
 Predecessor
 December 31, 2018
 December 31, 2017
Equity securities12.7% 10.6%
Debt securities70.0% 66.1%
Real estate9.9% 8.8%
Money market6.9% 13.5%
Other0.5% 1.0%
Total100.0% 100.0%


The investment policies and strategies for the pension benefit plan funds do not use target allocations for the individual asset categories. The investment objectives are to maximize returns subject to specific risk management policies. WeThe life insurance company diversify ourthe allocation of plan assets by investing in both domestic and international fixed income securities and domestic and international equity securities. These investments are readily marketable and can be sold to fund benefit payment obligations as they become payable.
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Effective January 1, 2020 the company terminated 2 of the defined benefit plans and replaced it with a defined contribution plan. The termination/settlement cost relating to the defined benefit planshas been recognized within 'Selling, general and administrative expenses' within the Consolidated Statement of Operations.
 
Cash flows - Contributions expected to be paid
 
The table below shows our expected annual pension plans contributions under defined benefit plans for the years ending December 31, 2019-2028.2021-2030. The expected payments are based on the assumptions used to measure our obligations at December 31, 20182020 and include estimated future employee services. 

(In $ millions)December 31, 2020
2021
2022
2023
2024
2025-2030
Total payments expected during the next 10 years7 
(In $ millions)December 31, 2018
20192
20202
20212
20223
20233
2024-202813
Total payments expected during the next 10 years25


Defined contribution and other plans


WeWe made contributions to personal defined contribution pension and other plans totaling $18 million for the year ended December 31, 2020, $16 million for the year ended December 31, 2019 (Successor), $9 millionfor the period from July 2, 2018 through December 31, 2018 (Successor) and $10 million for the period from January 1, 2018 through July 1, 2018 (Predecessor). For the year to December 31, 2017 (Predecessor) and December 31, 2016 (Predecessor) the charge was $17 million and $26 million, respectively. These were charged as operational expenses as they became payable.


Note 3032 – Related party transactions

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

Companies inover which we hold significant influence include (i)SeaMex, Seabras Sapura, Sonadrill and Gulfdrill. Seadrill Partners (ii) SeaMex and (iii) Seabras Sapura.is an affiliated company. Companies that are controlled by or whose operating policies may be significantly influenced by Hemen include (i) Ship Finance, (ii) Archer, (iii) Frontline, (iv) Seatankers, Northern Drilling and (v) Northern Drilling.Ocean. In the following sections we provide an analysis of (i) transactions with related parties and (ii) balances outstanding with related parties.

Related party revenue
The below table provides an analysis of related party revenues for periods presented in this report.
Successor PredecessorSuccessorPredecessor
(In $ millions)
Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
 Year ended December 31, 2016
(In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Management fee revenues (a)41
 41

84

72
Management fee revenues (a)135 113 46 37 
In country support services revenues (b)
 1

23

25
Reimbursable revenues (b)Reimbursable revenues (b)148 218 
Related party inventory sales1
 1



1
Related party inventory sales
Other4
 

3

2
Other
Total related party operating revenues (c)46
 43

110

100
286 332 56 38 
(a) We provide management and administrative services to Seadrill Partners, and SeaMex and operationSonadrill and operational and technical support services to Seadrill Partners, SeaMex, Sonadrill and Northern Drilling.Ocean. We charge our affiliates for support services provided either on a cost-plus mark up or dayrate basis.

(b) We previously provided in country support services to the Seadrill Partners rig West Polaris when it operated in Angola. The West Polaris's contract ended in December 31, 2018, so we no longer earn revenues under this arrangement.

(c) In addition to the amounts shown above, we recognized reimbursable revenues from Northern Ocean for work to perform the first mobilization of $10 million in the period from July 2, 2018 throughNorthern Ocean rigs, West Mira and West Bollsta. As at December 31, 20182020 our Consolidated Balance Sheet included $142 million of receivables from Northern Ocean (December 31, 2019: $60 million), before deducting allowances for work performedcredit losses. This included $137 million of billed and unbilled trade receivables (December 31, 2019: $55 million), which have been classified within the line item "amount due from related parties", and
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$5 million of costs incurred not yet billable to mobilize the Northern Drilling rig West Mira for its first drilling contract,Ocean (December 31, 2019: $5 million), which we expect to commence in 2019.

have been classified with "Other Assets".
Related party operating expenses
The below table provides an analysis of related party operating expenses for periods presented in this report.

SuccessorPredecessor
 (In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
In country support services expenses (c)
Related party inventory purchases
Other related party operating expenses (d)
West Bollsta lease (e)
10 
Total related party operating expenses12 3 1 4 
 Successor Predecessor
 (In $ millions)
Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
 Year ended December 31, 2016
In country support services expenses (d)
 1

8

14
Related party inventory purchases
 3

3

1
Other related party operating expenses (e)1
 3
 3
 5
Net bareboat charter arrangements (f)
 

(1)
(7)
Total related party operating expenses1
 7
 13
 13

(d)(c)Seadrill Partnerspreviously provided us with in-countryin country support services for the West Jupiter in Nigeria. This arrangement ended in early 2018. In addition, SeaMex previously provided us with in-countyin country support services for the West Pegasus and West Freedom when those rigs operated in Mexico and Venezuela.

(e)(d) We received services from certain other related parties. These included management and administrative services from Frontline, warehouse rental from Seabras Sapura and other services from Archer and Seatankers.

(f) We previously acted as an intermediate charterer(e) Seadrill entered a charter agreement to lease the West Bollsta rig from Northern Ocean in 2020. Refer to Note 25 - "Leases" for the Seadrill Partners rig West Aquarius, during its contract with Hibernia in Canada, which ended in April 2017. We also acted as an intermediate charterer for the Seadrill Partners rigs T-15 and T-16 until December 2016.

details.
Related party financial items
The below table provides an analysis of related party financial income for periods presented in this report.
SuccessorPredecessor
 (In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Interest income (f)24 29 17 12 
Interest income recognized on deferred contingent consideration (g)
Total related party financial items26 33 18 14 
 Successor Predecessor
 (In $ millions)
Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
 Year ended December 31, 2016
Interest income (g)15
 12

34

29
Gains on related party derivatives (h)
 
 1
 1
Interest income recognized on deferred contingent consideration (i)1
 2

3

4
Total related party financial items16
 14
 38
 34

(g)(f) We earn interest income on our related party loans to SeaMex and Seabras Sapura (see below). We also previously earned interest income on our related party loans to Seadrill Partners.

(h) We previously held interest rate swap agreements with Seadrill Partners. These were canceled when we filed for Chapter 11 in September 2017.

(i)(g) We record interest income on deferred consideration receivables from Seadrill Partners (see item (k)(i) below).

Related party receivable balances
The below table provides an analysis of related party receivable balances for periods presented in this report.
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  Successor Predecessor
(In $ millions) December 31, 2018
 December 31, 2017
Related party loans and interest (j) 476
 495
Deferred consideration arrangements (k) 59
 52
Convertible bond (l) 43
 53
Trading balances (m) 138
 164
Total related party receivables 716
 764
(In $ millions)December 31, 2020December 31, 2019
Related party loans and interest (h)516 488 
Deferred consideration arrangements (i)31 
Convertible bond (j)13 35 
Trading balances (k)251 150 
Allowance for expected credit loss (l)(306)
Total related party receivables477 704 
Of which:
Amounts due from related parties - current85 181 
Amounts due from related parties - non-current392 523 

(j)(h) We have loan receivables outstanding from SeaMex and Seabras Sapura. We previously had loan receivables from Seadrill Partners, which have been repaid. We have summarized the amounts outstanding in the table below:

 Successor Predecessor
(In $ millions) December 31, 2018
 December 31, 2017
(In $ millions)December 31, 2020December 31, 2019
SeaMex seller's credit and loans receivable 398
 369
SeaMex seller's credit and loans receivable452 422 
Seabras loans receivable 78
 101
Seabras loans receivable64 66 
Seadrill Partners - West Vencedor facility
 
 25
Total related party loans and interest 476
 495
Total related party loans and interest516 488 
SeaMex loans include (i)include:
1) $250 million "sellers credit" provided to SeaMex in March 2015 which maturesmatured in December 2019 (ii)but is subordinated to SeaMex's external debt facility, which matures in March 2022. We have classified this balance as non-current on our Consolidated Balance Sheets.
2) $45 million working capital loan advanced in November 2016 and (iii) $1032016.
3) $149 million accrued interest on above loans and other funding. The sellers credit and working capital loan both earn interest at 6.5% plus LIBOR and are subordinated to SeaMex's external debt facility.

4) $8 million Sponsor Minimum Liquidity Shortfall. The loan earns interest at 6.5% plus 3 -month U.S. LIBOR.
Seabras loans include a series of loan facilities that we extended to Seabras Sapura between May 2014 and December 2016. The $78$64 million balance shown in the table above includes (i) $70$50 million of loan principal and (ii) $8$14 million of accrued interest. The loans are repayable on demand, subject to restrictions on Seabras Sapura's external debt facilities. We earn interest of between 3.4% - LIBOR + 3.99% on the loans, depending on the facility. We received repayments against these related party loans of $23 million during 2018.

In addition to the Seabras loans referred above, we have made certain other shareholder loans to Seabras Sapura, which we classify as part of our equity method investment in Seabras Sapura. SeeRefer to Note 1820 - "Investments in Associated Companies"associated companies" for further details. We received repayments against these
Seabras Sapura repaid $6 million of its outstanding loan balances in April 2020, $4 million relating to its loan facility and $2 million relating to its shareholder loans of $20 million during 2018.loans.

The outstanding balance of the West Vencedor facility was repaid by Seadrill Partners in May 2018.

(k)(i) Deferred consideration arrangements include receivables due to us from Seadrill Partners from the sale of the West Vela and the West Polaris to Seadrill Partners in November 2014 and June 2015 respectively. We have summarized amounts due for each period in the table below:

(In $ millions)December 31, 2020December 31, 2019
West Vela - Mobilization receivable
17 
West Vela - Share of dayrate
14 
Total deferred consideration receivable3 31 
  Successor Predecessor
(In $ millions) December 31, 2018
 December 31, 2017
West Vela - Mobilization receivable
 31
 44
West Vela - Share of dayrate
 27
 4
West Polaris 1
 5
Total deferred consideration receivable 59
 53

On adoption of fresh start accounting, we recorded receivables for West Vela share of dayrate and West Polaris earnout. These amounts were previously accounted for as gain contingencies so wererecognized only recognized when realized. The receivables were recognized at fair value of $29 million and $1 million respectively and the gain was recognized in reorganization items.

items. The West Polaris was settled in 2019.
We recorded the following gains in other operating income for these arrangements.
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Successor PredecessorSuccessorPredecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 December 31, 2017
 December 31, 2016
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
West Polaris earn out realized

 
 13
 8
West Vela earn out realized

 7
 14
 13
West Vela earn out realized
Total contingent consideration recognized
 7
 27
 21
Total contingent consideration recognized0 0 0 7 


(l)(j) On April 26, 2017, we converted $146 million, including accrued interest and fees, in subordinated loans provided to Archer into a $45 million convertible loan. The subordinated convertible loan bears interest of 5.5%, matures in December 2021 and has a conversion right into equity of Archer Limited in 2021. At inception, the fair value of the convertible bond was $56 million whereas the previous loan had a carrying value of $37 million. We therefore recognized a gain on debt extinguishment of $19 million in 2017 because of this transaction.2017.

The loan receivable is a convertible debt instrument comprised of a debt instrument and a conversion option, classed as an embedded derivative. Both elements are measured at fair value at each reporting date. As at December 31, 2018 (Successor)2019, Archer were in negotiations with their lenders to refinance their debt obligations, which we expected to result in an extension to maturities for all lenders, including Seadrill. We have determined the fair value of the bond using cashflows discounted at the rate of 14%. We assumed the maturity date to be deferred to December 2024. As a result, we recorded an other than temporary impairment against our investment in the convertible bond issued to us by Archer of $11 million.
On March 13, 2020, Archer announced completion of a refinancing, which included agreed renegotiated terms on the convertible loan. The updated terms amended the loan balance to $13 million that bears interest of 5.5%, matures in April 2024 and an equity conversion option. The renegotiated terms resulted in a $29 million impairment recognized following a reduction in the loan balance and an increase to the discount rate. The fair value of the convertible debt instrument as at December 31, 2020 was $43$13 million of which the split between debt and embedded derivative option was $43$10 million and nil$3 million respectively.

Refer to Note 34 - "Fair values of financial instruments"for details.
The fair value gain/(loss) on the convertible bond for periods presented is summarized below:
SuccessorPredecessor
 (In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Other than temporary impairment(29)(11)
Fair value gain/ (loss) of Archer debt component(3)
Fair value gain/ (loss) of Archer embedded conversion option(9)
 Successor Predecessor
 (In $ millions)
Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
Fair value (loss) / gain of Archer debt component(3) 2
 1
Fair value (loss) / gain of Archer embedded conversion option(9) 2
 (4)

(m)(k) Trading balances primarily comprise receivables from Seadrill Partners, SeaMex, Northern Ocean and SeaMexSonadrill for related party management fees. In addition, certain receivablesfees, crewing fees and payables arise when we pay an invoice on behalf of Seadrill Partnerspayroll recharges. Per our contractual terms these balances are either settled monthly or SeaMex and vice versa. Receivables and payables are generally settled quarterly in arrears.arrears, or in certain cases, in advance. As set out below, we have established credit loss allowances for balances that have not been settled in line with these payment terms and are overdue.

(l) Allowances recognized for expected credit losses on our related party loan and trade receivables following adoption of accounting standard update 2016-13 - Measurement of Credit Losses on Financial Instruments. Refer to Note 6 "Current expected credit losses" for details.
Related party payable balances
The below table provides an analysis of related party receivablepayable balances for periods presented in this report.
(In $ millions)December 31, 2020December 31, 2019
Related party loans payable by Ship Finance SPVs to Ship Finance (m)239 
Liabilities from Seadrill to Ship Finance SPVs (n)426 
Trading balances (o)19 
Total related party liabilities433 258 
Of which:
Amounts due to related parties - current(7)(19)
Long-term debt due to related parties(426)(239)

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  Successor Predecessor
(In $ millions) December 31, 2018
 December 31, 2017
Related party loans payable (n) 222
 314
Trading balances (o) 39
 10
Total related party liabilities 261
 324

(n) Related party loans include(m) At December 31, 2019, we had recognized $239 million of long-term related party loansliabilities due from the fully consolidated Ship Finance SPV’s to the Ship Finance subsidiaries that we consolidated as variable interest entities (see Note 35 - Variable Interest Entities for further details). The carrying amount of the loans was $222 million at December 31, 2018 (2017: $314 million)(parent financing). The principal outstanding on the loans was $314 million at December 31, 2019. Following the deconsolidation of the SPVs in the fourth quarter of 2020 this loan was derecognized. Refer to Note 36 - "Variable Interest Entities" for further details.
The loans bear interest at a fixed rate of between 1% to 4.5% per annum and mature between 2023 and 2029. The total interest expense incurred for the year ended December 31, 2019 was $14 million, the period from July 2, 2018 (2017: $314 million).through December 31, 2018 (Successor) was $7 million and the period from January 1, 2018 through July 1, 2018 (Predecessor) was $7 million.
There is a right of offset of trading balance assets against the loans, the net position is disclosed within “Long-term debt due to related parties” on the Consolidated Balance Sheets.. As at December 31, 2018 (Successor)2019 the trading position was a net assetliability position of $4nil.
(n) Following the deconsolidation, we recognized the liability between Seadrill and the SPV's that was previously eliminated on consolidation. On initial recognition the carrying value of Seadrill’s liability with the SPV's of $933 million was measured to the fair value of the liability of $424 million (post deconsolidation initial recognition value). Along with this, there was $2 million of unwinding of the discount of debt for the year ended December 31,2020.
We estimated the fair value of the liability to Ship Finance SPV's on deconsolidation using the discounted cash flows approach. The DCF was based on the contractual cash flows under the bareboat charter agreement together with applicable LIBOR linked interest payments. We also assumed cash outflows under the mandatory repurchase obligation at the end of the lease term (see below). We have discounted these cash flows using Seadrill senior secured note yield of 37%. This calculation resulted in the fair value of the liability of $424 million. The $509 million gain on measurement is presented as a separate line in financial items in the Consolidated Statement of Operations. Refer to Note 36 - "Variable Interest Entities" for further details.
The loans bear interestfollowing table gives a summary of the sale and leaseback arrangements and repurchase options with Ship Finance, as at December 31, 2020:
(In $ millions)West TaurusWest HerculesWest LinusTotal
Maturity dateDec 2024Dec 2024May 2029
Remaining lease payments191184393768 
Purchase obligation15413886378 
Total commitment3453224791,146 
Fair value on initial recognition146 136142424 
Book value147 137142426 
The purchase price paid by the Ship Finance SPVs was $850 million (West Taurus - Nov 2008), $850 million (West Hercules - Oct 2008) and $600 million (West Linus - June 2013).
The bareboat charter rates are set on the basis of a fixed rateBase LIBOR Interest Rate for each bareboat charter contract, and thereafter are adjusted for differences between the LIBOR fixing each month and the Base LIBOR Interest Rate for each contract. A summary of 4.5%the average bareboat charter rates per annum and mature between 2023 and 2029. The total interest expense incurredday for each unit is given below for the period from July 2, 2018 through December 31, 2018 (Successor) was $7 million, the period from January 1, 2018 through July 1, 2018 (Predecessor) was $7 million (year ended December 31, 2017 (Predecessor): $15 million).respective years.

(In $ thousands)20212022202320242025 and thereafter
West Taurus96961811770
West Hercules96961831760
West Linus9992189153122
(o) Trading balances primarily include related party payables due from us to SeaMex and Seadrill Partners and in 2019 included related party payables due from our Ship Finance variable interest entities to Ship Finance and trading balances due from us to SeaMex and Seadrill Partners.

Related party assets and liabilities are presented in our Consolidated Balance Sheet as follows:

  Successor Predecessor
(In $ millions) December 31, 2018
 December 31, 2017
Amount due from related parties - current 177
 217
Amount due from related parties - non-current 539
 547
Amounts due to related parties - current (39) (10)
Long-term debt due to related parties (222) (314)
Total net related party balances 455
 440

Finance.
Other related party transactions
Seabras Sapura guarantees - In November 2012, a subsidiary of Seabras Sapura Participações S.A. entered into a $179 million senior secured credit facility agreement in order to part fund the acquisition of the Sapura Esmeralda pipe-laying support vessel, with a maturity in 2032. During 2013 an additional facility of $36 million was entered into, with a maturitybut this facility matured in 2020. 
As a condition to the lenders making the loan available, wea subsidiary of Seadrill has provided a sponsor guarantee, on a joint and several basis with the joint venture partner, Sapura Energy, in respect of the obligations of the borrower. The total amount guaranteed by the joint venture partners as at December 31, 2018 (Successor)2020 was $165$132 million (December 31, 2017 (Predecessor): $1842019: $146 million).

In December 2013 certain subsidiaries of Seabras Sapura Holding GmbH entered into a $543 million senior secured credit facility agreement in order to part fund the acquisition of the Sapura Diamante, and Sapura Topazio pipe-laying support vessels ("PLSV 1 facility"). As a condition to the lenders making the loan available to each of the borrowers, we provided a sponsor guarantee, on a 50:50 basis with the joint venture partner, Sapura Energy, in respect of the obligations of the borrowers during certain defined time periods, the release of such guarantees being subject to the satisfaction of certain defined conditions. The guarantees covered obligations and liabilities of the borrowers under the facility agreement which arose during the period between the expiry of a contract and extension or renewal of that contract and following a guarantee extension relating to early termination of a contract. During these periods, the guarantees could only be called if the facility was in default. The guarantee was automatically discharged on emergence from Chapter 11 and any related potential claims from lenders were waived as part of a deal reached on October 31, 2018. The total amount guaranteed by the Predecessor as at December 31, 2017 was $186 million.
In April 2015, certain subsidiaries of Seabras Sapura Holding GmbH entered into a $780 million senior secured credit facility agreement in order to part fund the acquisition of the Sapura Onix, Sapura Jade and Sapura Rubi pipe-laying support vessels ("PLSV 2 facility"). As a condition to the lenders making the loan available to each of the borrowers, we provided a sponsor guarantee, on a 50:50 basis with the joint venture partner, Sapura Energy, in respect of the obligations of the borrowers during certain defined time periods, the release of such guarantees being subject to the satisfaction of certain defined conditions. The guarantees covered obligations and liabilities of the borrowers under the facility agreement which arose during the period between the expiry of a contract and extension or renewal of that contract and following a guarantee extension relating to early termination of a contract. During these periods, the guarantees can only be called if the facility is in default. The guarantee was automatically discharged on emergence from Chapter 11 and any related potential claims from lenders were waived as part of a deal reached on October 31, 2018. The amount guaranteed by the Predecessor as at December 31, 2017 was $328 million.
On October 31, 2018, we completed a transaction that fully extinguished the sponsor guarantees given by Seadrill and Sapura Energy for the benefit of the lenders of the PLSV 1 and PLSV 2 facilities. Our guarantee obligations were previously released, discharged and terminated as part of the Chapter 11 proceedings and under the terms of the October 31 transaction, the lenders confirmed that they had no outstanding claims against Seadrill in respect of our guarantees and also released and discharged Sapura Energy's guarantees. In return for the release and discharge of both sponsors’ guarantees, the lenders under the debt facilities have received, amongst other things, cross-collateralisation of the debt facilities, a prepayment from the joint venture, an increase in margin and a consent fee.
We have not recognized a liability for any of the above guarantees as we did not consider it to be probable that the guarantees would be called.

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Other guarantees - In addition, we have made certain guarantees over the performance of Seadrill Partners and SeaMex and Archer on behalf of customers and suppliers. Please refer to their customers. Refer toNote 33-35 - "Commitments and contingencies" for details.

Omnibus agreement - In 2012 we entered into an Omnibus Agreement with Seadrill Partners. The agreement outlines the following provisions: (i) a non-competition agreement with Seadrill Partners for any drilling rig operating under a contract for five or more years; (ii) rights of first offer on any proposed sale, transfer or other disposition of drilling rigs; (iii) rights of first offer on any proposed transfer, assignment, sale or other disposition of any equity interest in Seadrill Operating LP, Seadrill Capricorn Holdings LLC and Seadrill Partners Operating LLC (the "OPCO"); and (iv) indemnification – Old Seadrill Limited agreed to indemnify Seadrill Partners against certain environmental and toxic tort liabilities with respect to the assets contributed or sold to Seadrill Partners, and also certain tax liabilities. Refer to exhibit 4.4.4.1.



Note 3133 – Financial instruments and risk management

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

Credit risk

We have financial assets, including cash and cash equivalents, marketable securities, related party receivables, other receivables and certain amounts receivable on derivative instruments. These assets expose us to credit risk arising from possible default by the counterparty. Most of the counterparties are creditworthy financial institutions or large oil and gas companies. We do not expect any significant loss to result from non-performance by such counterparties. However, we have established an allowance on our loans and trade receivables due from related parties reflecting their current financial position, lower credit rating and overdue balances.


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


Credit risk is also considered as part of our expected credit loss provision. For details on how we estimate expected credit losses refer to Note 6 - "Current expected credit losses".
Concentration of risk
There is also a concentration of credit risk with respect to cash and cash equivalents to the extent that most of the amounts are carried with Citibank, Nordea Bank Finland Plc, Danske Bank A/S, BNP Paribas and ING Bank N.V.BTG Pactual. We consider these risks to be remote.remote, however, from time to time, we may utilize instruments such as money market deposits to manage concentration of risk with respect to cash and cash equivalents. We also have a concentration of risk with respect to customers, including affiliated companies. For details on the customers with greater than 10% of contract revenues, refer to Note 67 - Segment information.  

"Segment information". For details on amounts due from affiliated companies, refer to Note 32 - "Related party transactions".
Foreign exchange risk

AsIt is customary in the oil and gas industry that a majority of our revenues and expenses are denominated in U.S. dollars, which is the functional currency of most of our subsidiaries and equity method investees. However, a portion of the revenues and expenses of certain of our subsidiaries and equity method investees are denominated in other currencies. We are therefore exposed to foreign exchange gains and losses that may arise on the revaluation or settlement of monetary balances denominated in foreign currencies.

Before we entered Chapter 11, we had unsecured bonds denominated in Norwegian Krone and Swedish Krona. These bonds were extinguished on emergence from Chapter 11. Our remaining foreign exchange exposures primarily relate to foreign denominated cash and working capital balances.balances denominated in foreign currencies. We do not expect these remaining exposures to cause a significant amount of fluctuation in net income and therefore do not currently hedge them. Further, theThe effect of fluctuations in currency exchange rates caused byarising from our international operations generally has not had a material impact on our overall operating results.

Interest rate risk

Our exposure to interest rate risk relates mainly to our floating rate debt and balances of surplus funds placed with financial institutions. We manage this risk through the use of derivative arrangements. We have set out our exposure to interest rate risk on our net debt obligations at December 31, 2018 (Successor) in the below table.
(In $ millions) Principal outstanding
 Hedging instruments - see below
 Net exposure
 Impact of 1% increase in rates
Senior Credit Facilities 5,662
 4,500
 1,162
 15
Debt contained within VIEs 655
 
 655
 6
Total floating rate debt obligations 6,317
 4,500
 1,817
 21
New Secured Notes 769
 
 
 
Less: Cash and Restricted Cash (2,003) 
 (2,003) (20)
Net debt 5,083
 4,500
 (186) 1

At December 31, 2017 we were in Chapter 11 and did not make interest payments on our Senior Credit Facilities. Our exposure to interest rate risk was therefore limited to loans contained within VIEs. The net exposure on those debt obligations was not materially different to the amount shown in the above table.

On May 11, 2018, we purchased an interest rate cap for $68 million to mitigate our exposure to future increases inof LIBOR on our Senior Credit Facility debt. The interest rate cap is not designated as a hedge and therefore doeswe do not apply hedge accounting. The capped rate against the 3-month US LIBOR is 2.87% and covers the period from June 15, 2018 to June 15, 2023.


TheAs part of reference rate reform, the use of LIBOR will be replaced by other interest rate applied onindexes as part of a negotiation with our debtlenders. As at December 31, 20182020 our debt facilities and derivatives continue to be linked to the LIBOR interest rate index.
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We have set out our exposure to interest rate risk on our net debt obligations at December 31, 2020 in the table below:
(In $ millions)PrincipalHedging instrumentsTotalImpact of 1% increase in rates
Senior Credit Facilities5,662 (4,500)1,162 12 
Ineffective portion of interest rate cap (1)
4,500 4,500 45 
Debt exposed to interest rate fluctuations5,662 0 5,662 57 
Less: Cash and Restricted Cash(723)(723)(7)
Net debt exposed to interest rate fluctuations (2)
4,939 0 4,939 50 
(1) The 3-month LIBOR rate as at December 31, 2020 was 2.81%0.238%. Therefore,At this date, the interest cap would mitigate NaN of the impact of 94% of a theoretical 1% point increase in LIBOR.
(2) The $515 million of Senior Secured Notes are a fixed rate debt instrument and are therefore excluded from the LIBOR rate. This is set out in the belowabove table.


(In $ millions) Amount
 Impact of 1% point increase in rates (before impact of interest rate cap)
 Less: impact of LIBOR CAP
 Impact of 1% point increase in rates (after impact of interest rate cap)
         
Senior Credit Facility debt - hedged 4,500
 45
 (42) 3
Senior Credit Facility debt - not hedged 1,162
 12
 
 12
Total Senior Credit Facility Debt 5,662
 57
 (42) 15

One of the Ship Finance subsidiaries that we consolidate as a VIE (refer to Note 35 "Variable Interest Entities") previously entered into interest rate swaps to mitigate its exposure to variability in cash flows for future interest payments on the loans taken out to finance the acquisition of the West Linus. These interest rate swaps matured on December 31, 2018.

Gains and losses on derivatives reported in consolidated statementConsolidated Statements of operations

Operations
Gains and losses on derivatives reported in our consolidated statementConsolidated Statements of operationsOperations included the following:

SuccessorPredecessor
(In $ millions)Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Loss recognized in the Consolidated Statement of Operations relating to derivative financial instruments
Interest rate cap agreement(3)(37)(22)(6)
Archer convertible debt instrument(9)
Loss on derivative financial instruments0 (37)(31)(4)

 Successor Predecessor
(In $ millions)Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31,
2017

 Year ended December 31,
2016

(Loss)/gain recognized in the Consolidated Statement of Operations relating to derivative financial instruments       
Interest rate cap agreement(22) (6) 
 
Archer convertible debt instrument(9) 2
 (4) 
Interest rate swaps not designated for hedge accounting
 
 (31) (48)
Cross currency swaps not designated for hedge accounting
 
 46
 (20)
Other
 
 
 (6)
Loss/(gain) on derivative financial instruments(31) (4) 11
 (74)

a) Interest rate cap -
This represents changes in fair value on our interest rate cap agreement referred above.

b) Archer convertible debt instrument -
This represents gains and losses on the conversion option included within a $45$13 million convertible bond issued to us by Archer. Please see Note 3032 - Related"Related party transactionstransactions" for further details.

Interest rate swaps and cross currency swaps - Prior to filing for Chapter 11 (Predecessor), we used interest rate swaps and cross currency swaps to mitigate the impact of currency and interest rate fluctuations on our debt. When we filed for Chapter 11 we triggered a default under these agreements and our counterparties terminated the contracts and received an allowed claim for damages suffered. We reversed the liabilities for these instruments and recorded liabilities equal to the expected value of the allowed claims received by our counterparties. The allowed claim values were higher than the previous fair values, which factored in a discount for our own credit risk, so this led to an expense of $89 million. We classified the expense within reorganization items (see note 4 for further details).

Derivative financial instruments included in our Consolidated Balance Sheet

Sheets
Derivative financial instruments included in our Consolidated Balance Sheet,Sheets, within "Other Assets""other non-current assets" included the following:
(In $ millions)Maturity dateApplicable rateOutstanding principal - December 31, 2020December 31, 2020December 31, 2019
Interest rate capJune 20232.87% LIBOR cap4,500 
0 3 

F-71
 (In $ millions)Maturity dateApplicable rateOutstanding principal - December 31, 2018
As at December 31, 2018
As at December 31, 2017
 
 Interest rate capJune 20232.87% LIBOR cap4,500
39

 Interest rate hedge agreement in the VIEOctober 2018 - December 20181.77% - 2.01%


     39


Table of Contents




Note 3234 - Fair values of financial instruments
Fair value of financial instruments measured at amortized cost

The carrying value and estimated fair value of our financial instruments that are measured at amortized cost as at December 31, 2018 (Successor)2020 and December 31, 2017 (Predecessor)2019 are as follows:
December 31, 2020December 31, 2019
(In $ millions)Fair
value
Carrying
value
Fair
value
Carrying
value
Assets
Related party loans receivable (1) (Level 2)
379 379 395 488 
Liabilities
Secured credit facilities (2020: Level 3; 2019: Level 2)
1,193 5,662 5,464 5,549 
Credit facilities contained within variable interest entities (Level 2) (2)
590 598 
Senior Secured Notes (Level 1)
213 515 404 476 
Related party loans payable by the VIE (Level 2) (2)
239 239 
Related party loans payable (Level 3)
424 426 
 Successor Predecessor
 December 31, 2018 December 31, 2017
(In $ millions)
Fair
value

 
Carrying
value

 
Fair
value

 
Carrying
value

Assets       
Related party loans receivable (1) (Level 2)
476
 476
 470
 470
        
Liabilities       
Secured credit facilities (Level 2)
5,388
 5,519
 
N/A (2)

 5,581
Credit facilities contained within variable interest entities (Level 2)
612
 626
 
N/A (2)

 786
New secured notes (Level 1)
770
 769
 
 
Unsecured bonds (Level 2)

 
 
N/A (2)

 2,334
Related party loans payable by the VIE (Level 2)
222
 226
 218
 314
(1)Excludes Archer convertible debt receivable, which is measured at fair valuevalue.
(2)Refer to Note 36 - "Variable Interest Entities" for further information on a recurring basis
(2) During the period we were in Chapter 11 Bankruptcy, the fair value for these financial instruments was not reasonably determinable.

Ship Finance SPV's deconsolidation.
Level 1
The fair value of the secured notesSenior Secured Notes are derived using market traded value. We have categorized this at level 1 onof the fair value measurement hierarchy. Refer to Note 2223Debt"Debt" for further information.

Level 2
Upon the adoption of fresh start accounting, the related party loans receivable from Seadrill Partners, SeaMex and Seabras Sapura were recorded at fair value. We estimate that the fair value continues to be equal to the carrying value as at December 31, 2018 asafter adjusting for expected credit losses on the loans. The debt is not freely tradable and cannot be recalled by us at prices other than specified in the loan note agreements and theagreements. The loans were entered into at market rates. TheyThe loans are categorized as level 2 on the fair value measurement hierarchy. Other trading balances with related parties are not shown in the table above and are covered underin Note 3032 - Related"Related party transactions.transactions". The fair value of other trading balances with related parties are also assumed to be equal to their carrying value.value after adjusting for expected credit losses on the receivables.

Level 3
The fair values of the secured credit facilities as at December 31, 2020 are determined by reference to the fair value of the collateral of each facility, the rigs, as this is the expected amount recoverable on enforcement of an event of default. The fair values were derived using a discounted cash flow model of future free cash flows from each rig, using a weighted average cost of capital of 11.8%. We have categorized this at level 3 of the fair value hierarchy. The fair value of the secured credit facilities and Ship Finance loansas at December 31, 2019, are derived using the discounted cash flow model, using a cost of debt of 7%.6%, with reference to the expected contractual repayments under the agreements, which we categorized at level 2 of the fair value hierarchy. The change in the valuation approach is due to the debt default position in the current period. Refer to Note 23 - "Debt" for further information.

The fair value of the related party loans provided by Ship Finance to our VIE's arepayable were derived using thea discounted cash flow model of future free cash flows based on the contractual cash flows under the bareboat charter agreement together with the LIBOR linked interest payments, as well as assumed cash outflows under the mandatory repurchase obligation at the end of the lease term. These cash flows were discounted using a costthe Senior Secured Note yield of debt of 11%37%. We have categorized this at level 23 on the fair value measurement hierarchy. Refer to Note 3032 - Related"Related party transactionstransactions" for further information.

Financial instruments measured at fair value on a recurring basis

The carrying value and estimated fair value of our financial instruments that are measured at fair value on a recurring basis at December 31, 2018 (Successor)2020 and December 31, 2017 (Predecessor)2019 are as follows: 
F-72

Table of Contents
Successor Predecessor
December 31, 2018 December 31, 2017December 31, 2020December 31, 2019
(In $ millions)
Fair
value

 
Carrying
value

 
Fair
value

 
Carrying
value

(In $ millions)Fair
value
Carrying
value
Fair
value
Carrying
value
Assets       Assets
Cash and cash equivalents (Level 1)
1,542
 1,542
 1,255
 1,255
Cash and cash equivalents (Level 1)
526 526 1,115 1,115 
Restricted cash (Level 1)
461
 461
 104
 104
Restricted cash (Level 1)
197 197 242 242 
Marketable securities (Level 1)
57
 57
 124
 124
Marketable securities (Level 1)
11 11 
Related party loans receivable - Archer convertible debt (Level 3)
43
 43
 53
 53
Related party loans receivable - Archer convertible debt (Level 3)
13 13 35 35 
Interest rate cap (Level 2)
39
 39
 
 
Interest rate cap (Level 2)
       
       
Temporary equity       Temporary equity
Redeemable non-controlling interest (Level 3)
38
 38
 
 
Redeemable non-controlling interest (Level 3)
57 57 
Level 1
The carrying value of cash and cash equivalents and restricted cash, which are highly liquid, is a reasonable estimate of fair value and categorized at level 1 onof the fair value measurement hierarchy. Quoted market prices are used to estimate the fair value of marketable securities, which are valued at fair value on a recurring basis.

Level 2
The fair value of the interest rate cap as at December 31, 20182020 is calculated using well-established independenceindependent valuation techniques and counterparty non-performance credit risk assumptions. The calculation of the credit risk inwith regard to the swap valuesinterest rate cap is subject to a number of assumptions including an assumed credit default swap rate based on our traded debt, and recovery rate, which assumes the proportion of value recovered, given an event of default. We have categorized these transactions as level 2 onof the fair value measurement hierarchy.

Level 3
The Archer convertible debt instrument is bifurcated into two elements. The fair value of the embedded derivative option is calculated using a modified version of the Black-Scholes formula for a currency translated option. Assumptions include Archer's share price in NOK, NOK/ USD FX volatility and dividend yield. The fair value of the debt component is derived using the discounted cash flow model including assumptions relating to cost of debt and credit risk associated towith the instrument.

The redeemable non-controlling interest in AOD is calculated by applying a We have categorized this at level 3 of the fair value hierarchy. Refer to the three AOD rigs and debt facility using a discounted cash flow model. The rig values are determined using an income approach based on projected future dayrates, contract probabilities, economic utilization, capital and operating expenditures, applicable tax rates and asset lives, discounted using a weighted average cost of capital of 11%. The fair value of the debt is derived using the discounted cash flow model, using a cost of debt of 8%.

Note 32 - "Related party transactions" for further information.
Fair value considerations on one-time transactions

Impairment of intangible assets
Fresh start valuations
The Plan presentedintangible assets relate to favorable contract assets recognized on February 26, 2018,emergence from the Previous Chapter 11 Proceedings, from the resulting management fee agreements we have in place with Seadrill Partners and confirmed by the Bankruptcy Court on April 17, 2018, estimatedSeaMex. On December 1, 2020 Seadrill Partners announced it had filed a range of distributable value for the Successor Company of which a reorganization value was derived based on the mid-point of this range of estimated distributable values. The reorganization value represents the fair value of the Successor Company’s total assets and,new voluntary petition under fresh start accounting,Chapter 11. Under Chapter 11 we are required to allocatecontinue to provide the reorganization valuemanagement services only at market rate and as such there is no longer a favorable contract rate and the intangible amount relating to individualSeadrill Partners, which resulted in a full impairment of the Seadrill Partners element of the favorable contract asset recognized in intangible assets based on their estimated fair values. For further information, refer to Note 5 - Fresh Start Accounting.of $21 million.

F-73
Drilling unit impairment

In our reported Predecessor period ended July 2, 2018 (Predecessor), we recorded an impairment expense
Table of $414 million against our drilling units, derived from a fair value using an income approach based on updated projections of future dayrates, contract probabilities, economic utilization, capital and operating expenditures, applicable tax rates and asset lives. For further information, refer to Note 20 - Drilling units.Contents

Impairment of marketable securities and investments in associated companies and joint ventures
In the years ended December 31, 2017 and 2016 we recognized impairments on our investments in marketable securities, associated companies and joint ventures following deteriorating conditions in the oil and gas industry and supply and demand conditions in the offshore drilling sector. For further information and fair value considerations, refer to Note 11 - Impairment loss on marketable securities and investments in associated companies.

Note 3335 – Commitments and contingencies
Legal Proceedings

From time to time we are a party, as plaintiff or defendant, to lawsuits in various jurisdictions for demurrage, damages, off-hire and other claims and commercial disputes arising from the construction or operation of our drilling units, in the ordinary course of business or in connection with our acquisition or disposal activities. We believe that the resolution of such claims will not have a material impact, individually or in the aggregate, on our operations or financial condition.results. Our best estimate of the outcome of the various disputes has been reflected in our Consolidated Financial Statements as at December 31, 2018.

Sevan Drilling
On June 29, 2015, Sevan Drilling disclosed that it had initiated an internal investigation into activities with an agent under certain drilling contracts with Petrobras in Brazil, which were entered prior to the separation from the Sevan Marine Group. On October 16, 2015, Sevan Drilling further disclosed that Sevan Drilling ASA, previously the parent company of Sevan Drilling, had been accused of breaches of Sections 276a and 276b 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. On May 4, 2018, Sevan Drilling disclosed that Norway's anti-corruption agency, Økokrim, had completed its investigation and that the charges had been dismissed. Accordingly, no loss contingency has been recognized in Seadrill’s Consolidated Financial Statements.

2020.
Seabras Sapura joint venture
The Sapura Esmeralda operates under a temporary Brazilian flag which expires on July 29, 2019. Seabras Sapura is currently in the process of applying for a registration with Brazilian authorities which will entitle the vessel to permanently fly the Brazilian flag. There is a risk that if no permanentThe right to fly theoperate under such Brazilian flag is obtained, or thatbeing challenged in the temporary flag is revoked and Seabras Sapura is unsuccessfulBrazilian courts. An adverse decision in any appeals or

in pursuing other available remedies, thisthe Brazilian courts could affect the operations of the Sapura Esmeralda and potentially impact its commercial agreements and related financing.

Patent infringement
In January 2015, a subsidiary of Transocean Ltd. filed suit (“October 2020, an amicable settlement agreement between Sapura Navegação Maritima and the Suit”) against certain of our subsidiaries for patent infringement. The Suit alleged that one of our drilling rigs operating inFederal Public Attorney (representing the U.S. Gulf of Mexico, along with two rigs ownedAdmiralty Court) was confirmed by Seadrill Partners, violated Transocean patents relating to dual-activity. In the same year, we challenged the validity of the patents via the Inter Parties Review process within the U.S. Patent and Trademark Office. The IPR board held in March 2017 that the patents were valid. In May 2017 we appealed to the U.S.Brazilian Federal Circuit Court of Appeal and in June 2018as a result, the court affirmedAdmiralty Court has issued the IPR decision.  The Suit passed throughdefinitive Property Registry Certificate and Sapura Esmeralda has been granted the Chapter 11 bankruptcy proceedings unimpaired and was reinstated.

In December 2018, Seadrill and Seadrill Partners reached an amicable agreement with Transocean over alleged patent infringement of the Transocean dual activity patent. Under the terms of the settlement, Seadrill and Seadrill Partners have entered into a global license agreement with Transocean of the dual activity drilling method on our rigs covering alleged past infringements and future use.

Dalian Newbuilds
At December 31, 2018, we had contractual commitments under two (2017: eight) newbuilding contracts with Dalian totaling $0.4 billion (2017: $1.7 billion). In January 2019, Dalian appointed an administrator to restructure its liabilities.

Contracts for the newbuild jack-up rigs West Titan, West Proteus, West Rhea, West Hyperion, West Tethys and West Umbriel were terminated as of December 31, 2018. Further, in February 2019, the Seadrill contracting party terminated the contract to acquire the jack-up rig West Dione due to: (i) delays to delivery of the rig, and (ii) Dalian being subject to bankruptcy proceedings. In March 2019, Dalian purported to terminate the eighth newbuilding contract for the West Mimas. The Seadrill contracting party rejected Dalian’s termination of the contract as wrongful and reserved all its rights. The Seadrill contracting party will obtain a right to terminate the contract for the West Mimas for delay and claimoperate under a refund of the pre-delivery installments plus interest in early April 2019, and it intends to enforce all its rights under the contract as they arise. Brazilian flag.

In March 2019, the Seadrill contracting parties commenced arbitration proceedings in the UK for all eight rigs and will claim for the return of the paid installments plus interest and further damages for losses. They will also file claims for these amounts as part of the Dalian insolvency. Dalian has maintained it has a damages claim in respect of each of the rigs. The contracts are all with limited liability subsidiaries of Seadrill. There are no parent company guarantees. Apart from the Seadrill contracting parties’ claims for repayment of the paid installments plus interest, no quantification of claims has been made by either party.

Guarantees

We have issued guarantees in favor of third parties as follows, which is the maximum potential future payment for each type of guarantee:
 Successor
 Predecessor
 (In $ millions)
December 31, 2018
 December 31, 2017
Guarantees in favor of customers 1, 2, 3
7
 203
Guarantees in favor of banks 4
165
 698
Guarantees in favor of suppliers 1, 3
1
 11
Total173
 912

(1)
Guarantees to Seadrill Partners - Within guarantees in favor of customers are guarantees provided on behalf of Seadrill Partners of $7 million (Predecessor 2017: $165 million). Guarantees in favor of suppliers includes guarantees on behalf of Seadrill Partners of $1 million (Predecessor 2017: $1 million). Refer to Note 30 - Related party transactions for more information.

(2)
Guarantees to SeaMex - Within guarantees in favor of customers are guarantees provided on behalf of SeaMex being nil for the Successor 2018 (Predecessor 2017: $30 million). Refer to Note 30 - Related party transactions for more information.

(3)
Guarantees to Archer - Within guarantees provided to customers are guarantees provided on behalf of Archer being nil for the Successor 2018 (Predecessor 2017: $8 million). Guarantees in favor of suppliers include guarantees on behalf of Archer being nil for the Successor 2018 (Predecessor 2017: GBP 7 million ($10 million)). Refer to Note 30 - Related party transactions for more information.

(4)
Guarantees to Seabras Sapura -Within guarantees in favor of banks are guarantees provided on behalf of Seabras Sapura Participacoes and Seabras Sapura Holdco totaling $165 million (Predecessor 2017: $698 million). Refer to Note 30 - Related party transactions for more information.

As of the Consolidated Balance Sheet date we have not recognized any liabilities for the above guarantees, as we do not consider it is probable for the guarantees to be called.

Note 34 – Operating leases

We have operating leases relating to our premises, the most significant being our offices in London, Liverpool, Oslo, Stavanger, Singapore, Houston, Rio de Janeiro and Dubai.

In the period from July 2, 2018 through December 31, 2018 (Successor) and the period from January 1, 2018 through July 1, 2018 (Predecessor) rental expenses amounted to $7 million and $9 million. Rental expenses for the years ended December 31, 2017 (Predecessor) and 2016 (Predecessor) amounted to $19 million and $17 million, respectively. Future minimum rental payments are as follows:

Year
 (In $ millions)
201911
20209
20219
20225
20233
2024 and thereafter1
Total38
Note 35 – Variable Interest Entities
As at December 31, 2018 (Successor), we have two semi-submersible rigs and a jack-up rig from VIEs under capital leases. Each of the units had been sold by us to single purpose subsidiaries of Ship Finance and simultaneously leased back by us on bareboat charter contracts for a term of 15 years. We have several options to repurchase the units during the charter periods, and obligations to purchase the assets at the end of the 15 years lease period.


The following table gives a summary of the sale and leaseback arrangements and repurchase options from VIEs, as at December 31, 2018:
Unit 
Effective
from
 
Sale value
(In $ millions)
 
First
repurchase
option
(In $ millions)
 
Month of first
repurchase
option
 
Last
repurchase
option (1)
(In $ millions)
 
Month of last
repurchase
Option (1)
West Taurus Nov 2008 850 418 Feb 2015 154 Dec 2024
West Hercules Oct 2008 850 580 Aug 2011 138 Dec 2024
West Linus June 2013 600 370 Jun 2018 170 May 2029

(1)
Ship Finance has a right to require us to purchase the West Linus rig on the 15th anniversary for the price of $86 million if we don’t exercise the final repurchase option.
We have determined that the Ship Finance subsidiaries, which own the units, are VIEs, and that we are the primary beneficiary of the risks and rewards connected with the ownership of the units and the charter contracts. Accordingly, these VIEs are fully consolidated in our Consolidated Financial Statements. The equity attributable to Ship Finance in the VIEs is included in non-controlling interests in our Consolidated Financial Statements. At December 31, 2018 (Successor) and at December 31, 2017 (Predecessor) the units are reported within drilling units in our balance sheet. We did not record any gains from the sale of the units, as they continued to be reported as assets at their original cost in our Consolidated Balance Sheet at the time of each transaction. The investment in capital lease amounts are eliminated on consolidation against the corresponding capital lease liability held within Seadrill entities. The remainder of assets and liabilities of the VIEs are fully reflected within the Consolidated Financial Statements.
The bareboat charter rates are set on the basis of a Base LIBOR Interest Rate for each bareboat charter contract, and thereafter are adjusted for differences between the LIBOR fixing each month and the Base LIBOR Interest Rate for each contract. A summary of the average bareboat charter rates per day for each unit is given below for the respective years.
(In $ thousands) 2018 2019 2020 2021 2022 2023
West Taurus 112 102 101 96 96 179
West Hercules 117 101 100 96 96 180
West Linus 158 119 99 99 92 171


The assets and liabilities in the statutory accounts of the VIEs as at December 31, 2018 (Successor) and as at December 31, 2017 (Predecessor) are as follows:
 Successor Predecessor
(In $ millions)December 31, 2018 December 31, 2017
 SFL
Deepwater
Limited

 SFL
Hercules
Limited

 SFL
Linus
Limited

 SFL
Deepwater
Limited

 SFL
Hercules
Limited

 SFL
Linus
Limited

Name of unitWest Taurus
 West Hercules
 West Linus
 West Taurus
 West Hercules
 West Linus
Investment in finance lease320
 307
 397
 335
 326
 431
Amount due from related parties
 
 
 4
 4
 
Other assets (1)
2
 
 
 6
 6
 8
Total assets322
 307
 397
 345
 336
 439
            
Short-term interest-bearing debt16
 8
 9
 226
 27
 48
Long-term interest-bearing debt179
 193
 221
 
 224
 261
Other liabilities2
 
 
 3
 2
 
Short-term trading balances due to related parties
 10
 21
 
 
 4
Long-term debt due to related parties (2)
84
 62
 76
 113
 80
 121
Total liabilities281
 273
 327
 342
 333
 434
Equity41
 34
 70
 3
 3
 5

(1)
Includes cash balance of $2 million as at December 31, 2018 (Successor) (December 31, 2017 (Predecessor): $17 million). These have been consolidated into the Consolidated Balance Sheet within "Cash and cash equivalents".
(2)
We present balances due to/from Ship Finance on a net basis, due to the fact that there is a right to offset established in the long-term loan agreements, and the balances are intended to be settled on a net basis.
 Successor Predecessor
(In $ millions)December 31, 2018 December 31, 2017
 SFL
Deepwater
Limited

 SFL
Hercules
Limited

 SFL
Linus
Limited

 SFL
Deepwater
Limited

 SFL
Hercules
Limited

 SFL
Linus
Limited

Debt principal outstanding113
 80
 121
 113
 80
 121
Debt discount(25) (18) (45) 
 
 
Trading asset positions held against long-term loan(4) 
 
 
 
 
Long-term loan due to related parties84
 62
 76
 113
 80
 121

In the period ended December 31, 2018 (Successor), the VIEs declared and paid no dividends (December 31, 2017 (Predecessor): $14 million).

Note 36 – Assets held for sale

West Rigel
On December 2, 2015 (Predecessor), we signed an amendment with Jurong Shipyard (“Jurong”) for the deferral of the delivery of the semi-submersible drilling unit, the West Rigel (the “Unit”). The deferral period originally lasted until June 2, 2016 (Predecessor), but this was subsequently extended to July 6, 2018.

In the event no employment was secured for the Unit, no alternative action is completed and following completion of the deferral period, we agreed with Jurong that we would form a Joint Asset Holding Company for joint ownership of the Unit, of which 23% was to be owned by us and 77% by Jurong.

On December 26, 2017 (Predecessor), Jurong announced that a sale agreement, subject to conditions had been signed for the West Rigel. As the agreement is pursuant to conditions being met, we continued to hold the asset within "Non-current assets held for sale" in the year ended December 31, 2017 (Predecessor).

On April 5 (Predecessor), 2018, we entered into a settlement and release agreement, subject to Bankruptcy Court approval, with Jurong whereby we agreed that our share of the sale proceeds from the sale of the West Rigel by Jurong would be $126 million. To reflect this as

the asset held for sale value at December 31, 2017 (Predecessor), a further $2 million loss on disposal was recognized in the Consolidated Statement of Operations for the year ended December 31, 2017 (Predecessor).

On May 9, 2018 the West Rigel was sold by Jurong and we received a share of proceeds totaling $126 million.

Note 37 - Supplementary cash flow information

The table below summarizes the non-cash investing and financing activities relating to the periods presented:
 Successor Predecessor
 
(In $ millions)
Period from July 2, 2018 through December 31, 2018
 Period from January 1, 2018 through July 1, 2018
 Year ended December 31, 2017
 Year ended December 31, 2016
Non-cash investing activities       
Sale of rigs and equipment (1)

 
 103
 
Increase of investment in Seadrill Mobile Units (Nigeria) Ltd (2)

 
 
 (6)
Proceeds from repayment of short-term loan from related parties due to Seadrill Partners insulation from Seadrill Limited (3)

 
 109
 
Derecognition of Sevan Developer newbuild asset (4)

 
 620
 
Derecognition of Sevan Developer construction obligation (4)

 
 (526) 
        
Non-cash financing activities       
Repayment of debt following sale of rigs and equipment (1)

 
 (103) 
Increase in non-controlling interest in Seadrill Nigeria Operations Ltd (2)

 
 
 7
Repayment of debt following insulation of Seadrill Partners from Seadrill Limited (3)

 
 (109) 
Conversion of convertible bond into shares, decrease in long term debt (5)

 
 
 (105)
Conversion of convertible bond into shares, net increase in equity (5)

 
 
 58
Proceeds from long-term loans (6)

 
 
 150
Long term loans netted-down with related party balances (6)

 
 
 (150)
Dividend to non-controlling interests in VIEs (7)

 
 (14) (113)

(1)
During the year ended December 31, 2017 (Predecessor), we completed the sale of the West Triton, West Resolute and West Mischief to Shelf Drilling, receiving cash consideration of $122 million. This comprised sales value of $225 million offset by $103 million of debt repayments. Refer to Note 9 - Loss on disposals for further information.

(2)
During the year ended December 31, 2016 (Predecessor), our wholly owned subsidiary Seadrill UK Ltd. acquired a 10% interest that an unrelated party, HH Global Alliance Investments Limited (“HHL”) held in Seadrill Mobile Units (Nigeria) Ltd, the service company for West Capella, for a notional value of $6 million. Simultaneously HHL acquired from Seadrill UK Ltd. a 49% interest in Seadrill Nigeria Operations Limited, the service company for West Jupiter for a notional value of $6 million. The impact of these transactions was to increase Seadrill’s direct ownership interest in Seadrill Partners by $6 million, and to recognize HHL’s non-controlling interest in Seadrill Nigeria Operations Ltd of $6 million.

(3)
During the year ended December 31, 2017 (Predecessor), Seadrill Partners amended certain credit facilities to insulate itself from Seadrill Limited. This resulted in a $109 million repayment in respect to the $440 million secured debt facility. Refer to Note 30 - Related party transactions for further information on related party transactions.

(4)
During the year ended December 31, 2017 (Predecessor), Sevan and Cosco agreed to defer the Sevan Developer delivery period until June 30, 2020. The contract amendment included a contract termination clause for Cosco and therefore it was deemed that Sevan had lost control of the asset and therefore derecognized the newbuild asset, which was held at $620 million, construction obligation held at $526 million, and accrued interest and other liabilities held at $19 million, resulting in a net loss on disposal of $75 million. Refer to Note 9 – Loss on disposalsfor further information.

(5)
In May 2016 (Predecessor), we entered into a privately negotiated exchange agreement with certain holders of our outstanding 5.625% (subsequently increased to 6.125%) Senior Notes due in 2017 (the "2017 Notes"), pursuant to which we agreed to issue a total of 8,184,340 new shares of our common stock, par value $2.00 per share, in exchange for $55 million principal amount of the 2017 Notes. Settlement occurred on May 20, 2016, upon which we had a total of 500,944,280 shares of our common stock issued and outstanding.


In June 2016 (Predecessor), we entered into another privately negotiated exchange agreement with certain holders of our outstanding 5.625% (subsequently increased to 6.125%) Senior Notes due 2017 (the "2017 Notes"), pursuant to which we agreed to issue a total of 7,500,000 new shares of our common stock, par value $2.00 per share, in exchange for $50 million principal amount of the 2017 Notes. We had a total of 508,444,280 shares of our common stock issued and outstanding, post settlement on June 13, 2016.

(6)
During the year ended December 31, 2016 (Predecessor), the Ship Finance VIEs that we consolidate withdrew bank loans and made loans to the related party Ship Finance International. These balances are presented net in the Consolidated Statement of Cash Flows. Refer to Note 22 "Long-term debt" for further information.

(7)
During the years ended December 31, 2017 and December 31, 2016, the Ship Finance VIEs declared dividends payable to Ship Finance. Refer to Note 35 - Variable interest entities for further information.

Note 38 – Subsequent Events

Sonangol
We entered into an agreement to establish a 50:50 joint venture with Sonangol called Sonadrill. The joint venture will operate four drillships, focusing on opportunities in Angolan waters. Each of the joint venture parties will bareboat two drillships into Sonadrill and we will manage and operate all the units.

Receipt of overdue receivable
In January 2019, we received $26 million for an overdue receivable which was fully provided in the Predecessor company. This will be recognized as other operating income in our first quarter 2019 results.

Tender offer of New Secured Notes
In February 2019, we launched a consent solicitation for proposed amendments to our Senior Secured Notes due in 2025 where we planned to launch a tender offer for the Senior Secured Notes. The required majority of Note holders representing greater than 50% of the principal amount outstanding agreed to consent to the proposed amendments and to participate in the tender offer.

In March 2019, we launched a c.$311 million tender offer at an offer price of 107. Following completion of the tender offer, the outstanding Senior Secured Notes held by third parties is expected to reduce from $769 million to $458 million.

Dalian NewbuildsLegal Proceedings
The Newbuild contractFrom time to time we are a party, as plaintiff or defendant, to lawsuits in various jurisdictions for the jack-up rig West Dione was terminated in February 2019. In March 2019, the Seadrill contracting parties commenced arbitration proceedings on all eight Dalian rigs and will claim for repayment of yard installments plus interest and damages.








Seadrill Partners LLC
Index to Consolidated Financial Statements



Management’s Annual Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15 and Rules 15d-15 promulgated under the Exchange Act.
Internal controls over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Board, managementdemurrage, damages, off-hire and other personnel, to provide reasonable assurance regardingclaims and commercial disputes arising from the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that the Company's receipts and expenditures are being made only in accordance with authorizations of Company's management and directors; and
Provide reasonable assurance regarding the preventionconstruction or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
Our Management, with the participation of the Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of the design and operation of our internal control over financial reporting pursuant to Rule 13a-15 of the Exchange Act as of December 31, 2018.

Management conducted the evaluation of the effectiveness of internal control over financial reporting using the control criteria framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), published in its report entitled Internal Control- Integrated Framework (2013). Management reviewed the results of its assessment with the Audit Committee of our Board of Directors. Based on this assessment, Management concluded that, as of December 31, 2018, our internal control over financial reporting was effective.


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Members of Seadrill Partners LLC
Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying Consolidated Balance Sheets of Seadrill Partners LLC and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related Consolidated Statements of Operations, of Changes in Members’ Capital and of Cash Flows for each of the three years in the period ended December 31, 2018 including the related notes (collectively referred to as the “Consolidated Financial Statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Consolidated Financial Statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these Consolidated Financial Statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s Consolidated Financial Statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the Consolidated Financial Statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the Consolidated Financial Statements included performing procedures to assess the risks of material misstatement of the Consolidated Financial Statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Consolidated Financial Statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Consolidated Financial Statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.




/s/ PricewaterhouseCoopers LLP
Uxbridge, United Kingdom
March 28, 2019

We have served as the Company’s auditor since 2012.


SEADRILL PARTNERS LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 2018, 2017 and 2016
(In US$ millions, except per unit data)
 Note 2018 2017 2016
Operating revenues       
Contract revenues  $797.5
 $1,007.7
 $1,356.4
Reimbursable revenues  31.2
 17.7
 32.8
Other revenues7
*209.5
 103.0
 211.1
Total operating revenues  1,038.2
 1,128.4
 1,600.3
        
Operating expenses       
Vessel and rig operating expenses *(278.2) (345.4) (373.9)
Depreciation11
 (280.3) (274.9) (266.3)
Amortization of favorable contracts10
 (45.1) (74.4) (70.6)
Reimbursable expenses  (28.6) (16.1) (30.2)
General and administrative expenses *(45.8) (44.8) (41.2)
Total operating expenses  (678.0) (755.6) (782.2)
        
Other operating items       
Loss on impairment of goodwill  (3.2) 
 
Revaluation of contingent consideration  
 89.9
 
Gain on sale of assets  
 0.8
 
Total other operating items8
 (3.2) 90.7
 
        
Operating income  357.0
 463.5
 818.1
        
Financial items       
Interest income  47.1
 15.7
 11.5
Interest expense *(263.7) (179.1) (180.0)
Gain/(loss) on derivative financial instruments15
*24.9
 (13.9) (18.0)
Currency exchange gain  0.2
 0.9
 0.6
Other financial expenses  (4.8) (11.5) 
Total financial items  (196.3) (187.9) (185.9)
        
Income before income taxes  160.7
 275.6
 632.2
Income tax expense6
 (86.7) (40.3) (86.5)
Net income  74.0
 235.3
 545.7
        
Net income attributable to the non-controlling interest  17.9
 94.1
 264.7
Net income attributable to Seadrill Partners LLC owners  56.1
 141.2
 281.0
        
Earnings per unit (common and subordinated)       
Common unitholders  $0.75
 $1.88
 $3.20
Subordinated unitholders  $
 $
 $2.28
* Includes transactions with related parties. Refer to Note 14 - "Related party transactions".
A Statement of Other Comprehensive Income has not been presented as there are no items recognized in other comprehensive income.
See accompanying notes that are an integral part of these Consolidated Financial Statements.

SEADRILL PARTNERS LLC
CONSOLIDATED BALANCE SHEETS
As of December 31, 2018 and 2017
(In US$ millions)
 Note2018 2017
ASSETS    
Current assets:    
Cash and cash equivalents $841.6
 $848.6
Accounts receivables, net9
150.9
 254.1
Amount due from related party14
6.4
 24.2
Other current assets10
110.6
 86.8
Total current assets 1,109.5
 1,213.7
Non-current assets:    
Drilling units11
5,005.6
 5,170.9
Goodwill3

 3.2
Deferred tax assets6
7.7
 9.5
Other non-current assets10
62.6
 133.5
Total non-current assets 5,075.9
 5,317.1
Total assets $6,185.4
 $6,530.8
     
LIABILITIES AND MEMBERS' CAPITAL    
Current liabilities:    
Current portion of long-term debt12
$162.9
 $162.9
Current portion of long-term related party debt14

 24.7
Trade accounts payable and accruals 25.7
 37.4
Current portion of deferred and contingent consideration to related party14
37.5
 41.7
Related party payable14
126.3
 157.0
Other current liabilities13
80.2
 121.8
Total current liabilities 432.6
 545.5
Non-current liabilities:    
Long-term debt12
2,896.2
 3,180.2
Deferred and contingent consideration to related party14
21.5
 46.0
Deferred tax liability6
0.4
 1.5
Other non-current liabilities13
120.5
 55.8
Total non-current liabilities 3,038.6
 3,283.5
     
Commitments and contingencies (see Note 17)    
Equity    
Members' Capital:    
Common unitholders (issued 75,278,250 units as at December 31, 2018 and December 31, 2017) 1,224.8
 1,208.9
Subordinated unitholders (issued 16,543,350 units as at December 31, 2018 and December 31, 2017) 104.9
 94.8
Total members' capital 1,329.7
 1,303.7
Non-controlling interest 1,384.5
 1,398.1
Total equity 2,714.2
 2,701.8
Total liabilities and equity $6,185.4
 $6,530.8
See accompanying notes that are an integral part of these Consolidated Financial Statements.


SEADRILL PARTNERS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2018, 2017 and 2016
(In US$ millions)
  2018 2017 2016
Cash Flows from Operating Activities      
Net income $74.0
 $235.3
 $545.7
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 280.3
 274.9
 266.3
Amortization of deferred loan charges 12.4
 12.6
 11.4
Amortization of favorable contracts 45.1
 74.4
 70.6
Gain on disposal of PPE 
 (0.8) 
Loss on impairment of goodwill 3.2
 
 
Unrealized gain related to derivative financial instruments (38.9) (25.8) (32.2)
Unrealized foreign exchange loss/(gain) 0.5
 (3.5) (9.4)
Payment for long term maintenance (91.6) (54.9) (48.0)
Gain on revaluation of contingent consideration 
 (89.9) 
Deferred tax expense 0.7
 4.6
 19.2
Accretion of discount on deferred consideration 5.3
 13.2
 17.3
       
Changes in operating assets and liabilities, net of effect of acquisitions      
Trade accounts receivable 103.2
 (1.6) 38.7
Prepaid expenses and accrued income (3.6) (4.0) 8.6
Trade accounts payable (11.7) 5.4
 7.8
Related party balances (12.9) 16.1
 (64.3)
Other assets 15.5
 34.4
 70.0
Other liabilities 56.5
 (4.9) (12.1)
Changes in deferred revenue (3.4) (9.7) (17.0)
Other, net (0.5) 0.4
 1.2
Net cash provided by operating activities $434.1
 $476.2
 $873.8
       
Cash Flows from Investing Activities      
Additions to drilling units (23.4) (66.7) (13.1)
Proceeds from sale of assets 
 16.2
 
Payment received from loans granted to related parties 
 39.4
 103.6
Insurance refund 
 
 7.1
Net cash (used in) / provided by investing activities $(23.4) $(11.1) $97.6



SEADRILL PARTNERS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2018, 2017 and 2016
(In US$ millions)
  2018 2017 2016
Cash Flows from Financing Activities      
Repayments of long term debt (296.4) (215.0) (105.3)
Debt fees paid 
 (3.8) (0.3)
Repayments of related party debt (24.7) (66.0) (249.5)
Contingent consideration paid (34.0) (40.0) (59.7)
Cash distributions (55.4) (60.1) (107.3)
Repayment of shareholder loan (6.2) 
 
Net cash (used in) / provided by financing activities $(416.7) $(384.9) $(522.1)
       
Effect of exchange rate changes on cash (1.0) 0.8
 (0.7)
       
Net (decrease) / increase in cash and cash equivalents (7.0) 81.0
 448.6
Cash and cash equivalents at beginning of the year 848.6
 767.6
 319.0
Cash and cash equivalents at the end of year $841.6
 $848.6
 $767.6
       
Supplementary disclosure of cash flow information      
Interest and other financial items paid $261.3
 $200.3
 $196.4
Taxes paid 24.9
 42.9
 49.0
See accompanying notes that are an integral part of these Consolidated Financial Statements.


SEADRILL PARTNERS LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’
CAPITAL
for the years ended December 31, 2018, 2017 and 2016
(In US$ millions)
  Members’ Capital      
  
Common
Units
 
Subordinated
Units
 
Total Before
Non-
Controlling
interest
 
Non-
controlling
Interest
 
Total 
Equity
Consolidated balance at December 31, 2015 $945.5
 $18.8
 $964.3
 $1,133.1
 $2,097.4
Net income 230.4
 50.6
 281.0
 264.7
 545.7
Cash distributions (52.7) 
 (52.7) (54.6) (107.3)
Consolidated balance at December 31, 2016 $1,123.2
 $69.4
 $1,192.6
 $1,343.2
 $2,535.8
Net income 115.8
 25.4
 141.2
 94.1
 235.3
Cash distributions (30.1) 
 (30.1) (30.0) (60.1)
Other distributions 
 
 
 (9.2) (9.2)
Consolidated balance at December 31, 2017 $1,208.9
 $94.8
 $1,303.7
 $1,398.1
 $2,701.8
Net income 46.0
 10.1
 56.1
 17.9
 74.0
Cash distributions (30.1) 
 (30.1) (25.3) (55.4)
Repayment of shareholder loan 
 
 
 (6.2) (6.2)
Consolidated balance at December 31, 2018 $1,224.8
 $104.9
 $1,329.7
 $1,384.5
 $2,714.2
See accompanying notes that are an integral part of these Consolidated Financial Statements.


SEADRILL PARTNERS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - General information
Background
On June 28, 2012, Seadrill Limited ("Seadrill") formed Seadrill Partners LLC (the "Company" or "we") under the laws of the Republic of the Marshall Islands. On October 24, 2012, we completed initial public offerings ("IPO") and listed our common units on the New York Stock Exchange under the symbol "SDLP". In connection with the IPO we acquired:
(i) a 51% limited liability company interest in Seadrill Capricorn Holdings LLC. Seadrill Capricorn Holdings LLC owned 100% of the entities that own and operate the West Capricorn,and
(ii) a 30% limited partner interest in Seadrill Operating LP, as well as the non-economic general partner interest in Seadrill Operating LP through our 100% ownership of its general partner, Seadrill Operating GP LLC.
Seadrill Capricorn Holdings LLC owned 100% of the entities that own and operate the West Capricorn. Seadrill Operating LP owned: (i) 100% interest in the entities that own the West Aquarius and the West Vencedor and (ii) approximately 56% interest in the entity that owns and operates the West Capella.
In connection with the IPO we issued to Seadrill Member LLC, a wholly owned subsidiary of Seadrill, the Seadrill Member interest, which is a non-economic limited liability company interest in the Company, and all of the Company's incentive distribution rights, which entitle the Seadrill Member to increasing percentages of the cash the Company can distribute in excess of $0.4456 per unit, per quarter.
Subsequent to the IPO (i) our wholly-owned subsidiary, Seadrill Partners Operating LLC, acquired from Seadrill two entities that own the T-15 and T-16, (ii) Seadrill Capricorn Holdings LLC acquired from Seadrill two entities that own the West Auriga and West Vela, (iii) Seadrill Operating LP acquired from Seadrill the entity that owns the West Polaris, (iv) Seadrill Capricorn Holdings LLC acquired the West Sirius and Seadrill Operating LP acquired the West Leo; and (v) we acquired from Seadrill an additional 28% limited partner interest in Seadrill Operating LP.  As a result of the acquisition, the Company's limited partner interest in Seadrill Operating LP increased from 30% to 58%.
As of December 31, 2018 and 2017, Seadrill owned 34.9% of the Company's common units and all of its subordinated units (which together represent 46.6% of the outstanding limited liability company interests) as well as Seadrill Member LLC, which owns a non-economic interest in the Company and all of its incentive distribution rights.
As of January 2, 2014, the date of the Company's first annual general meeting, Seadrill ceased to control the Company as defined under GAAP and, therefore, Seadrill Partners and Seadrill are no longer deemed to be entities under common control.
Basis of presentation
The financial statements are presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"). The amounts are presented in United States dollar (US dollar) rounded to the nearest hundred thousand, unless otherwise stated.
Going concern
In our Form 20-F covering our annual report for the fiscal year ended December 31, 2017, issued on April 12, 2018, we reported that the combination of (i) our operational dependence on Seadrill because of the management, administrative and technical support services provided to us by Seadrill and (ii) uncertainties over Seadrill's ability to continue as a going concern linked to its Chapter 11 Re-organization, gave rise to a substantial doubt over our ability to continue as a going concern for a period of at least twelve months after the date the financial statements were issued.
Seadrill completed its plan of reorganization and emerged from Bankruptcy on July 2, 2018. Therefore, the above uncertainty has been mitigated and there is no longer a substantial doubt over our ability to continue as a going concern for at least the twelve months after the date the financial statements are issued.
Basis of consolidation
The financial statements include the results and financial position of all companies in which we directly or indirectly hold more than 50% of the voting control. We eliminate all intercompany balances and transactions.
We control Seadrill Operating LP and its majority owned subsidiaries as well as Seadrill Capricorn Holdings LLC and its majority owned subsidiaries. We separately present within equity on our Consolidated Balance Sheets the ownership interests attributable to parties with non-controlling interests in our Consolidated subsidiaries, and we separately present net income attributable to such parties in our Consolidated Statements of Operations.

Note 2 - Accounting policies
The accounting policies set out below have been applied consistently to all periods in these Consolidated Financial Statements, unless otherwise noted.
Use of estimates
Preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Business combinations
We apply the acquisition method of accounting for business combinations. The acquisition method requires the total of the purchase price of acquired businesses and any non-controlling interest recognized to be allocated to the identifiable tangible and intangible assets and liabilities acquired at fair value, with any residual amount being recorded as goodwill as of the acquisition date. Costs associated with the acquisition are expensed as incurred.
Foreign currencies
The majority of our revenues and expenses are denominated in U.S. dollars and therefore the majority of our subsidiaries use U.S. dollars as their functional currency. Our reporting currency is also U.S. dollars. For subsidiaries that maintain their accounts in currencies other than U.S. dollars, we use the current method of translation whereby the Statement of Operations are translated using the average exchange rate for the year and the assets and liabilities are translated using the year-end exchange rate. Foreign currency translation gains or losses on consolidation are recorded as a separate component of other comprehensive income in shareholders' equity.
Related parties
Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also related if they are subject to common control or common significant influence. Refer to Note 14 - ''Related party transactions''.
Revenue from contracts with customers
The activities that primarily drive the revenue earned from our drilling contracts include (i) providing a drilling rig and the crew and supplies necessary to operate the rig, (ii) mobilizing and demobilizing the rig to and from the drill site and (iii) performing rig preparation activities and/or modifications required for the contract. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue and reimbursement revenue. We account for these integrated services as a single performance obligation that is (i) satisfied over time and (ii) comprised of a series of distinct time increments.
We recognize consideration for activities that correspond to a distinct time increment within the contract term in the period when the services are performed. We recognize consideration for activities that are (i) not distinct within the context of our contracts and (ii) do not correspond to a distinct time increment, ratably over the estimated contract term.
We determine the total transaction price for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract. The amount estimated for variable consideration may be constrained and is only included in the transaction price to the extent that it is probable that a significant reversal of previously recognized revenue will not occur throughout the term of the contract. When determining if variable consideration should be constrained, we consider whether there are factors outside of our control that could result in a significant reversal of revenue as well as the likelihood and magnitude of a potential reversal of revenue. We re-assess these estimates each reporting period as required.
Dayrate Drilling Revenue - Our drilling contracts generally provide for payment on a dayrate basis, with higher rates for periods when the drilling unit is operating and lower rates or zero rates for periods when drilling operations are interrupted or restricted. The dayrate invoices billed to the customer are typically determined based on the varying rates applicable to the specific activities performed on an hourly basis. Such dayrate consideration is allocated to the distinct hourly increment it relates to within the contract term, and therefore, recognized in line with the contractual rate billed for the services provided for any given hour.
Mobilization Revenue - We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the mobilization of our rigs. These activities are not considered to be distinct within the context of the contract and therefore, the associated revenue is allocated to the overall performance obligation and recognized ratably over the expected term of the related drilling contract. We record a contract liability for mobilization fees received, which is amortized ratably to contract drilling revenue as services are rendered over the initial term of the related drilling contract.
Demobilization Revenue - We may receive fees (on either a fixed lump-sum or variable dayrate basis) for the demobilization of our rigs. Demobilization revenue expected to be received upon contract completion is estimated as part of the overall transaction price at contract inception and recognized over the term of the contract. In most of our contracts, there is uncertainty as to the likelihood and amount of expected demobilization revenue to be received. For example, the amount may vary dependent upon whether or not the rig has additional contracted work following the contract. Therefore, the estimate for such revenue may be constrained, as described above, depending on the facts and circumstances pertaining to the specific contract. We assess the likelihood of receiving such revenue based on past experience and knowledge of the market conditions.

Revenues Related to Reimbursable Expenses - We generally receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request in accordance with a drilling contract or other agreement. Such reimbursable revenue is variable and subject to uncertainty, as the amounts received and timing thereof are highly dependent on factors outside of our influence. Accordingly, reimbursable revenue is fully constrained and not included in the total transaction price until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of a customer. We are generally considered a principal in such transactions and record the associated revenue at the gross amount billed to the customer, at a point in time, as "Reimbursable revenues" in our Consolidated Statements of Operations.
Contract Balances - Accounts receivable is recognized when the right to consideration becomes unconditional based upon contractual billing schedules. Contract asset balances consist primarily of demobilization revenues which have been recognized during the period but are contingent on future demobilization activities. Contract liabilities include payments received for mobilization as well as rig preparation and upgrade activities which are allocated to the overall performance obligation and recognized ratably over the initial term of the contract.
Local Taxes - In some countries, the local government or taxing authority may assess taxes on our revenues. Such taxes may include sales taxes, use taxes, value-added taxes, gross receipts taxes and excise taxes. We generally record tax-assessed revenue transactions on a net basis.
Deferred Contract Costs - Certain direct and incremental costs incurred for upfront preparation, initial mobilization and modifications of contracted rigs represent costs of fulfilling a contract as they relate directly to a contract, enhance resources that will be used in satisfying our performance obligations in the future and are expected to be recovered. Such costs are deferred and amortized ratably to contract drilling expense as services are rendered over the initial term of the related drilling contract.
Other revenues
Other revenues consist of related party revenues, external management fees, and early termination fees. Refer to Note 7 - ''Other revenues''.
Related party revenues - Related party revenues relate to onshore support and offshore personnel provided to Seadrill
Early termination fees - Other revenues also include amounts recognized as early termination fees under drilling contracts which have been terminated prior to the contract end date. Contract termination fees are recognized daily as and when any contingencies or uncertainties are resolved. Refer to Note 14 - ''Related party transactions''.
Vessel and rig operating expenses
Vessel and rig operating expenses are costs associated with operating a drilling unit that is either in operation or stacked, and include the remuneration of offshore crews and related costs, rig supplies, insurance costs, expenses for repairs and maintenance and costs for onshore support personnel. We expense such costs as incurred.
Mobilization and demobilization expenses
We incur costs to prepare a drilling unit for a new customer contract and to move the rig to a new contract location. We capitalize the mobilization and preparation costs for a rig's first contract as a part of the rig value and recognize them as depreciation expense over the expected useful life of the rig (i.e. 30 years). For subsequent contracts, we defer these costs over the expected contract term (see deferred contract costs above), unless we don't expect the costs to be recoverable, in which case we expense them as incurred.
We incur costs to transfer a drilling unit to a safe harbor or different geographic area at the end of a contract. We expense such demobilization costs as incurred. We also expense any costs incurred to relocate drilling units, that are not under contract.
Repairs, maintenance and periodic surveys
Costs related to periodic overhauls of drilling units are capitalized and amortized over the anticipated period between overhauls, which is generally five years. Related costs are primarily yard costs and the cost of employees directly involved in the work. We include amortization costs for periodic overhauls in depreciation expense. Costs for other repair and maintenance activities are included in vessel and rig operating expenses and are expensed as incurred.
Income taxes
Seadrill Partners LLC is organized in the Republic of the Marshall Islands and resident in the United Kingdom for taxation purposes. The Company does not conduct business or operate in the Republic of the Marshall Islands, and is not subject to income, capital gains, profits or other taxation under current Marshall Islands law. As a tax resident of the United Kingdom the Company is subject to tax on income earned from sources within the United Kingdom. Certain subsidiaries operate in other jurisdictions where taxes are imposed. Consequently, income taxes have been recorded in these jurisdictions when appropriate.
Significant judgment is involved in determining the provision for income taxes. There are certain transactions for which the ultimate tax determination is unclear due to uncertainty in the ordinary course of business. The Company recognizes tax liabilities based on its assessment of whether its tax positions are more likely than not sustainable, based on the technical merits and considerations of the relevant taxing authorities widely understood administrative practices and precedent.
Income tax expense consists of taxes currently payable and changes in deferred tax assets and liabilities calculated according to local tax rules. Deferred tax assets and liabilities are based on temporary differences that arise between carrying values used for financial reporting purposes and amounts used for taxation purposes of assets and liabilities and the future tax benefits of tax loss carry forwards. A deferred tax asset is recognized only to the extent that it is more likely than not that future taxable profits will be available against which the asset can be utilized. The amount of deferred tax provided is based upon the expected manner of settlement of the carrying amount of assets and liabilities, using tax rates enacted at the balance sheet date. The impact of tax law changes is recognized in periods when the change is enacted. We have presented

all deferred tax liabilities and assets, as well as any related valuation allowance, as non-current for all periods presented in this annual report. Refer to Note 6- ''Taxation''.
Earnings Per Unit ("EPU")
We compute EPU using the two-class method set out in GAAP. We first allocate undistributed earnings for the period to the holders of common units, subordinated units and incentive distribution rights. This allocation is made in accordance with the cash distribution provisions contained in our Operating Agreement. Unallocated earnings may be negative if amounts distributed are higher than total earnings. We allocate such deficits using the same cash distribution model.
We calculate the EPU for each category of units by taking the sum of the distributions to those units plus the allocation of those units undistributed earnings for the period and dividing this total by the weighted average number of units outstanding for the period. We don't have any potentially dilutive instruments and therefore don't present a diluted EPU. Refer to Note 18 - ''Earnings per unit and cash distributions''.
Current and non-current classification
Generally, assets and liabilities (excluding deferred taxes) are classified as current assets and liabilities respectively if their maturity is within one year of the balance sheet date. In addition, we classify any derivatives financial instruments whose fair value is a net liability as current.
Generally, assets and liabilities are classified as non-current assets and liabilities respectively if their maturity is beyond one year of the balance sheet date. In addition, we classify loan fees based on the classification of the associated debt principal and we classify any derivatives financial instruments whose fair value is a net asset as non-current.
Cash and cash equivalents
Cash and cash equivalents consist of cash, bank deposits and highly liquid financial instruments with original maturities of three monthsbusiness or less.
Receivables
Receivables, including accounts receivable, are recorded in the balance sheet at their nominal amount less an allowance for doubtful accounts. We establish reserves for doubtful accounts on a case-by-case basis when it is unlikely that required payments of specific amounts will occur. In establishing these reserves, we consider the financial condition of the customer as well as specific circumstances related to the receivable such as customer disputes. Receivable amounts determined as being unrecoverable are written off. Interest income on receivables is recognized as earned. Refer to Note 9 - ''Accounts receivable''.
Drilling units
Rigs, vessels and related equipment are recorded at historical cost less accumulated depreciation. The cost of these assets, less estimated residual value is depreciated on a straight-line basis over their estimated remaining economic useful lives. The estimated residual value is taken to be offset by any decommissioning costs that may be incurred. The estimated economic useful life of our floaters and, jack-up rigs, when new, is 30 years. Significant investments are capitalized and depreciated in accordance with the nature of the investment. Significant investments that are deemed to increase an asset's value for its remaining useful life are capitalized and depreciated over the remaining life of the asset. Refer to Note 11 - ''Drilling rigs''.
Impairment of long-lived assets
We review the carrying value of our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be appropriate. We first assess recoverability of the carrying value of the asset by estimating the undiscounted future net cash flows expected to result from the asset, including eventual disposal. If the undiscounted future net cash flows are less than the carrying value of the asset, we then compare the carrying value of the intangible asset with the discounted future net cash flows, using relevant WACC to determine an impairment loss to be recognized during the period.
Favorable drilling contracts - intangible assets
Favorable drilling contracts are recorded as an intangible asset at fair value on the date of acquisition less accumulated amortization. The amortization is recognized in the Consolidated Statements of Operations under "amortization of favorable contracts". The amounts of these assets are amortized on a straight-line basis over the estimated remaining economic useful life or contractual period.
Derivative Financial Instruments and Hedging Activities
We record derivative financial instruments at fair value. None of our derivative financial instruments have been designated as hedging instruments. Therefore, changes in their fair value are taken to the Consolidated Statements of Operations in each period. Refer to Note 16- ''Fair value of financial instruments''.
We classify the gain or loss on derivative financial instruments as a separate line item within financial items in the Consolidated Statements of Operations. We classify the asset or liability for derivative financial instruments as an other current asset or liability in our Consolidated Balance Sheets. We offset assets and liabilities for derivatives that are subject to legally enforceable master netting agreements.
Deferred charges
Loan related costs, including debt issuance, arrangement fees and legal expenses, are capitalized and presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, and amortized over the term of the related loan and the amortization is included in interest expense.

Debt
We have financed a significant proportion of the cost of acquiring our fleet of drilling units through the issue of debt instruments. At the inception of a term debt arrangement, or whenever we make the initial drawdown on a revolving debt arrangement, we will incur a liability for the principal to be repaid. Refer to Note 12 - ''Debt''.
Loss contingencies
We recognize a loss contingency in the Consolidated Balance Sheets where we have a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Refer to Note 17- ''Commitments and contingencies''.
Equity allocation
Earnings attributable to unitholders of Seadrill Partners are allocated to all unitholders on a pro rata basis for the purposes of presentation in the Consolidated Statements of Changes in Members' Capital. Earnings attributable to unitholders for any period are first reduced for any cash distributions for the period to be paid to the holders of the incentive distribution rights.
At the time of the IPO the equity attributable to unitholders was allocated using the hypothetical amounts which would be distributed to the various unitholders on a liquidation of the Company ("hypothetical liquidation method"). This method has also been used to account for issuances of common units by the Company, and the deemed distributions from equity which resulted from acquisitions of drilling units from Seadrill.

Note 3 - Recent accounting standards
We adopted the following accounting standard updates ("ASUs") in the year:
ASU 2014-09 - Revenue from contracts with customers (also 2016-8, 2016-10, 2016-11, 2016-12, 2016-20, 2017-13, 2017-14)
In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. Under the new guidance, revenue is recognized when a customer obtains control of promised goods or services and in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.

We adopted ASU 2014-09 and its related amendments, or collectively Topic 606, effective January 1, 2018 using the modified retrospective method. Accordingly, we have applied the five-step method outlined in Topic 606 for determining when and how revenue is recognized to all contracts that were not completed as of the date of adoption. Revenues for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported under the previous revenue recognition guidance. For contracts that were modified before the effective date, we have considered the modification guidance within the new standard and determined that the revenue recognized and contract balances recorded prior to adoption for such contracts were not impacted. While Topic 606 requires additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, its adoption has not had a material impact on the measurement or recognition of our revenues or on our opening retained earnings at January 1, 2018. Refer toNote 5 - "Revenue from Contracts with Customers" for further information.
ASU 2017-04 Intangibles (Topic 350)- Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, entities will continue to perform Step 1 of the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The entity will now recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

We early adopted ASU 2017-04, effective December 31, 2018. on a prospective basis. Accordingly, we have applied the simplified test for goodwill at December 31, 2018. Prior to adopting ASU 2017-04, we had recorded goodwill of $3.2 million with accumulated impairment losses of nil. As a result of adopting ASU 2017-04, we have recorded a goodwill impairment loss of $3.2 million in 2018.


Other ASUs
We adopted the following ASUs in the year, none of which had any impact on our Consolidated Financial Statements and related disclosures:
ASU 2016-01 Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities
ASU 2016-15 Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments
ASU 2016-16 Income Taxes - Income taxes intra-entity transfers of assets other than inventory
ASU 2016-18 Statement of Cash Flows - Restricted Cash
ASU 2017-01 Business Combinations (Topic 805)- Clarifying the Definition of a Business
ASU 2018-03 Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10)
ASU 2018-04 Investments-Debt Securities (Topic 320) and Regulated Operations (Topic 980)
ASU 2018-05 Income Taxes (Topic 740)
ASU 2018-06 Codification Improvements to (Topic 942)
ASU 2018-09 Codification Improvements
ASU 2018-19 Codification Improvements to (Topic 326)

Recently Issued Accounting Standards
The FASB have issued the following ASUs that we have not yet adopted but which could affect our Consolidated Financial Statements and related disclosures in future periods.
ASU 2016-02 Leases (Topic 842) (also 2018-01, 2018-10, 2018-11. 2018-20)
ASU 2016-13 Financial Instruments - Credit Losses (Topic 326)
ASU 2018-07 Compensation-Stock Compensation (Topic 718)
ASU 2018-13 Fair Value Measurement (Topic 820)
ASU 2018-14 Compensation-Retirement Benefits-Defined Benefit Plans (Subtopic 715-20)
ASU 2018-15 Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)
ASU 2018-16 Derivatives and Hedging (Topic 815)
ASU 2018-17 Consolidation (Topic 810)
ASU 2016-02 - Leases (also 2018-01, 2018-10, 2018-11. 2018-20)
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The update required an entity to recognize right-of-use assets and lease
liabilities on its balance sheet and disclose key information about leasing arrangements. It also offered specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal year, using a modified retrospective application.
Effective January 1, 2019, we will adopt Topic 842 using the modified retrospective application through a cumulative-effect adjustment to retained earnings at January 1, 2019. We have elected the following transition practical expedients, which will be applied consistently to all leases that commenced before January 1, 2019:
1.We will not reassess whether any expired or existing contracts are or contain leases.
2.We will not reassess the lease classification for any expired or existing leases.
3.We will not reassess initial direct costs for any existing leases.
4.We will use hindsight in determining the lease term and in assessing impairment of the right-of-use assets.
We have determined that our drilling contracts contain a lease component, however, we have elected not to separate the drilling contract lease and non-lease components. We have determined that the non-lease component in our drilling contracts is the predominant component. As such, we will continue to account for our drilling contracts under the guidance in Topic 606. We do not expect our pattern of revenue recognition to change significantly compared to current accounting standards.
We have determined that adoption of this standard will result in increased disclosure of our leasing arrangements. We currently expect this guidance to have nil impact our Consolidated Financial Statements and related disclosures when we adopt it.

ASU 2016-13 - Financial Instruments - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted only from January 1, 2019. Entities are required to apply the standard's provisions as a cumulative-effect adjustment to retained earnings as at the beginning of the first reporting period in which the guidance is adopted.
We are in the early stage of evaluating the impact of this standard update. Our customers are international oil companies, national oil companies and large independent oil companies. Our financial assets are primarily held with counter parties with high credit standing and we have historically had a low incidence of bad debt expense. Therefore, we do not currently expect this guidance to significantly affect our Consolidated Financial Statements and related disclosures when we adopt it.
ASU 2018-07 Compensation - Stock Compensation
In June 2018, the FASB issued ASU 2018-07, Stock Compensation (Topic 718): Improvements to non-employee share-based payment accounting, which intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We are in the process of evaluating the impact of this standard update on our Consolidated Financial Statements and related disclosures.
ASU 2018-13 Fair Value Measurement - Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The update is intended to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the US GAAP information requirements that are most important to users of an entity's financial statements. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We are in the process of evaluating the impact of this standard update on our Consolidated Financial Statements and related disclosures.
ASU 2018-14 Compensation - Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans- General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The update is intended to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the US GAAP information requirements that are most important to users of an entity's financial statements. The guidance will be effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. We are in the process of evaluating the impact of this standard update on our Consolidated Financial Statements and related disclosures.
ASU 2018-15 Intangibles
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). The update is intended to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We are in the process of evaluating the impact of this standard update on our Consolidated Financial Statements and related disclosures.
ASU 2018-16 Derivatives and Hedging
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The update is intended to permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the direct Treasury obligations of the U.S. government, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association Municipal Swap Rate. The guidance will be effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted if an entity has already adopted ASU 2017-12. We are in the process of evaluating the impact of this standard update on our Consolidated Financial Statements and related disclosures.
ASU 2018-17 Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The update is intended to improve general purpose financial reporting by considering indirect interests held through related parties in common control arrangements on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.
Effective January 1, 2019, we will adopt ASU 2018-17 on a prospective basis and apply the amendments in the update to qualifying new or re-designated hedging relationships entered into on or after January 1, 2019. We do not expect this to have a material impact on our Consolidated Financial Statements and related disclosures.
Other accounting standard updates issued by the FASB
As of February 28, 2019, the FASB have issued several further updates not included above. We do not currently expect any of these updates to affect our Consolidated Financial Statements and related disclosures either on transition or in future periods.

Note 4 – Segment information
Operating segment
We regard our fleet as one single operating segment. The Chief Operating Decision Maker, which is the Board of Directors, review performance at this level as an aggregated sum of assets, liabilities and activities generating distributable cash to meet minimum quarterly distributions.
A breakdown of our revenues by customer for the years ended December 31, 2018, 2017 and 2016 is as follows: 
 2018 2017 2016
BP68.0% 56.8% 42.0%
Tullow19.8% % 13.0%
Chevron8.5% 7.9% 5.4%
ExxonMobil0.3% 22.2% 22.0%
Hibernia% 6.4% 15.1%
Other3.4% 6.7% 2.5%
Total100.0% 100.0% 100.0%
Geographic Data
Revenues are attributed to geographical areas based on the country of operations for drilling activities, i.e. the country where the revenues are generated. The following presents the revenues for the years ended December 31, 2018, 2017 and 2016 and fixed assets as of December 31, 2018 and 2017 by geographic area:
Revenues
(In US$ millions)2018 2017 2016
United States$618.1
 $638.0
 $672.2
Ghana205.5
 
 208.1
Thailand88.7
 89.2
 86.3
Canada85.3
 87.1
 241.5
Indonesia8.9
 37.3
 
Angola1.3
 152.5
 175.9
Equatorial Guinea0.9
 48.1
 
Nigeria
 39.5
 185.2
Other29.5
 36.7
 31.1
Total$1,038.2
 $1,128.4
 $1,600.3
Fixed Assets—Drilling Units (1)
(In US$ millions)2018 2017
United States$2,647.1
 $2,729.6
Spain1,050.1
 1,075.9
Malaysia640.0
 
Canada439.7
 460.9
Thailand228.7
 234.6
Gabon
 507.4
Indonesia
 162.5
Total$5,005.6
 $5,170.9
(1)
The fixed assets referred to in the table above include the eleven drilling units at December 31, 2018 and December 31, 2017. Asset locations at the end of a period are not necessarily indicative of the geographic distribution of the revenues or operating profits generated by such assets during such period.



Note 5 – Revenue from contracts with customers

The following table provides information about receivables, contract assets and contract liabilities from our contracts with customers:
(In US$ millions)2018 2017
Accounts receivable, net$150.9
 $254.1
Current contract liabilities (deferred revenues) (1)
4.0
 5.3
Non-current contract liabilities (deferred revenues) (1)
2.4
 4.1
(1)  Current contract assets and liabilities balances are included in "Other current assets" and "Other current liabilities", respectively in our Consolidated Balance Sheets as of December 31, 2018.

Significant changes in the contract assets and the contract liabilities balances during the year ended December 31, 2018 are as follows:
(In US$ millions)Net Contract balances
Contract liabilities at December 31, 2017(9.4)
Decrease due to amortization of revenue that was included in the beginning contract liability balance4.6
Increase due to cash received, excluding amounts recognized as revenue(1.6)
Contract liabilities at December 31, 2018(6.4)

Certain direct and incremental costs that are expected to be recovered, relate directly to a contract, and enhance resources that will be used in satisfying our performance obligations in the future. Such costs are deferred and amortized ratably to contract drilling expense as services are rendered over the initial term of the related drilling contract. Deferred contract revenue during the year ended December 31, 2018 and 2017 are as follows:
(In US$ millions)Net Deferred Contract costs
Opening deferred contract costs at December 31, 20170.3
Decrease due to amortization of costs that were included in the beginning balance(2.3)
Increase due to contract costs incurred, excluding amounts recognized as operating expenses14.6
Closing deferred contract costs at December 31, 201812.6

Costs incurred for the demobilization of rigs at contract completion are recognized as incurred during the demobilization. Costs incurred for rig modifications or upgrades required for a contract, which are considered to be capital improvements, are capitalized as drilling unit additions and depreciated over the estimated useful life of the improvement. Refer to Note 11 - ''Drilling units'' for more information.

Deferred revenue - The deferred revenue balance of $4.0 million reported in "Other current liabilities" at December 31, 2018 is expected to be realized within the next twelve months and $2.4 million reporting in "Other non-current liabilities" is expected to be realized within the following next twelve months. The deferred revenue included above consists primarily of expected mobilization and upgrade revenue for both wholly and partially unsatisfied performance obligations as well as expected variable mobilization and upgrade revenue for partially unsatisfied performance obligations, which has been estimated for purposes of allocating across the entire corresponding performance obligations. The amounts are derived from the specific terms within drilling contracts that contain such provisions, and the expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract based on information known at December 31, 2018. The actual timing of recognition of such amounts may vary due to factors outside of our control.

Practical expedient - We have applied the disclosure practical expedient in ASC 606-10-50-14A(b) and have not included estimated variable consideration related to wholly unsatisfied performance obligations or to distinct future time increments within our contracts, including dayrate revenue. The duration of our performance obligations varies by contract.

Impact of Topic 606 on Financial Statement Line Items - Adopting Topic 606 did not have a material effect on the Consolidated Statement of Operations, or Consolidated Statement of Cash Flows in the year ended December 31, 2018 and 2017. Refer to Note 3 - ''Recent accounting standards'' for more information on the recently adopted accounting pronouncements.

Note 6 – Taxation
Income taxes consist of the following:
(In US$ millions)2018 2017 2016
Current tax expense:     
U.K.$(0.3) $(4.5) $(1.6)
Foreign86.3
 40.4
 110.2
Total current tax expense86.0
 35.9
 108.6
Deferred tax (benefit) / expense:     
U.K.
 
 
Foreign0.7
 4.4
 (22.1)
Total income tax expense$86.7
 $40.3
 $86.5
Seadrill Partners LLC is tax resident in the U.K. The Company's controlled affiliates operate and earn income in several countries and are subject to the laws of taxation within those countries. Currently some of the Company's controlled affiliates formed in the Marshall Islands along with all those incorporated in the U.K. (none of whom presently own or operate rigs) are resident in the U.K. and are subject to U.K. tax. Subject to changes in the jurisdictions in which the Company's drilling units operate and/or are owned, differences in levels of income and changes in tax laws, the Company's effective income tax rate may vary substantially from one reporting period to another. The Company's effective income tax rate for each of the years ended on December 31, 2018, 2017 and 2016 differs from the U.K. statutory income tax rate as follows:
 2018 2017 2016
U.K. statutory income tax rate19.0% 19.3 % 20.0 %
Non-U.K. taxes35.0% (4.7)% (6.3)%
Effective income tax rate54.0% 14.6 % 13.7 %
Deferred Income Taxes
Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes.
The net deferred tax assets consist of the following:
(In US$ millions)2018 2017
Provisions$11.0
 $0.5
Net operating losses carry forward64.4
 33.3
Interest carry forward16.7
 
Other5.7
 5.0
Gross deferred tax assets97.8
 38.8
Valuation allowance(90.1) (28.9)
Deferred tax asset, net of valuation allowance$7.7
 $9.9
The net deferred tax liabilities consist of the following:
(In US$ millions)2018 2017
Property, plant and equipment$0.1
 $0.4
Unremitted earnings of subsidiaries0.3
 1.5
Gross deferred tax liabilities0.4
 1.9
    
Net deferred tax asset7.3
 8.0
As of December 31, 2018, deferred tax assets related to net operating loss ("NOL") carryforwards were $64.4 million, which can be used to offset future taxable income. NOL carryforwards which were generated in various jurisdictions, include $61.1 million which will not expire and $3.3 million that will expire between 2022 and 2023 if not utilized. We establish a valuation allowance for deferred tax assets when it is more-likely-than-not that the benefit from the deferred tax asset will not be realized. The amount of deferred tax assets considered realizable could increase or decrease in the near-term if our estimates of future taxable income change. Our valuation allowance consists of $62.8 million on NOL carryforward, $16.7 million on interest carryforward, and $10.6 million on provisions.
The Company's increase in NOL and corresponding valuation allowance was primarily due to the increase in uncertain tax positions.

Uncertain tax positions
As of December 31, 2018, the Company had uncertain tax positions, exclusive of interest and penalties, of $101.6 million (December 31, 2017: $43.7 million) included in "Other non-current liabilities" on the Consolidated Balance Sheets. The changes to the Company's liabilities related to uncertain tax positions were as follows:
(In US$ millions)2018 2017
Balance beginning of year$43.7
 $40.0
Increases as a result of positions taken in prior years70.4
 
Increases as a result of positions taken during the current year10.1
 3.7
Decreases as a result of positions taken in prior years(22.6) 
Uncertain tax position$101.6
 $43.7
Accrued interest and penalties totaling $16.4 million as of December 31, 2018 (December 31, 2017: $8.0 million) was included in "Other non-current liabilities" on the Consolidated Balance Sheets. The associated expense of $8.4 million was recognized in "Income tax expense" in the Consolidated Statements of Operations during the year ended December 31, 2018 (December 31, 2017: $6.2 million and December 31, 2016: $1.8 million).
As of December 31, 2018, we have recognized liabilities for uncertain tax positions including interest and penalties of $118.0 million. In the event that these issues are resolved for amounts less than provided, there would be a favorable impact on the effective tax rate.
The increase in our uncertain tax position was primarily due to US taxes following a recently identified interpretation of the US tax code that appears to be an unintended consequence of the US tax reform. We understand that the US Department of Treasury is aware of this issue and that it could potentially remediated with additional guidance in the future. However, in the meanwhile, the Company is considering its approach for future filings which may result in a mitigation of a portion of the liability that has been recorded.  At this stage, no cash payment is expected as a result of this uncertain tax position.
Tax examinations
The Company is subject to taxation in various jurisdictions. The following table summarizes the earliest tax years that remain subject to examination by the major taxable jurisdictions in which the Company operates:
JurisdictionEarliest Open Year
United States2015
Nigeria2012
Ghana2013

Note 7 – Other revenues
Other revenues comprise the following items: 
(In US$ millions)2018 2017 2016
Termination payments revenue$204.9
 $95.9
 $198.8
Related party other revenues4.6
 7.1
 12.3
Total$209.5
 $103.0
 $211.1
Termination payments earned during the year ended December 31, 2018 relates to the West Leo litigation judgment of which $204.9 million was recognized as revenue during 2018.
Termination payments earned during the years ended December 31, 2017 and December 31, 2016 include the termination fees for West Sirius and West Capella, which were canceled before the end of the contract term.
Related party other revenues primarily relate to the provision of onshore support services and offshore personnel to Seadrill's and Old Seadrill's drilling rigs that were operating in Nigeria during the years ended December 31, 2018, December 31, 2017 and December 31, 2016. Please refer to Note 14 – "Related party transactions" for further detail on related party other revenues.


Note 8 – Other operating items
Other operating items comprise the following: 
(In US$ millions)2018 2017 2016
Loss on impairment of goodwill

$(3.2) $
 $
Revaluation of contingent consideration$
 $89.9
 $
Gain on sale of assets
 0.8
 
Total$(3.2) $90.7
 $
During the year ended December 31, 2018, we recognized a loss on impairment of goodwill following early adoption of ASU 2017-04, Intangibles. For further information refer to Note 3 - ''Recent accounting standards''.
There was gain on revaluation of contingent consideration of $89.9 million for the year ended December 31, 2017. This gain resulted from a decrease in the fair value of contingent liabilities to Seadrill relating to the purchase of the West Polaris in 2015. We use estimates of long-term dayrates and re-contracting factors to determine the fair value of these liabilities. These estimates decreased during 2017 as new market information became available. For further information please see Note 14 - "Related party transactions".
Note 9 – Accounts receivable
Accounts receivable are presented net of allowances for customer disputes and bad debts.
We have recorded provisions for disputes with customers totaling $2.2 million as of December 31, 2018 (December 31, 2017: $247.5 million). The offsetting entry for these provisions is to reduce revenue. These provisions primarily relate to disputed amounts billed to BP on West Vela.
The provisions as of December 31, 2017 primarily related to disputed amounts billed to Tullow on the West Leo, which were settled during 2018 and the provisions were reversed.
We do not hold any provisions for bad debts. We did not recognize any bad debt expense in 2018, 2017 or 2016.
Note 10 – Other assets
Other assets include the following:
(In US$ millions)2018 2017
Reimbursable amounts due from customers$2.9
 $3.6
Mobilization revenue receivables47.9
 73.8
Intangible asset - Favorable contracts to be amortized85.5
 130.6
Prepaid expenses12.1
 8.5
Deferred mobilization costs12.6
 0.3
Interest rate swap agreements9.9
 
Other2.3
 3.5
Total other assets$173.2
 $220.3
Other assets are presented in our Consolidated Balance Sheet as follows:
(In US$ millions)2018 2017
Other current assets110.6
 86.8
Other non-current assets62.6
 133.5
Total other assets$173.2
 $220.3
Mobilization revenue receivables
Under our contracts for the West Capricorn, West Auriga and West Vela we are paid for mobilization activities over the contract term. We recorded a financial asset equal to the fair value of this future stream of payments when we acquired these drilling units from Seadrill. We expect to collect these amounts over the remaining term of the drilling contracts. We record the unwind of time value of money discount as interest income.
The mobilization receivable for the West Capricorn was collected in full by July 2017, which was the original firm term of the West Capricorn's contract with BP. The mobilization receivable for the West Auriga and West Vela will be collected by October 2020 and November 2020 respectively.

Favorable contracts
Favorable drilling contracts are recorded as intangible assets at fair value on the date of acquisition less accumulated amortization. The amounts recognized represent the net present value of the existing contracts at the time of acquisition compared to the current market rates at the time of acquisition, discounted at the weighted average cost of capital. The estimated favorable contract values have been recognized and amortized on a straight-line basis over the terms of the contracts, ranging from two to five years.
Favorable contracts to be amortized relate to the favorable contracts acquired with the West Vela and the West Auriga from Seadrill as at December 31, 2018. As at December 31, 2017 the balance related to the contract acquired with the West Polaris was fully amortized when the contract was completed. The gross carrying amounts and accumulated amortization included in 'Other current assets' and 'Other non-current assets' in the Consolidated Balance Sheets were as follows:
 2018 2017
(In US$ millions)Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount
Intangible assets- Favorable contracts           
Balance at beginning of period$357.3
 $(226.7) $130.6
 $357.3
 $(152.3) $205.0
Amortization of favorable contracts
 (45.1) (45.1) 
 (74.4) (74.4)
Balance at end of period$357.3
 $(271.8) $85.5
 $357.3
 $(226.7) $130.6
The amortization is recognized in the Consolidated Statements of Operations under "amortization of favorable contracts". The table below shows the amounts relating to favorable contracts that is expected to be amortized over the next five years:
 Year ended December 31
(In US$ millions)2019
 2020
 2021
 2022
 2023
 Total
Amortization of favorable contracts$45.1
 $40.4
 $
 $
 $
 $85.5

Note 11 – Drilling units
The below table shows the gross value and net book value of our drilling units at December 31, 2018 and December 31, 2017.
(In US$ millions)Cost 
Accumulated depreciation

 Net Book Value
Opening balance as at January 1, 2017$6,494.1
 $(1,153.2) $5,340.9
Additions121.6
 
 121.6
Disposals(16.7) 
 (16.7)
Depreciation
 (274.9) (274.9)
Closing balance as at December 31, 20176,599.0
 (1,428.1) 5,170.9
Additions115.0
 
 115.0
Disposals
 
 
Depreciation
 (280.3) (280.3)
Closing balance as at December 31, 20186,714.0
 (1,708.4) 5,005.6
Depreciation and amortization expense related to the drilling units was $280.3 million, $274.9 million and $266.3 million for the years ended December 31, 2018, 2017 and 2016 respectively.
Each of our drilling units has been pledged as collateral under our debt agreements. Please read Note 12 – "Debt" for further details.


Note 12 – Debt
As of December 31, 2018 and December 31, 2017, we had the following debt amounts outstanding:
 (In US$ millions)
2018 2017
External debt agreements   
Term Loan B$2,686.4
 $2,836.9
West Vela Facility191.3
 255.3
West Polaris Facility150.8
 205.6
Tender Rig Facility

56.2
 83.3
Sub-total external debt3,084.7
 3,381.1
    
Related party debt agreements   
   West Vencedor Facility
 24.7
Sub-total related party debt
 24.7
    
Total external and related party debt$3,084.7
 $3,405.8
Term Loan B (previously the "Amended Senior Secured Credit Facilities")
Our Term Loan B facilities ("TLB") consists of a term loan and a linked $100.0 million revolving credit facility. We initially borrowed $1.8 billion under the term loan on February 21, 2014 and then a further $1.1 billion on June 26, 2014. This loan is subject to a 1% per year ($29.0 million) amortization payment with the balance of the loan then being repayable in February 2021. We had $2,636.4 million outstanding on the term loan at December 31, 2018. We have drawn $50 million under the $100 million revolving credit facility linked to the TLB. The remaining $50 million was available and undrawn at December 31, 2018. The revolving credit facility matured in February 2019 and was repaid.
During the year to December 31, 2018, we paid interest of LIBOR + 6.0% on the term loan and LIBOR + 2.25% on the revolving credit facility. LIBOR is subject to a 1% floor. We also pay a commitment fee of 0.5% on any unused portion of the revolving credit facility. As set out below, we have agreed to a 3.0% increase in margin on the term loan as part of an amendment to the TLB agreed in February 2018.
We have pledged the West Capella, West Aquarius, West Sirius, West Leo, West Capricorn, West Auriga and West Vencedor as collateral vessels under the TLB. The net book value of these drilling units at December 31, 2018 was $3.6 billion. We have also pledged substantially all the assets of our subsidiaries, which own or charter the collateral vessels as well as our investments in those companies.
In the year ended December 31, 2017 the TLB included certain covenants and other provisions that could cause amounts borrowed to become immediately due and payable. This included a covenant over the ratio of TLB debt to the EBITDA of the TLB collateral vessels. Based on our results for the year-ended December 31, 2017 this ratio would have been above the level permitted under the covenant. Therefore, unless cured, we would have violated this covenant when financial statements were delivered on April 30, 2018.
To address this, we agreed a modification to the terms of the TLB in February 2018. Under this amendment our lenders agreed to waive the leverage covenant until maturity. In return the TLB lenders received a 3% increase in margin on the term loan and a conditional prepayment of $120.8 million based on the successful outcome of the litigation with Tullowon the West Leo. Refer to Note 17- "Commitments and contingencies" for further details. We were required to repay the West Vencedor facility and make the West Vencedor a collateral vessel under the TLB. The amendment also added certain other restrictions on our ability to transfer cash outside of the TLB collateral group. As part of this amendment we also agreed that our quarterly distributions would not exceed 10 cents per common unit unless the Consolidated net leverage ratio is below 4x during 2018 and below 5x thereafter.
West Vela facility (previously the "$1,450 million Senior Secured Credit Facility")
The West Vela facility consists of a term loan with four tranches. We initially incurred the liability to repay $443 million under this term loan when we acquired the West Vela from Seadrill in November 2014. The loan is subject to amortization payments of $40.3 million per year. We made a prepayment of $46.7 million in August 2017 and further prepayments of $11.8 million in February 2018 and $11.9 million in August 2018. The $120.8 million balloon payment is due in October 2020. We had $191.3 million outstanding on this loan at December 31, 2018.
We pay interest on the term loan at LIBOR plus a margin of between 1.20% and 4%, inclusive of guarantee fees, depending on the tranche.
We have pledged the West Vela as a collateral vessel under this facility. The net book value of the West Vela was $660.8 million at December 31, 2018. We have also pledged substantially all the assets of our subsidiaries which own and operate the West Vela, as well as our investments in those companies.
The West Vela facility includes certain covenants and other provisions that could cause amounts borrowed to become immediately due and payable.

West Polaris facility (previously the $420 million West Polaris Facility)
The West Polaris facility consists of a term loan and a linked revolving credit facility. We initially incurred the liability to repay $226 million under this term loan and $100 million under the revolving credit facility when we acquired the West Polaris from Seadrill in June 2015. The loan is subject to amortization payments of $36 million per year. We made a prepayment of $37.4 million in August 2017 and further prepayments of $9.4 million in February 2018 and August 2018. The $93.8 million balloon payment is due in July 2020. We had $150.8 million outstanding on this facility at December 31, 2018.
We pay interest on the term loan and revolving credit facility at LIBOR plus a margin of 3.25%. We also pay a commitment fee of 1.3% on any unused portion of the revolving credit facility.
We have pledged the West Polaris as a collateral vessel under this facility. The net book value of the West Polaris was $525.8 million at December 31, 2018. We have also pledged substantially all the assets of our subsidiaries which own and operate the West Polaris, as well as our investments in those companies.
The West Polaris facility includes certain covenants and other provisions that could cause amounts borrowed to become immediately due and payable.
Tender rig facility (previously the $440 million Rig Financing Agreement)
The Tender Rig facility consists of two term loans. We initially borrowed $100.5 million and $93.1 million under intercompany loans from Seadrill when we acquired the T-15 and T-16 in May 2013 and October 2013 respectively. These intercompany loans were back to back with an external debt facility Seadrill had used to finance the construction of the T-15 and T-16. In August 2017, we amended the terms of these loans so that we held the facility directly with the external lender.
We are required to make amortization payments of $19.8 million per year against this facility. We made a prepayment of $15.8 million in August 2017 when we amended the facility and paid further prepayments of $3.8 million in February 2018 and $3.7 million in August 2018. The $31.2 million balloon payment is due in June 2020. We had $56.2 million outstanding on this loan at December 31, 2018.
We pay interest on these loans at LIBOR plus a margin of 4.25%.
We have pledged the T-15 and T-16 as collateral vessels under this facility. The net book value of the T-15 and T-16 was $228.7 million at December 31, 2018. We have also pledged substantially all the assets of our subsidiaries which own and operate the T-15 and T-16, as well as our investments in those companies.
The Tender Rig facility includes certain covenants and other provisions that could cause amounts borrowed to become immediately due and payable.
West Vencedor Loan Agreement
The West Vencedor Loan Agreement facility was a term loan due to Seadrill. The outstanding balance of the loan at December 31, 2018 was nil as the facility was repaid during the year. We paid interest on the facility at LIBOR plus a margin of 2.3%.
We previously pledged the West Vencedor as a collateral vessel under this facility. After repaying the facility the West Vencedor was pledged as collateral to the TLB.
Debt repayments by year
The outstanding debt as of December 31, 2018 is repayable as follows: 
(In US$ millions)2018
2019$175.1
2020331.1
20212,578.5
2022
2023
2024 and thereafter
Total external and related party debt$3,084.7

Presentation in Consolidated Balance Sheet
We present external debt net of debt issuance costs. The below tables show how the above balances are presented in the Consolidated Balance Sheet:
  Outstanding debt as of December 31, 2018
(In $ millions) Principal outstanding
Debt Issuance Costs
Total Debt
Current portion of long-term external debt $175.1
$(12.2)$162.9
Long-term external debt 2,909.6
(13.4)2,896.2
Total interest-bearing debt $3,084.7
$(25.6)$3,059.1
  Outstanding debt as of December 31, 2017
(In $ millions) Principal outstanding
Debt Issuance Costs
Total Debt
Current portion of long-term external debt $175.1
$(12.2)$162.9
Long-term external debt 3,206.0
(25.8)3,180.2
Total external debt $3,381.1
$(38.0)$3,343.1
Current portion of long term related party debt $24.7
$
$24.7
Total interest-bearing debt $3,405.8
$(38.0)$3,367.8

Note 13 – Other liabilities
Other liabilities are comprised of the following: 
(In US$ millions)2018 2017
Uncertain tax position$118.0
 $51.7
Accrued expenses33.3
 35.4
Taxes payable31.3
 36.5
Employee and business withheld taxes, social security and vacation payment8.1
 8.7
Deferred mobilization/demobilization revenues6.4
 9.4
VAT payable3.6
 6.5
Interest rate swap agreements
 29.0
Other liabilities
 0.4
Total other liabilities$200.7
 $177.6
Other liabilities are classified in our Consolidated Balance Sheets as follows:
(In US$ millions)2018 2017
Other current liabilities80.2
 121.8
Other non-current liabilities120.5
 55.8
Total other liabilities$200.7
 $177.6


Note 14 – Related party transactions
The below table provides a summary of revenues and expenses for transactions with Seadrill for the years ended December 31, 2018, 2017 and 2016.
(In US$ millions) 2018 2017 2016
Related party inventory sales (a)
 $3.2
 $2.2
 $1.4
Rig operating costs (b)
 1.4
 4.9
 10.9
Total related party operating revenues

 $4.6
 $7.1
 $12.3
       
Management and technical support fees (c) (d)
 $70.6
 $74.5
 $62.8
Rig operating costs (e)
 0.8
 22.9
 24.9
Bareboat charter arrangement (f)
 
 2.8
 9.5
Related party inventory purchases (a)
 0.7
 1.0
 2.0
Total related party operating expenses $72.1
 $101.2
 $99.2
       
Interest expense recognized on deferred contingent consideration (k)
 $(3.1) $(4.2) $(5.2)
Related party interest expense (g)
 (1.4) (4.7) (10.1)
Losses on related party derivatives (h)
 
 (1.3) (4.1)
Related party commitment fee (i)
 
 (1.3) (2.0)
Total related party financial items $(4.5) $(11.5) $(21.4)
The below table provides a summary of amounts due to or from Seadrill at December 31, 2018 and December 31, 2017.
(In US$ millions) 2018 2017
Trading balances due from Seadrill and subsidiaries (j)
 $6.4
 $24.2
Total related party receivables $6.4
 $24.2
(In US$ millions) 2018 2017
Trading balances due to Seadrill and subsidiaries (j)
 $(126.3) $(157.0)
Deferred and contingent consideration to related party - short term portion (k)
 (37.5) (41.7)
Deferred and contingent consideration to related party - long term portion (k)
 (21.5) (46.0)
West Vencedor Loan Agreement with Seadrill (l)
 
 (24.7)
Total related party payables $(185.3) $(269.4)
(a) Related party inventory sales and purchases
Revenue and expenses from the sale and purchase of inventories and spare parts from Seadrill.
(b) Rig operating costs charged to Seadrill
Seadrill Partners has charged to Seadrill Limited, through its Nigerian service company, certain services including the provision of onshore and offshore personnel, which was provided for the West Jupiter drilling rig operating in Nigeria. We charged Seadrill on a cost plus mark-up basis for these services. The mark-up charged was approximately 5%. This arrangement ended during 2018.
Service agreements
(c) Management and administrative services agreement
Seadrill provides us with services covering functions including general management, information systems, accounting & finance, human resources, legal and commercial. We are charged for these services on a cost plus mark-up basis. During the year ended December 31, 2018, the mark-up we were charged for these services ranged from 4.85% to 8%. The agreement has an indefinite term but we can terminate it for convenience by providing 90 days written notice.
(d) Operations and technical supervision agreements
In addition, certain subsidiaries of Seadrill Partners are in advisory, technical, and/or administrative services agreements with subsidiaries of Seadrill. The services provided by our subsidiaries are charged at cost plus service fee equal to approximately 5% of costs and expenses incurred in connection with providing these services.

(e) Rig operating costs charged by Seadrill
Seadrill provided onshore support and crew for the West Polaris during its operations in Angola, which ended in July 2017.our acquisition or disposal activities. We were charged for these services on a cost plus mark-up basis. The mark-up we were charged was approximately 5%. During the year ended December 31, 2017 we also received similar services from Seadrill for the West Vencedor.
(f) Bareboat charter arrangement
Seadrill previously acted as an intermediate charterer for the West Aquarius during its contract with Hibernia. The contract ended on April 19, 2017. Seadrill also acted as an intermediate charterer for the T-15 and T-16 until December 2016.
(g) Interest expense charged by Seadrill
Interest expense charged by Seadrill for our related party loan arrangement. Please read Note 12 – "Debt" for a description of the loan facility.
(h) Loss on related party derivatives
Losses on related party interest rate swaps previously held to mitigate interest rate exposures on the West Vela facility, West Polaris facility and Tender Rig facility. See Note 15 – "Risk management and financial instruments" for a description of these interest rate swaps. These swaps were canceled in September 2017 when Seadrill filed for Chapter 11.
(i) Related party commitment fee
Seadrill previously provided us with a revolving credit facility of $100 million. We were charged an interest rate of LIBOR of 5% for any amounts drawn under the facility and a commitment fee of 2% for any unused portion. The facility was canceled in August 2017 as part of the amendments to our bank financing agreements.
(j) Trading balances
Receivables and payables with Seadrill Partners and its subsidiaries are comprised of management fees, advisory and administrative services, and other items including accrued interest. In addition, certain receivables and payables arise when we pay an invoice on behalf of Seadrill Partners or its subsidiaries and vice versa. Receivables and payables are generally settled quarterly in arrears. Trading balances to Seadrill Partners and its subsidiaries are unsecured and are intended to be settled in the ordinary course of business.
(k) Deferred consideration to related party
We have deferred and contingent consideration liabilities to Seadrill from the acquisition of the West Vela and West Polaris.
On the West Vela we are required to pay to Seadrill $42k per day for mobilization and a further $40k per day adjusted for utilization over the remaining contract term with BP, which runs until November 2020.
On the West Polaris we agreed to pay Seadrill 100% of dayrate earned above $450k per day for the remainder of the contract with ExxonMobil and 50% of the dayrate earned above $450k per day on any subsequent contract until March 2025. We also issued a $50 million note ("Sellers Credit") that is payable in March 2021. Payment in kind interest of 6.5% per year is accreted to the note. If the average dayrate earned by the West Polaris is less than $450k per day during the period March 2018 to March 2021, then the value of the note is reduced by the difference between the actual dayrate earned during the period and the amount that would have been earned if the average dayrate earned had been $450k per day.
The below table sets out the fair value of the liabilities at December 31, 2018 and December 31, 2017.
(In US$ millions) 2018 2017
West Vela    
Mobilization due to Seadrill $31.2
 $44.2
Seadrill share of dayrate from BP contract 27.0
 38.6
  58.2
 82.8
West Polaris    
Seadrill share of dayrate from ExxonMobil contract ("Earnout 1") 
 4.2
Seadrill share of dayrate from subsequent contracts ("Earnout 2") 0.8
 0.7
  0.8
 4.9
     
Total $59.0
 $87.7






These liabilities are presented in our Consolidated Balance Sheets as follows:
(In US$ millions) 2018 2017
Current portion of deferred and contingent consideration to related party $37.5
 $41.7
Non-current portion of deferred and contingent consideration to related party 21.5
 46.0
Total $59.0
 $87.7
In the year ended December 31, 2017, a $89.9 million gain is included in operating income resulting from a reduction in contingent liabilities related to the purchase of the West Polaris in 2015. Future dayrate estimates and re-contracting assumptions have been used to determine the fair value of these liabilities. These estimates have decreased during the year, resulting in a decrease in the fair value of the liabilities. Included in the fair value recognized in the year ended December 31, 2017 is an out of period gain of $20.9 million. Management has evaluated the impact of this out of period adjustment in 2017 and concluded that this was not material to the financial statements for the year ended December 31, 2017 or to any previously reported financial statements.
(l) West Vencedor Loan Agreement
Please read Note 12 - "Debt" for details of the loan facilities.
Other agreements and transactions with Seadrill
Equity Distribution
During the year ended December 31, 2018 and December 31, 2017, one of our subsidiaries settled certain balances related to a shareholder loan provided by Seadrill. On account of the loan's structure these payments have been treated as equity distributions.
A total cash distribution of $6.2 million has been distributed to Seadrill in the year ended December 31, 2018.
In the year ended December 31, 2017, a total balance of $15.3 million has been distributed to Seadrill, comprised of a $6.1 million cash distribution and a $9.2 million non-cash distribution that was offset against certain trading balances owed to us by Seadrill.
These transactions were presented in the Consolidated Statement of Changes in Members Capital in the year ended December 31, 2018 and December 31, 2017.
Spare parts agreement with Seadrill
During the year ended December 31, 2015, we entered an agreement with Seadrill to store spare parts of the West Sirius rig while it was cold stacked. Seadrill may use the spare parts during the stacking period, but must replace them at its own cost when the West Sirius returns to operations.
Guarantees
Seadrill has provided performance guarantees to certain of our customers on our behalf. These totaled $7 million as at December 31, 2018 (December 31, 2017: $165.4 million).
Indemnifications
Under our omnibus agreement with Seadrill at the time of the IPO (the "Omnibus Agreement") and purchase and sale agreements relating to acquisitions from Seadrill subsequent to the IPO, Seadrill has agreed to indemnify the Company against certain liabilities arising from the operation of the assets contributed or sold to the Company prior to the time they were contributed or sold.

Note 15 – Risk management and financial instruments
We are exposed to various market risks, including interest rate, foreign currency exchange and concentration of credit risks. We may enter into a variety of derivative instruments and contracts to maintain the desired level of exposure arising from these risks.
Interest rate risk management
Our exposure to interest rate risk relates mainly to our floating interest rate debt and balances of surplus funds placed with financial institutions. This exposure is managed through the use of interest rate swaps. Our objective is to obtain the most favorable interest rate borrowings available without increasing its exposure to fluctuating interest rates. Surplus funds are used to repay revolving credit tranches, or placed in accounts and deposits with reputable financial institutions in order to maximize returns, while providing us with flexibility to meet all requirements for working capital and capital investments. The extent to which we utilize interest rate swaps to manage our interest rate risk is determined by our net debt exposure and our views on future interest rates.

Interest rate swap agreements
As of December 31, 2018, we had interest rate swaps for a combined outstanding principal amount of $2,764.9 million, (December 31, 2017: $2,793.9 million) swapping floating rate for an average fixed rate of 2.49% per annum. The fair value of the interest rate swaps outstanding as of December 31, 2018 was an asset of $9.9 million (December 31, 2017: liability of $29 million). The collateral vessels under our TLB have been pledged as collateral against our interest rate swap liabilities. The interest rate swaps and TLB debt rank pari passu.
We record interest rate swaps on a net basis where netting is as allowed under International Swaps and Derivatives Association, Inc. ("ISDA") Master Agreements. We classify the asset or liability within other current assets or current liabilities. We have not designated any interest swaps as hedges and accordingly any changes in the fair values of the swap agreements are included in the Consolidated Statement of Operations under "Gain/(loss) on derivative financial instruments".
The total realized and unrealized gain recognized under "Gain/(loss) on derivative financial instruments" in the Consolidated Statement of Operations relating to interest rate swap agreements for 2018 was 24.9 million (2017: loss of $13.9 million, 2016: loss of $18.0 million). Included in the $13.9 million net loss for the year ended December 31, 2016 was an out of period gain of $21.8 million recognized in respect of the Company's own creditworthiness.
Our interest rate swap agreements as of December 31, 2018, were as follows:
Maturity dateOutstanding principal as of December 31, 2018Receive ratePay rate 
 (In US$ millions)   
February 21, 20212,764.9
3-month LIBOR 2.45% to 2.52%(1) (2)
Total outstanding principal$2,764.9
   
(1) The outstanding principal of these amortizing swaps falls with each capital repayment of the underlying loans.
(2) The Company has a LIBOR floor of 1% whereby the Company receives 1% when LIBOR is below 1%.
As of December 31, 2018, $319.8 million of our debt was exposed to interest rate fluctuations, compared to $611.9 million as of December 31, 2017. An increase or decrease in short-term interest rates of 100 bps would thus increase or decrease, respectively, our interest expense by approximately $3.2 million on an annual basis as of December 31, 2018, as compared to $6.1 million in 2017.
The credit exposure of interest rate swap agreements is represented by the fair value of contracts with a positive fair value at the end of each period, reduced by the effects of master netting agreements, adjusted for counterparty non-performance credit risk assumptions. It is our policy to enter into ISDA Master Agreements, with the counterparties to derivative financial instrument contracts, which give us the legal right to discharge all or a portion of amounts owed to a counterparty by offsetting them against amountsbelieve that the counterparty owes us.
Foreign currency risk
We use the US Dollar as the functional currencyresolution of all our subsidiaries because the majority of our revenues and expenses are denominated in US Dollars. Therefore, we also use US Dollars as our reporting currency. We do, however, earn revenue and incur expenses in Canadian Dollars due to the operations of the West Aquarius in Canada and as such there is a risk that currency fluctuations could have an adverse effect on the value of the Company's cash flows. The impact of a 10% appreciation or depreciation in the exchange rate of the Canadian Dollar against the US Dollar wouldclaims will not have a material impact, individually or in the aggregate, on our operations or financial results.
Our foreign currency risk arises from:
the measurement of monetary assets and liabilities denominated in foreign currencies converted to US Dollars, with the resulting gain or loss recorded as "Foreign exchange gain/(loss)"; and
the impact of fluctuations in exchange rates on the reported amountsbest estimate of the Company's revenues and expenses which are denominatedoutcome of the various disputes has been reflected in foreign currencies.our Consolidated Financial Statements as at December 31, 2020.
We do not use foreign currency forward contracts or other derivative instruments relatedSeabras Sapura joint venture
The Sapura Esmeralda operates under a Brazilian flag. The right to foreign currency exchange risk.
Credit risk
We have financial assets which expose us to credit risk arising from possible default by a counterparty. Our counterparties primarily include our customers, which are international oil companies, national oil companies or large independent companies or financial institutions. We consider these counterparties to be creditworthy and do not expect any significant loss due to credit risk. We don't demand collateral from our counterpartiesoperate under such Brazilian flag is being challenged in the normal course of business.
Concentration of Credit Risk
There is a concentration of credit risk with respect to revenue as two of our customers that each represent more than 10% of total revenues. Refer to Note 4 - "Segment Information" for an analysis of our revenue by customer. The market for our services isBrazilian courts. An adverse decision in the offshore oil and gas industry, and our customers consist primarily of major oil and gas companies, independent oil and gas producers and government-owned oil companies. We perform ongoing credit evaluations of our customers and generally do not require collateral from them. Reserves for potential credit losses are maintained when necessary.

There is a concentration of credit risk with respect to cash and cash equivalents as mostBrazilian courts could affect the operations of the amounts are deposited with Nordea Bank Finland PlcSapura Esmeralda and Danske Bank A/S. We consider these risks to be remote given the strong credit rating of these banks.
Note 16 – Fair Value Measurement
Fair Values
GAAP emphasizes that fair value is a market-based measurement, notpotentially impact its commercial agreements and related financing. In October 2020, an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, GAAP establishes a fair value hierarchy that distinguishesamicable settlement agreement between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within levels one and two of the hierarchy)Sapura Navegação Maritima and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within level threeFederal Public Attorney (representing the Admiralty Court) was confirmed by the Brazilian Federal Court of Appeal and as a result, the hierarchy).
Level one input utilizes unadjusted quoted prices in active markets for identical assets or liabilities thatAdmiralty Court has issued the Company has the ability to access. Level two inputs are inputs other than quoted prices included in level one that are observable for the asset or liability, either directly or indirectly. Level two inputs may include quoted prices for similar assetsdefinitive Property Registry Certificate and liabilities in active markets, as well as inputs that are observable for the asset or liability, other than quoted prices, such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level three inputs are unobservable inputs for the asset or liability, which are typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability
Fair value of financial assets and liabilities measured at amortized cost
The carrying value and estimated fair value of our financial instruments that are measured at amortized cost as of December 31, 2018 and December 31, 2017 are as follows:
 2018 2017
(In US$ millions)Fair Value Carrying Value Fair Value Carrying Value
Assets       
Cash and cash equivalents$841.6
 $841.6
 $848.6
 $848.6
        
Liabilities       
Term Loan B2,115.1
 2,662.7
 2,249.8
 2,802.3
Other external debt facilities383.4
 396.4
 514.7
 540.8
Long-term debt to related party
 
 23.8
 24.7
Level 1
The carrying value of cash and cash equivalents, which are highly liquid, is a reasonable estimate of fair value and categorized at level 1 on the fair value measurement hierarchy.
The loans under the Term Loan B are freely tradable and their fair valueSapura Esmeralda has been set equalgranted the right to the price at which they were traded on December 31, 2018 and December 31, 2017. This has been categorized at level 1 on the fair value measurement hierarchy.
Level 2
Loansoperate under other external debt facilities being the West Vela facility (previously the $1,450 million Senior Secured Credit Facility), West Polaris facility, Tender Rig facility (previously the $440 million Rig Financing Agreement) and the West Vencedor facility are not freely tradable. For the years ended December 31, 2018 and December 31, 2017 the fair value of the current and long-term portion of these debt facilities was derived using the Discounted Cash Flow (DCF) model. A cost of debt of 8.16% (December 31, 2017 8.36%) was used to estimate the present value of the future cash flows. This is categorized at level 2 on the fair value measurement hierarchy.

Financial instruments measured at fair value on a recurring basisBrazilian flag.
Other financial instruments that are measured at fair value on a recurring basis:
  
Fair value measurements
at reporting date using
 Total fair value as of December 31, 2018
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
(In US$ millions) (Level 1)(Level 2)(Level 3)
Current assets:    
Derivative instruments - Interest rate swap contracts$9.9

9.9

Total assets9.9

9.9

     
Current liabilities:    
Related party deferred and contingent consideration(59.0)
(59.0)
Total liabilities$(59.0)
(59.0)
  
Fair value measurements
at reporting date using
 Total fair value as of December 31, 2017
Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
(In US$ millions) (Level 1)(Level 2)(Level 3)
Current liabilities:    
Derivative instruments - Interest rate swap contracts(29.0)
(29.0)
Related party deferred and contingent consideration
(87.7)
(87.7)
Total liabilities$(116.7)
(116.7)
The fair values of interest rate swap contracts are calculated using well-established independent valuation techniques, applied to contracted cash flows and expected future LIBOR interest rates, and counterparty non-performance credit risk assumptions as of December 31, 2018 and December 31, 2017. The calculation of the credit risk in the swap values is subject to a number of assumptions including an assumed Credit Default Swap rate based on the Company's traded debt, plus a curve profile and recovery rate.
The fair value of the related party deferred and contingent consideration payable to Seadrill relating to the purchase of the West Vela and the West Polaris are estimated based on discounted future cash flows. These liabilities are considered to be at estimated market rates. These are categorized at level 2 on the fair value measurement hierarchy.
Fair value considerations on one-time transactions
In the year ended December 31, 2018, a $3.2 million loss on impairment of goodwill is included in operating income resulting from early adoption of the new standard 2017-04 ASC 350, which requires comparing the fair value of the goodwill against its carrying value. Under this assessment the goodwill's carrying amount exceeded its fair value and was written off.


Note 17 – Commitments and contingencies
Legal Proceedings
From time to time the Company iswe are a party, as plaintiff or defendant, to lawsuits in various jurisdictions for demurrage, damages, off-hire and other claims and commercial disputes arising from the construction or operation of our drilling units, in the ordinary course of business or in connection with itsour acquisition or disposal activities. We believe that the resolution of such claims will not have a material impact, individually or in the aggregate, on our operations or financial results. Our best estimate of the outcome of the various disputes has been reflected in these financial statementsour Consolidated Financial Statements as ofat December 31, 2018.2020.
West LeoSeabras Sapura joint venture
We received notification ofThe Sapura Esmeralda operates under a force majeure occurrence on October 1, 2016Brazilian flag. The right to operate under such Brazilian flag is being challenged in respectthe Brazilian courts. An adverse decision in the Brazilian courts could affect the operations of the West Leo whichSapura Esmeralda and potentially impact its commercial agreements and related financing. In October 2020, an amicable settlement agreement between Sapura Navegação Maritima and the Federal Public Attorney (representing the Admiralty Court) was operating for Tullow Ghana Limited ("Tullow") in Ghana. We filedconfirmed by the Brazilian Federal Court of Appeal and as a claim inresult, the English HighAdmiralty Court formally disputinghas issued the occurrencedefinitive Property Registry Certificate and Sapura Esmeralda has been granted the right to operate under a Brazilian flag.
Dalian Newbuilds
As at December 31, 2020, all 8 of force majeure and seeking declaratory relief from the High Court. Tullow subsequently terminated the drilling contract on December 1, 2016 for (a) 60-days claimed force majeure, or (b) in the alternative, frustration of contract, or (c) in the further alternative, for convenience. We did not accept that the contractnewbuilding contracts with Dalian had been terminated by both parties. Accordingly, the occurrenceSeadrill contracting entities had no contractual obligation to take delivery of force majeurethe rigs.
In January 2019, Dalian appointed an administrator to restructure its liabilities. In March 2019, the Seadrill contracting parties commenced arbitration proceedings in London for all 8 rigs and will claim for the return of the paid installments plus interest and further damages for losses.
The Seadrill contracting parties have filed their claims against Dalian in the Dalian insolvency and the administrator is currently considering whether to accept or reject the claims in the insolvency. The arbitrations are currently not being progressed by agreement of the parties, pending the insolvency administrator's decision whether to accept or reject the Seadrill contracting parties' claims. Dalian has stated that it has claims for damages in respect of each of the rigs, but it has not quantified those damages. The administrator convened a creditor’s meeting on December 23, 2020 for a vote on the draft reorganization plan that was submitted to the insolvency court. The first round of voting on the reorganization plan subsequently failed. A second round of voting will be arranged by the administrator. There is no deadline for such second round of voting to take place.
The newbuilding contracts are all with limited liability subsidiaries of Seadrill. There are no parent company guarantees.
Nigerian Cabotage Act litigation
Seadrill Mobile Units Nigeria Ltd (“SMUNL”) commenced proceedings in May 2016 against the Honourable Minister for Transportation, the Attorney General of the Federation and the Nigerian Maritime Administration and Safety Agency with respect to interpretation of the Coastal and Inland Shipping (Cabotage) Act 2003 (the “Act”). On June 28, 2019, the Federal High Court of Nigeria delivered a judgement finding that: (1) Drilling operations fall within the definition of “Coastal Trade” or “Cabotage” under the Act and (2) Drilling Rigs fall within the definition of "Vessels" under the Act. The impact of this decision is that the Nigerian Maritime Administration and Safety Agency (“NIMASA”) may impose a 2% surcharge on contract revenue from offshore drilling operations in Nigeria as well as requiring SMUNL register for Cabotage with NIMASA and pay all fees and tariffs as may be published in the guidelines that may be issued by the Minister of Transportation in accordance with the Act. However, on 22 July, 2019, SMUNL filed an appeal to the Court of Appeal challenging the decision of the Federal High Court. Due to the volume of cases currently being handled by the Court of Appeal sitting in Lagos we anticipate a decision within 3-5 years.
Although we intend to strongly pursue this appeal, we cannot predict the outcome of this case. We do not believe that it is probable that the ultimate liability, if any, resulting from this litigation will have a material effect on our financial position. Accordingly, no loss contingency has been recognized within the Consolidated Financial Statements.
Oro Negro
Oro Negro, a Mexican drilling rig contractor, filed a Complaint on June 6, 2019 in the United States Bankruptcy Court, Southern District of New York, within Chapter 15 proceedings ancillary to its Mexican insolvency process. The Complaint names Seadrill and its Seamex JV partner, Fintech Advisory, Inc, as co-defendants along with other defendants including Oro Negro bondholders. With respect to Seadrill, the Complaint asserts claims relating to alleged tortious interference but does not seek to quantify damages. On August 26, 2019, we submitted a motion to dismiss the Complaint on technical legal grounds. Gil White, the CEO of Oro Negro responded to this motion on October 25, 2019. Seadrill has the opportunity to reply to this in further support of the motion, the date of which has not yet been determined. We intend to vigorously defend against the claims Oro Negro asserts and dispute the allegations set forth in the Complaint. The proceedings have been stayed until March 26, 2021.
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Guarantees
We have issued guarantees in favor of third parties as follows, which is the maximum potential future payment for each type of guarantee:
 (In $ millions)
December 31, 2020December 31, 2019
Guarantees in favor of customers (1)(2)(3)
150 165 
Guarantees in favor of banks (4)
132 146 
Total282 311 
(1)Guarantees to Seadrill Partners - Guarantees in favor of customers are performance guarantees provided on behalf of Seadrill Partners of NaN (December 31, 2019: $15 million).
(2)Guarantees to Northern Ocean - Guarantees in favor of customers are performance guarantees provided on behalf of Northern Ocean of $100 million (December 31, 2019: $100 million) for a contract that matures in 2022.
(3)Guarantees to Sonadrill - Guarantees in favor of customers are performance guarantees provided on behalf of Sonadrill of $50 million (December 31, 2019: $50 million). Contract maturity in 2021.
(4) Guarantees to Seabras Sapura - Guarantees in favor of banks are guarantees provided by a subsidiary of Seadrill Limited on behalf of Seabras Sapura Participacoes and Seabras Sapura Holdco totaling $132 million (December 31, 2019: $146 million). Contractual maturity is not until 2021.
As of December 31, 2020 we have not recognized any liabilities for the above guarantees, as we do not consider it is probable for the guarantees to be called.
On March 26, 2020 we signed a joint sponsor guarantee with Fintech Investments Ltd over the senior secured debt held by SeaMex. The total amount guaranteed was up to $22 million of which were jointly and severally liable. On April 21, 2020, $16 million was called upon by the Seamex lenders under the terms of this guarantee, $8 million of which was provided by Seadrill Limited.
Other contingencies
Sevan Louisiana loss incident
In January 2019, there was a loss incident on the Sevan Louisiana related to a malfunction of its subsea equipment. As of December 31, 2020, we have incurred $23 million of costs to repair the equipment. There is a $1.3 million deductible on the insurance policy. As at December 31, 2020, $15.3 million has been recovered and an additional $6.4 million will be recoverable under our physical damage insurance.
The loss incident resulted in a period of downtime for the Sevan Louisiana. As a result, we have recovered $19.5 million insurance income from loss of hire of the Sevan Louisiana. The loss of hire claim is now closed.

Note 36 – Variable Interest Entities
Variable Interest Entities - Primary beneficiary
Between 2008 and 2013, we entered into sale and leaseback arrangements for 2 semi-submersible rigs and a jack-up rig (the West Taurus, West Hercules and West Linus) with Ship Finance, who incorporated Ship Finance SPV's for the sole purpose of owning and leasing the drilling contract and/units to Seadrill. We concluded that we were the primary beneficiary of these companies and therefore consolidated them under the variable interest model.
In the fourth quarter of 2020, Seadrill triggered an event of default on the leases by not curing the cross-default violation on Seadrill's secured credit facilities and for non-payment of SPV bareboat charter payments. This triggered a reassessment of whether we should still consolidate the SPV's under the variable interest model. Seadrill was no longer deemed to be the primary beneficiary as it no longer has control of the decisions that most significantly impact the SPV’s economic performance.
As such, the net assets and corresponding non-controlling interest amount of $137 million (as Seadrill have no equity interest), have been deconsolidated, resulting in no gain or that the contract had been discharged by frustration.  Accordingly, we amended our claimloss in the English High CourtConsolidated Statement of Operations. As part of the deconsolidation the external debt of the SPV's and parent entity loans to reflect this.
On July 3, 2018 the English High Court ruled the case in our favor and we recovered a total of $250.5 million which included amounts claimed on the termination revenue including interest. Claims to recover VAT were not ruled in our favor. Termination revenuesShip Finance have been recognized in "Other revenues" per our Consolidated Statements of Operations. Seederecognized. Refer to Note 732 - "Other revenues" for further details."Related Party Transactions" and Note 23 - "Debt".
Patent infringement
In January 2015, a subsidiary of Transocean Ltd. filed suit ("As at December 31, 2020, the Suit") against certain of our subsidiaries for patent infringement.Ship Finance SPV's continue to lease the 3 rigs to Seadrill under long-term charter agreements. The Suit alleged that two of our drilling rigs that operate in the U.S. Gulf of Mexico violated Transocean patents relating to dual-activity. In the same year, we challenged the validity of the patents via the Inter Parties Review process within the U.S. Patent and Trademark Office. The IPR board held in March 2017 that the patents were valid. In May 2017 we appealed to the U.S. Federal Circuit Court of Appeal and in June 2018 the court affirmed the IPR decision.  

In December 2018, Seadrill and Seadrill Partners reached an amicable agreement with Transocean over alleged patent infringement of the Transocean dual activity patent. Under the terms of the settlement, Seadrill and Seadrill Partners have entered into a global license agreement with Transocean formandatory obligations to purchase the dual activity drilling method on our rigs covering alleged past infringements and future use.
Other claims or legal proceedings
We are not aware of any other legal proceedings or claims that we expect to have, individually or in the aggregate, a material adverse effect on the Company.
Commitments
We had no material lease commitments or unconditional purchase obligations at December 31, 2018 and 2017.

Note 18 – Earnings per unit and cash distributions
(in US $ millions, except per unit data)2018 2017 2016
Net income attributable to:     
Common unitholders$56.1
 $141.2
 $240.7
Subordinated unitholders
 
 37.8
Seadrill member interest
 
 2.5
Net income attributable to Seadrill Partners LLC owners$56.1
 $141.2
 $281
      
Weighted average units outstanding (in thousands):     
Common unitholders75,278
 75,278
 75,278
Subordinated unitholders16,543
 16,543
 16,543
      
Earnings per unit:     
Common unitholders$0.75
 $1.88
 $3.20
Subordinated unitholders$
 $
 $2.28
      
Cash distributions declared and paid in the period per unit (1) (2)
$0.4000
 $0.4000
 $0.7000
      
Subsequent event: Cash distributions declared and paid relating to the period per unit (2) (3):
$0.0100
 $0.1000
 $0.1000

(1) Refers to the cash distributions declared and paid during the year.
(2) Distributions were declared and paid only with respect to the common units in 2018.
(3) Refers to the cash distribution relating to the period, declared and paid subsequent to the year-end.
Earnings per unit is calculated using the two-class method where undistributed earnings are allocated to the various member interests. The net income attributable to the common and subordinated unitholders and the holders of the incentive distribution rights is calculated as if all net income was distributed according to the terms of the distribution guidelines set forth in the First Amended and Restated Operating Agreement of the Company (the "Operating Agreement"), regardless of whether those earnings could be distributed. The Operating Agreement does not provide for the distribution of net income; rather, it provides for the distribution of available cash, which is a contractually defined term that generally means all cash on handassets at the end of the quarter after establishmentlease for a fixed price. As no transfer of cash reserves determinedcontrol has occurred as part of these leasing arrangements or on deconsolidation of the Ship Finance SPV's, the rigs form part of the 'Drilling Units' amount in the Consolidated Balance Sheet of Seadrill with the failed sale and leaseback transaction accounted for as a financing transaction. These have been described in Note 32 - "Related party transactions" following the deconsolidation of the SPV's.
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These contractual provisions, which remain in place despite the event of default, prevent the recognition of a sale under ASC 606 as control has not passed to the Ship Finance SPV's. As a result, these leases are accounted for as failed sale and leaseback transactions and the rigs remain within "Drilling Units" in the Consolidated Balance Sheet of Seadrill.
With the financial liabilities relating to the leasing arrangements no longer eliminated on consolidation, these financial liabilities were initially reclassified at carrying values of $933 million to related party payables by virtue of Hemen's significant influence over Ship Finance. As the Company's boardrecognition of directorsthis related party payable upon deconsolidation is considered a remeasurement event (post-deconsolidation initial recognition), the liabilities were remeasured to providean aggregate fair value of $424 million. The gain of $509 million is recognized in the Consolidated Statement of Operations. Along with this there was a subsequent amortization of the discount of debt of $2 million, for the proper conductperiod ended December 31, 2020.
The balance sheet of the Company's business including reservesVIEs on a stand-alone basis at December 31, 2019 was as follows:
 
(In $ millions)
December 31, 2019
Cash and cash equivalents22 
Investment in finance lease972 
Total assets of the VIEs994
Short-term interest bearing debt48 
Long-term interest bearing debt550 
Other liabilities
Short-term amounts due to related parties12 
Long-term debt due to related parties (1)
239 
Total liabilities of the VIEs854
Equity of the VIEs140
(1) Long-term debt due to related parties is as follows:
(In $ millions)December 31, 2019
Debt principal outstanding314 
Debt discount(75)
Trading liability positions held against long-term loan
Long-term loan due to related parties239
Variable Interest Entities - Not the primary beneficiary
Seadrill and Northern Ocean established a new company to act as rig operator for maintenanceNorthern Ocean’s rigs (“Seadrill Northern Operations Ltd” or “Northern Ocean VIE”). This company is a legal subsidiary of Seadrill but is consolidated by Northern Ocean under the variable interest consolidation model. Seadrill provides management and replacement capital expenditure and anticipated credit needs. Therefore, the earnings per unit is not indicative of potential cash distributions that may be made based on historic or future earnings. Unlike available cash, net income is affected by non-cash items, such as depreciation and amortization, unrealized gains or losses on non-designated derivative instruments and foreign currency translation gains (losses).
Under the Operating Agreement, during the subordination period, the common units will have the right to receive distributions of available cash from operating surplus in an amount equalcrewing services to the minimum quarterly distribution of $0.3875 per unit per quarter, plus any arrearages in the payment of minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units.Northern Ocean VIE and charges a fee for doing so.
Distributions of available cash from operating surplus are to be made in the following manner for any quarter during the subordination period:
First,Our maximum exposure to the common unitholders, pro-rata, until the Company distributes for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;
Second, to the common unitholders, pro-rata, until the Company distributes for each outstanding common an amount equal to any arrearages in paymentVIE is a receivable of the minimum quarterly distribution on the common units for prior quarters during the subordination period; and
Third, to the subordinated units, pro-rata, the Company distributes for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter.
In addition, the Seadrill Member currently holds all of the incentive distribution rights in the Company. Incentive distribution rights represent the right to receive an increasing percentage of the quarterly distributions of cash available from operating surplus after the minimum quarterly distribution and target distribution levels have been achieved.
If for any quarter during the subordination period:
The Company has distributed available cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and
The Company has distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution.
then, the Company will distribute any additional available cash from operating surplus for that quarter among the unitholders and the holders of the incentive distributions rights in the following manner:
first, 100.0% to all unitholders, until each unitholder receives a total of $0.4456 per unit for that quarter (the "first target distribution");
second, 85% to all unitholders, pro rata, and 15.0% to the holders of the incentive distribution rights, pro rata, until each unitholder receives a total of $0.4844 per unit for that quarter (the "second target distribution");
third, 75.0% to all unitholders, pro rata, and 25.0% to the holders of the incentive distribution rights, pro rata, until each unitholder receives a total of $0.5813 per unit for that quarter (the "third target distribution"); and
thereafter, 50.0% to all unitholders, and 50.0% to the holders of the incentive distribution rights, pro rata.
The percentage interests set forth above assumes that the Company does not issue additional classes of equity securities.
The subordination period will extend until the second business day following the distribution of available cash from operating surplus in respect of any quarter, ending on or after September 30, 2017, that each of the following tests are met:
distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
the "adjusted operating surplus" (as defined in the partnership agreement) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units and subordinated units during those periods on a fully diluted weighted average basis during those periods; and
there are no outstanding arrearages in payment of the minimum quarterly distribution on the common units.

In addition, at any time on or after September 30, 2017, provided there are no arrearages in the payment of the minimum quarterly distribution on the common units and subject to approval by the conflicts committee, the holder or holders of a majority of the subordinated units will have the option to convert each subordinated unit into a number of common units at a ratio that may be less than one-to-one on a basis equal to the percentage of available cash from operating surplus paid out over the previous four-quarter period in relation to the total amount of distributions required to pay the minimum quarterly distribution in full over the previous four quarters.
Commencing with the distributions made in February 2016, in respect of the fourth quarter of 2015, no distributions have been made to the holders of the subordinated units and distributions to the common units have been below the minimum quarterly distribution. Arrearages in the payment of the minimum quarterly distribution on the common units must be settled before any distributions of available cash from operating surplus may be made in the future on the subordinated units.
No distributions were paid to the incentive distribution rights holders for the years ending $142 million (December 31, 2018, 20172019: $60 million). Refer to Note 32 - "Related party transactions".
We have guarantees to Northern Ocean of $100 million (December 31, 2019: $100 million) that are covered by an indemnity. Refer to - Note 35 "Commitments and 2016.contingencies".

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Note 1937 - Supplementary cash flow information
The table below summarizes the non-cash investing and financing activities relating to the periods presented:
SuccessorPredecessor
 
(In $ millions)
Year ended December 31, 2020Year ended December 31, 2019Period from July 2, 2018 through December 31, 2018Period from January 1, 2018 through July 1, 2018
Non-cash investing activities
Proceeds from sale of West Epsilon rig (1)
12 
Non-cash financing activities
Repayment of debt following sale of West Epsilon rig (1)
(12)
(In US$ millions)2018 2017 2016
Other distributions (1)

 9.2
 

(1)Non-cash distribution, referDuring September 2020, the West Epsilon was sold for net proceeds of $12 million. The proceeds were paid directly to Note 14 – "Related party transactions" for further information.the banks as an early repayment against our external debt.

Note 2038 – Subsequent events
Distribution declaredFiling for Chapter 11Protection
On February 10, 2021, we filed petition for reorganization in a voluntary bankruptcy under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas in respect of Seadrill Limited and its consolidated subsidiaries with the exceptions of Seadrill New Finance Limited and its subsidiaries. On February 7, 2021 we filed the Chapter 11 cases separately for Seadrill GCC Operations Ltd, Asia Offshore Limited, Asia Offshore Rig 1 Limited, Asia Offshore Rig 2 Limited and Asia Offshore Rig 3 Limited.
As part of the Chapter 11 Proceedings, we were granted "first day" relief to enable day-to-day operations of the Seadrill Group to continue as usual. Specifically, the relief included the authority to pay key trade creditors and employee wages and benefits without change or interruption and we expect we will pay all suppliers and vendors in full under normal terms for goods and services provided during the Chapter 11 Proceedings.
The Chapter 11 Proceedings are opened to facilitate a balance sheet restructuring which will enable Seadrill Limited to continue to operate its modern fleet of drilling units. We expect that the Chapter 11 reorganization will lead to significant equitization of our debt and result in minimal or no recovery for current shareholders. Seadrill Limited has commenced parallel liquidation proceedings in Bermuda and on February 12, 2021, the Bermuda Supreme Court ordered the appointment of Joint Provisional Liquidators under Bermuda law to oversee the Chapter 11 Proceedings together with the Board of Directors of the Company. This is a non-adjusting event and therefore there has been no impact on the financial statements for the year ended December 31, 2020.
Seadrill Partners
On February 3, 2021 Seadrill Partners entered into a management agreement with Energy Drilling to maintain, market and operate the Seadrill Partners owned tender rigs T-15, T-16 and West Vencedor. The agreement started a 90-day transition period of services provided from Seadrill Limited to Energy Drilling.
On February 10, 2021 we received notification that Seadrill Partners have submitted a motion for the approval of a new framework agreement with Vantage Drilling for certain rigs in the Seadrill Partners Fleet.
Forbearance agreement Senior Secured Notes
On January 22, 2019,15, 2021 we declareddetermined not to make the semi-annual 4% cash interest payment due to the senior secured note holders. This constituted an additional event of default.
On February 11, 2021, Seadrill entered into a distributionforbearance agreement with holders of the Senior Secured Notes. Pursuant to the forbearance agreement, the consenting creditors have agreed not to exercise any enforcement rights for the fourth quarter of 2018 of $0.0100 per common unit,semi-annual 4% cash interest payment, which was due to the senior secured note holders on 15 January 2021 in respect but not paid, until 24 February 2021.On February 23, 2021, this forbearance agreement was extended to March 10, 2021, and then extended again on February 14, 2019.March 9, 2021, to March 24, 2021, unless otherwise cancelled.    
West Taurus lease arrangement
On February 21, 2019,12, 2021, we fully repaid $50 million outstanding onfiled an order of rejection of the revolving credit facility linkedlease contract with respect to the Term Loan B.


SIGNATURES
The registrant hereby certifies that it meets allWest Taurus and consequently the lease has been rejected. We expect to hand over the West Taurus rig to Ship Finance in April 2021. Seadrill is responsible for the rig costs up until the delivery of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersignedrig. The handover of West Taurus will result in reduction of our fleet to sign this Annual Report on its behalf.
33 drilling units.
F-77
SEADRILL PARTNERS LLC
(Registrant)
Date: March 28, 2019
By:/s/ Mark Morris
Name:Mark Morris
Title:
Chief Executive Officer of Seadrill Partners LLC
(Principal Executive Officer of Seadrill Partners LLC)


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