Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements of Seadrill Limited (“Seadrill” or the “Company”) and the accompanying explanatory notes (the “Pro Forma Financial Information”) have been prepared to illustrate the following transaction:
• | Business Combination: On April 3, 2023 (the “Closing Date”), pursuant to the definitive merger agreement, dated December 22, 2022 (the “Merger Agreement”), by and among the Seadrill, Seadrill Merger Sub, LLC, a Marshall Islands limited liability company, wholly owned subsidiary of Seadrill (“Merger Sub”), and Aquadrill LLC, a Marshall Islands limited liability company (“Aquadrill”), merged with and into Merger Sub (the “Merger”) with Aquadrill surviving the Merger as a wholly owned subsidiary of Seadrill. Pursuant to the Merger Agreement, Aquadrill unitholders received (i) 29.9 million Seadrill common shares, (ii) cash consideration of $1 million, and (iii) $30 million settled by tax withholding in lieu of common shares. The Merger is accounted for as a business combination pursuant to Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), where Seadrill is the accounting acquirer as disclosed in Note 2. |
The Pro Forma Financial Information also reflects the impact of the following transactions that have been completed since January 1, 2022, but have not been included in the results of operations for the entire period presented for the pro forma condensed combined statement of operations (collectively, the “Completed Transactions”):
Seadrill Completed Transactions
• | Seadrill Reorganization: On February 22, 2022 (the “Effective Date”), Seadrill concluded its comprehensive restructuring process and emerged from bankruptcy reorganization under Chapter 11 (the “Seadrill Reorganization”). |
• | Paratus Energy Services Limited (“PES”) Sale: On October 26, 2021, New Seadrill Finance Limited and its subsidiaries (formerly “NSNCo” and now “PES”) were classified as a discontinued operation following the Bankruptcy Court’s approval of a proposed sale of 65% of Seadrill’s equity interest in PES to its lenders. The sale was conducted as part of Seadrill’s comprehensive restructuring and was completed on January 20, 2022. On February 24, 2023, Seadrill sold the remaining 35% equity interest, collectively the “PES Sale”. In connection with the PES Sale, on March 14, 2023, the Company provided each of PES and SeaMex Holdings Ltd (“SeaMex Holdings”) with a termination notice regarding (i) the Master Services Agreement by and between PES and Seadrill Management Ltd (“SML”), dated January 20, 2022 (the “Paratus MSA”), and (ii) the Master Services Agreement by and among SeaMex Holdings, certain operating companies party thereto and SML, dated January 20, 2022 (the “SeaMex MSA”), respectively. The Paratus MSA will terminate effective July 12, 2023; and the SeaMex MSA will terminate effective September 10, 2023. The Company does not believe these terminations will have a material effect on the financial condition of Seadrill. |
• | Sale of Jackup Units: On October 18, 2022, Seadrill sold the entities that own and operate seven jackup units (the “Jackup Sale”) in the Kingdom of Saudi Arabia to ADES Arabia Holding Ltd. (“ADES”). The Jackup Sale caused immediate cash repayment obligations under the secured second lien facility. The repayment obligations, contractually referred to as mandatory payments, were based on the proceeds received and resulted in a minimum payment of $204 million that comprised of $192 million in debt principal, $10 million in exit fee, and $2 million in accrued interest. |
For further information on the adjustments for the Completed Transactions for Statement of Operations and Balance Sheet, refer to Note 6 and 7, respectively.
The Pro Forma Financial Information has been prepared under the following assumptions:
• | The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 assumes that the Business Combination and Completed Transactions had occurred on January 1, 2022. |
• | The unaudited pro forma condensed combined balance sheet as of December 31, 2022, assumes that the Business Combination and PES Sale had occurred on December 31, 2022. The impacts from the Seadrill Reorganization and Jackup Sale have already been reflected in the historical consolidated balance sheets of Seadrill as of December 31, 2022 and therefore no pro forma balance sheet adjustments were made. |
The Pro Forma Financial Information presented herein is provided for informational and illustrative purposes only and is not necessarily indicative of the financial results that would have been achieved had the Business Combination and the Completed Transactions occurred on the dates assumed, nor is this pro forma financial information necessarily indicative of the operations results in future periods. The pro forma adjustments are based on currently available information and certain assumptions that Seadrill believes are reasonable and factually supportable. The Pro Forma Financial Information should be read in conjunction with the following:
• | The audited historical consolidated financial statements and notes of Seadrill as of December 31, 2022 and December 31, 2021 and for each of the three years ended December 31, 2022 included in Seadrill’s Annual Report on Form 20-F for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission on April 19, 2023, incorporated by reference herein. |
• | The historical audited consolidated financial statements and notes of Aquadrill as of December 31, 2022 and December 31, 2021 and for each of the two years ended December 31, 2022 included elsewhere within this prospectus. |
Seadrill Limited
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 2022
(In $ millions, except per share data) | Adjusted Seadrill Historical (Note 6) | Aquadrill Historical | Transaction Accounting Adjustments | Note | Pro Forma Combined | |||||||||||||||
Operating revenues | ||||||||||||||||||||
Contract revenues | 698 | 190 | — | 888 | ||||||||||||||||
Reimbursable revenues | 31 | 8 | — | 39 | ||||||||||||||||
Management contract revenue | 239 | — | (4 | ) | 4a | 235 | ||||||||||||||
Other revenues | 44 | — | — | 44 | ||||||||||||||||
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Total operating revenues | 1,012 | 198 | (4 | ) | 1,206 | |||||||||||||||
Operating expenses | ||||||||||||||||||||
Vessel and rig operating expenses | (536 | ) | (213 | ) | 4 | 4a | (745 | ) | ||||||||||||
Reimbursable expenses | (28 | ) | (7 | ) | — | (35 | ) | |||||||||||||
Depreciation and amortization | (150 | ) | (16 | ) | (38 | ) | 4b | (204 | ) | |||||||||||
Management contract expense | (179 | ) | — | — | (179 | ) | ||||||||||||||
Merger and integration related expenses | (3 | ) | — | (22 | ) | 4c | (25 | ) | ||||||||||||
Selling, general and administrative expenses | (60 | ) | (23 | ) | (2 | ) | 4d | (85 | ) | |||||||||||
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Total operating expenses | (956 | ) | (259 | ) | (58 | ) | (1,273 | ) | ||||||||||||
Other operating items | ||||||||||||||||||||
Gain on disposals | 3 | 27 | — | 30 | ||||||||||||||||
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Total other operating items | 3 | 27 | — | 30 | ||||||||||||||||
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Operating profit/(loss) | 59 | (34 | ) | (62 | ) | (37 | ) | |||||||||||||
Financial and other non-operating items | ||||||||||||||||||||
Interest income | 14 | 1 | — | 15 | ||||||||||||||||
Interest expense | (93 | ) | — | — | (93 | ) | ||||||||||||||
Share in results from associated companies | 7 | — | — | 7 | ||||||||||||||||
Gain/(loss) on derivative and foreign exchange | 17 | (2 | ) | — | 15 | |||||||||||||||
Other financial and non-operating items | (8 | ) | (1 | ) | — | (9 | ) | |||||||||||||
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Total financial and other non-operating items | (63 | ) | (2 | ) | — | (65 | ) | |||||||||||||
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Loss before income taxes | (4 | ) | (36 | ) | (62 | ) | (102 | ) | ||||||||||||
Income tax (expense)/benefit | (12 | ) | 5 | — | (7 | ) | ||||||||||||||
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Loss from continuing operations | (16 | ) | (31 | ) | (62 | ) | (109 | ) | ||||||||||||
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Basic/Diluted EPS: continuing operations ($) | (0.32 | ) | (1.36 | ) | ||||||||||||||||
Weighted-average shares outstanding, Basic/Diluted | 50 | 30 | 4e | 80 |
Seadrill Limited
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As at December 31, 2022
(In $ millions) | Adjusted Seadrill Historical (Note 7) | Adjusted Aquadrill Historical (Note 3) | Transaction Accounting Adjustments | Note | Pro Forma Combined | |||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | 522 | 55 | (1 | ) | 5a | 576 | ||||||||||||||
Restricted cash | 44 | 5 | — | 49 | ||||||||||||||||
Accounts receivable, net | 137 | 44 | — | 181 | ||||||||||||||||
Amounts due from related parties, net | 27 | — | — | 27 | ||||||||||||||||
Other current assets | 169 | 79 | (4 | ) | 5b | 244 | ||||||||||||||
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Total current assets | 899 | 183 | (5 | ) | 1,077 | |||||||||||||||
Non-current assets | ||||||||||||||||||||
Investments in associated companies | 53 | — | — | 53 | ||||||||||||||||
Drilling units | 1,668 | 370 | 816 | 5c | 2,854 | |||||||||||||||
Restricted cash | 74 | — | — | 74 | ||||||||||||||||
Deferred tax assets | 15 | 21 | — | 36 | ||||||||||||||||
Equipment | 10 | 1 | — | 11 | ||||||||||||||||
Other non-current assets | 82 | 4 | — | 86 | ||||||||||||||||
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Total non-current assets | 1,902 | 396 | 816 | 3,114 | ||||||||||||||||
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Total assets | 2,801 | 579 | 811 | 4,191 | ||||||||||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Debt due within one year | 22 | — | — | 22 | ||||||||||||||||
Trade accounts payable | 76 | 6 | — | 82 | ||||||||||||||||
Other current liabilities | 306 | 24 | 64 | 5d | 394 | |||||||||||||||
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Total current liabilities | 404 | 30 | 64 | 498 | ||||||||||||||||
Non-current liabilities | ||||||||||||||||||||
Long-term debt | 496 | — | — | 496 | ||||||||||||||||
Deferred tax liabilities | 9 | — | — | 9 | ||||||||||||||||
Other non-current liabilities | 190 | 75 | 2 | 5e | 267 | |||||||||||||||
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Total non-current liabilities | 695 | 75 | 2 | 772 | ||||||||||||||||
Equity | ||||||||||||||||||||
Common shares | — | 566 | (566 | ) | 5f | — | ||||||||||||||
Additional paid-in capital | 1,499 | — | 1,243 | 5f | 2,742 | |||||||||||||||
Accumulated other comprehensive income | 2 | — | — | 2 | ||||||||||||||||
Retained earnings/(loss) | 201 | (92 | ) | 68 | 5f | 177 | ||||||||||||||
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Total equity | 1,702 | 474 | 745 | 2,921 | ||||||||||||||||
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Total liabilities and equity | 2,801 | 579 | 811 | 4,191 | ||||||||||||||||
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Notes to the Pro Forma Financial Information
Note 1: Basis of Presentation
The Pro Forma Financial Information has been prepared by Seadrill in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” The pro forma adjustments include transaction accounting adjustments, which reflect the application of required accounting for the Business Combination and the Completed Transactions. Article 11 permits presentation of reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur, otherwise known as Management’s Adjustments. Seadrill has elected not to present Management’s Adjustments as the Company is continuing to evaluate the realizability of synergies including timing and cost to achieve. The Company will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial statements.
Seadrill adopted fresh start accounting in accordance with ASC Topic 852, Reorganizations (“ASC 852”), upon the emergence from reorganization under Chapter 11, resulting in reorganized Seadrill becoming the successor entity (“Successor”) for financial reporting purposes. In accordance with ASC 852, with the application of fresh start accounting, Seadrill allocated reorganization values to individual assets based on estimated fair values in conformity with ASC 805. Liabilities subject to compromise of the predecessor of Seadrill (“Predecessor”) were either reinstated or extinguished as part of the reorganization. Refer to Notes 6 and 7 for the results of the Seadrill reorganization.
The historical financial statements of Seadrill and Aquadrill were prepared in accordance with generally accepted accounting principles in the United States and shown in U.S. dollars. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 assumes that the Business Combination and Completed Transactions had occurred on January 1, 2022. The unaudited pro forma condensed combined balance sheet as of December 31, 2022, assumes that the Business Combination and PES Sale had occurred on December 31, 2022. The impacts from the Seadrill Reorganization and Jackup Sale have already been reflected in the historical consolidated balance sheet for Seadrill as of December 31, 2022 and therefore no pro forma balance sheet adjustments were made.
Note 2. Business Combination with Aquadrill and Estimated Purchase Consideration
Business Combination
In accordance with the Merger Agreement, on the Closing Date (i) Merger Sub merged with and into Aquadrill, with Aquadrill surviving the merger as a wholly owned subsidiary of Seadrill, (ii) Aquadrill unitholders received (a) 29.9 million Seadrill common shares, (b) cash consideration of $1 million, and (c) $30 million settled by tax withholding in lieu of common shares.
The Pro Forma Financial Information was prepared using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date with limited exceptions. The combined company name, ticker symbol, and headquarters will remain consistent with that of Seadrill. As the equity consideration issuing company, Seadrill will hold overall decision-making power of the combined company. As of the Closing Date, the board of directors is comprised of seven individuals designated by Seadrill and two individuals designated by Aquadrill. As a result, Seadrill is the accounting acquirer of Aquadrill in accordance with ASC 805.
Preliminary Purchase Agreement Consideration
The allocation of the consideration, including any related tax effects, is preliminary and pending finalization of various estimates, inputs and analyses used in the valuation assessment of the specifically identifiable tangible and intangible assets acquired. The value of total consideration has been determined based on the closing price of Seadrill shares on April 3, 2023 and the number of issued and outstanding Aquadrill common shares immediately prior to closing. Since the Pro Forma Financial Information has been prepared by Seadrill based on preliminary fair values attributable to the Business Combination, the actual amounts eventually recorded in accordance with the acquisition method of accounting may differ materially from the information presented.
ASC 805 requires, among other things, that the assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. Any consideration transferred or paid in a business combination in excess of the fair value of the assets acquired and liabilities assumed should be recognized as goodwill, while any excess fair value of the assets
acquired and liabilities assumed beyond the consideration transferred or paid in a business combination should be recognized as a bargain purchase gain. Seadrill management’s estimate as of the date of this filing is that the fair value of the net assets and liabilities acquired is equal to the purchase price. Thus, no goodwill or bargain purchase gain has been recognized on the pro forma condensed combined balance sheet as of December 31, 2022. This preliminary determination is subject to further assessment and adjustments by Seadrill pending additional information sharing between the parties, more detailed third-party appraisals, natural changes in net assets acquired between the pro forma date used herein and the closing date, and other potential adjustments.
The following table presents the calculation of consideration based on the closing price per share of Seadrill shares on the New York Stock Exchange on April 3, 2023, the number of issued and outstanding Aquadrill common shares immediately prior to closing, and the 20 day volume-weighted average price immediately preceding the close.
(In $ millions, except per share data) | Aquadrill Shares | Final Exchange Ratio | As at December 31, 2022 | |||||||||
Aquadrill outstanding shares as of April 3, 2023 | 20,000,000 | 1.4129 | 28,258,965 | |||||||||
Aquadrill restricted stock units | 122,104 | 1.4129 | 172,527 | |||||||||
Aquadrill phantom award units | 105,700 | 1.4129 | 149,349 | |||||||||
Aquadrill phantom appreciation rights | 570,000 | 0.7010 | 399,576 | |||||||||
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Total Aquadrill shares converted to Seadrill shares | 20,797,804 | 28,980,417 | ||||||||||
Company Sale Bonus (1) | 1,664,743 | |||||||||||
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Total Seadrill shares eligible for purchase of Aquadrill | 30,645,160 | |||||||||||
Less: Tax withholding in lieu of common shares (2) | 744,150 | |||||||||||
Less: Seadrill shares settled in cash (3) | 34,505 | |||||||||||
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Seadrill shares issued for purchase of Aquadrill | 29,866,505 | |||||||||||
Seadrill share price at April 3, 2023 market close | 41.62 | |||||||||||
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Consideration issued in Seadrill shares | 1,243 | |||||||||||
Consideration settled by tax withholding (2) | 30 | |||||||||||
Consideration settled in cash (3) | 1 | |||||||||||
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Total consideration | 1,274 | |||||||||||
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(1) | Immediately prior to the Closing Date, the Sale Bonus Award Agreement, dated as of May 24, 2021, by and between Aquadrill and Steven Newman, the Chief Executive Officer and a Director of Aquadrill, was terminated and in connection with such termination at the Effective Time and in accordance with the Merger Agreement, Mr. Newman received 1,013,405 Seadrill common shares and $25 million tax withholding in lieu of Seadrill common shares. |
(2) | Pursuant to the Merger Agreement, in lieu of issuing Seadrill common shares, the Company elected to pay $30 million of tax withholding. |
(3) | Pursuant to the Merger Agreement, in lieu of issuing Seadrill common shares, certain non-employee board members elected to receive $1 million cash in lieu of Seadrill common shares. |
The preliminary allocation of the purchase price consideration is as follows:
(In $ millions) | Book Value | Preliminary Fair Value Adjustment | Notes | Preliminary Fair Value | ||||||||||||
Total current assets | 183 | (4 | ) | 5b | 179 | |||||||||||
Total non-current assets | 396 | 816 | 5c | 1,212 | ||||||||||||
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Total assets | 579 | 812 | 1,391 | |||||||||||||
Total current liabilities | 30 | 10 | 5d | 40 | ||||||||||||
Total non-current liabilities | 75 | 2 | 5e | 77 | ||||||||||||
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Total liabilities | 105 | 12 | 117 | |||||||||||||
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Net assets | 474 | 800 | 1,274 | |||||||||||||
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Total consideration | 1,274 | |||||||||||||||
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Note 3: Reclassifications
The reclassifications presented below were made as a result of the Business Combination to conform Aquadrill’s historical financial information to Seadrill’s presentation. There were no reclassifications to the Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2022.
Reclassifications included in the Unaudited Pro Forma Condensed Combined Balance Sheet as at December 31, 2022
| December 31, 2022 (in $ millions) |
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Aquadrill Presentation | Amount | Presentation Reclassifications | Amount | Seadrill Presentation | ||||||||||
ASSETS | ASSETS | |||||||||||||
Current assets | ||||||||||||||
Cash and cash equivalents | 55 | — | 55 | Cash and cash equivalents | ||||||||||
Restricted cash | 5 | — | 5 | Restricted cash | ||||||||||
Accounts receivable, net | 44 | — | 44 | Accounts receivable, net | ||||||||||
Other current assets | 15 | 64 | a, b | 79 | Other current assets | |||||||||
Prepaid expenses | 50 | (50 | ) a | — | ||||||||||
Income taxes receivable | 14 | (14 | ) b | — | ||||||||||
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Total current assets | 183 | — | 183 | Total current assets | ||||||||||
Non-current assets | Non-current assets | |||||||||||||
Drilling units, net | 371 | (1 | ) c | 370 | Drilling units | |||||||||
Deferred tax assets | 21 | — | 21 | Deferred tax assets | ||||||||||
— | 1 | c | 1 | Equipment | ||||||||||
Other non-current assets | 4 | — | 4 | Other non-current assets | ||||||||||
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Total non-current assets | 396 | — | 396 | Total non-current assets | ||||||||||
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Total assets | 579 | — | 579 | Total assets | ||||||||||
LIABILITIES AND MEMBERS’ CAPITAL | LIABILITIES AND EQUITY | |||||||||||||
Current liabilities | ||||||||||||||
Trade accounts payable and accruals | 6 | — | 6 | Trade accounts payable | ||||||||||
Accrued expenses | 11 | (11 | ) d | — | ||||||||||
Taxes payable | 3 | (3 | ) e | — | ||||||||||
Other current liabilities | 10 | 14 | d, e | 24 | Other current liabilities | |||||||||
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Total current liabilities | 30 | — | 30 | Total current liabilities | ||||||||||
Non-current liabilities | ||||||||||||||
Deferred tax liability | — | — | — | Deferred tax liabilities | ||||||||||
Non-current taxes payable | 24 | (24 | ) f | — | ||||||||||
Other non-current liabilities | 51 | 24 | f | 75 | Other non-current liabilities | |||||||||
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Total non-current liabilities | 75 | — | 75 | Total non-current liabilities | ||||||||||
Members’ capital | Equity | |||||||||||||
Common unitholders | 566 | — | 566 | Common shares | ||||||||||
Accumulated deficit | (92 | ) | — | (92 | ) | Retained loss | ||||||||
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Total member’s capital | 474 | — | 474 | Total equity | ||||||||||
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Total liabilities and equity | 579 | — | 579 | Total liabilities and equity |
a. | Prepaid expenses - To reclassify Prepaid expenses in the amount of $50 million to Other current assets. |
b. | Income taxes receivable - To reclassify Income taxes receivable in the amount of $14 million to Other current assets. |
c. | Drilling units - To reclassify a portion of Drilling units, net in the amount of $1 million to Equipment. |
d. | Accrued expenses - To reclassify Accrued expenses in the amount of $11 million to Other current liabilities. |
e. | Taxes payable - To reclassify Taxes payable in the amount of $3 million to Other current liabilities. |
f. | Non-current taxes payable - To reclassify Non-current taxes payable in the amount of $24 million to Other non-current liabilities. |
Note 4: Unaudited Pro Forma Combined Statement of Operations
a. | Management contract revenues and Vessel and rig expenses – Reflects the elimination of the preexisting relationship between Seadrill and Aquadrill which related to the Global Services Agreement and other service arrangements. Upon the close of the Business Combination, Seadrill and Aquadrill will become a combined company and intercompany relationships would be eliminated. |
(In $ millions) | Year ended December 31, 2022 | |||
Seadrill contract revenue removal | (4 | ) | ||
Aquadrill contract expense removal | 4 | |||
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Total adjustment to remove preexisting relationships | — | |||
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b. | Depreciation and amortization – Reflects the estimated increase in depreciation and amortization expense based on preliminary asset values and useful lives for drilling units and preliminary contract related intangibles as a result of the Merger. The pro forma adjustments to depreciation and amortization expense were calculated as follows: |
(In $ millions) | Year ended December 31, 2022 | |||
Removal of historical depreciation expense | 16 | |||
Estimated depreciation expense for fair value of drilling units (1) | (64 | ) | ||
Estimated amortization expense for unfavorable contract liabilities, net (2) | 10 | |||
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Total adjustment to Depreciation and amortization | (38 | ) | ||
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(1) | Drilling units less estimated residual value are depreciated using the straight-line basis over their estimated remaining useful lives. The preliminary estimated remaining useful lives for the acquired drilling units range from 16 to 21 years. See note 5c. |
(2) | The preliminary assessment of the fair value of the existing MSA contracts showed a $13 million unfavorable contract liability and a $1 million favorable contract asset, recorded as a net unfavorable contract liability (as outlined in Note 5d and Note 5e). The off-market contracts result from higher or lower revenue and margin shares now being received by the managers under the MSA arrangements compared to their original cost rates as a result of favorable market conditions or variable cost terms within the contract, respectively. |
c. | Merger and integration costs – Reflects the recognition of expenses directly attributable to the Merger. These expenses are not expected to recur in any period beyond the twelve months from the close of the Business Combination. |
(In $ millions) | Year ended December 31, 2022 | |||
Remaining transaction costs (1) | (20 | ) | ||
Aquadrill employee severance (2) | (2 | ) | ||
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Total adjustment to Merger and integration costs | (22 | ) | ||
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(1) | The incremental transaction costs to be incurred directly in connection with the Business Combination, consisting primarily of legal and professional fees. Approximately $12 million and $8 million of remaining transaction costs were incurred by Seadrill and Aquadrill, respectively. See note 5d. |
(2) | The severance expense to be paid to Aquadrill employees as a result of the Merger. See note 5d. |
d. | Selling, general and administrative expenses – Reflects the recognition of the $2 million expense associated with director and officer insurance as required by the Merger Agreement. This expense is not expected to recur in any period beyond twelve months from the close of the Business Combination. |
e. | Basic/Diluted Weighted Average Shares Outstanding – Reflects the preliminary weighted average shares outstanding as a result of the Business Combination. |
(In millions) | Year ended December 31, 2022 | |||
Seadrill weighted average shares outstanding | 50 | |||
Seadrill shares issued to Aquadrill shareholders (Note 2) | 30 | |||
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Total pro forma weighted average shares outstanding - basic/diluted (1) | 80 |
(1) | For the year ended December 31, 2022, the pro forma condensed combined statement of operations shows a net loss. As a result, diluted loss per share is the same as basic, as any dilutive securities would reduce loss per share. |
Note 5: Unaudited Pro Forma Combined Balance Sheet Adjustments
a. | Cash and cash equivalents – Reflects the $1 million adjustment for share-based compensation settled in cash that is directly attributable to the Merger. See Note 2. |
b. | Other current assets – Reflects the adjustment of $4 million to remove demobilization costs. See Note 4b for preliminary fair value of drilling units and contract related intangible assets. |
c. | Drilling units – Reflects the preliminary fair value adjustment of $816 million to increase the historical net book value of drilling units. See Note 4b. |
d. | Other current liabilities – Reflects the increase in Other current liabilities directly attributable to the Business Combination. |
(In $ millions) | As at December 31, 2022 | |||
Current portion of preliminary fair value adjustment related to unfavorable contracts (Note 4b) | 10 | |||
Estimated remaining transaction expenses (Note 4c) | 20 | |||
Directors and officers insurance required in connection with the transaction (Note 4d) | 2 | |||
Aquadrill employee severance (Note 4c) | 2 | |||
Tax withholding in lieu of common shares (Note 2) | 30 | |||
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Total adjustment to Other current liabilities | 64 | |||
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e. | Other non-current liabilities – Records the $2 million non-current liability associated with the preliminary fair value of unfavorable contracts. See Note 4b. |
f. | Total equity – Reflects the adjustments made to equity captions based on the Business Combination transaction. |
(In $ millions) | As at December 31, 2022 | |||
Issuance of common shares of par value US $0.01 per share (Note 2) | — | |||
Elimination of historical Aquadrill common shares | (566 | ) | ||
Capital in excess of par value (Note 2) | 1,243 | |||
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Common shares and Additional paid-in capital | 677 | |||
Elimination of historical Aquadrill retained loss | 92 | |||
Remaining transaction costs (Note 4c) | (20 | ) | ||
Directors and officers insurance required in connection with the transaction (Note 4d) | (2 | ) | ||
Aquadrill employee severance (Note 4c) | (2 | ) | ||
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Retained earnings | 68 | |||
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Total adjustments to Total equity | 745 | |||
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Note 6: Adjusted Seadrill Historical Statement of Operations
The following tables reflect Seadrill historical adjustments included in the Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2022 assuming the Completed Transactions had occurred on January 1, 2022.
Historical adjustments included in the Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2022
Predecessor from January 1, | Successor from February 23, | Seadrill Reorganization | ||||||||||||||||||||||||||||||||||||||||||
(In $ millions, except per share data) | through February 22, 2022 | through December 31, 2022 | Reorganization Adjustments | Fresh Start Adjustments | PES Sale | Jackup Sale | Adjusted Seadrill Historical | |||||||||||||||||||||||||||||||||||||
Operating revenues | ||||||||||||||||||||||||||||||||||||||||||||
Contract revenues | 124 | 574 | — | — | — | — | 698 | |||||||||||||||||||||||||||||||||||||
Reimbursable revenues | 4 | 27 | — | — | — | — | 31 | |||||||||||||||||||||||||||||||||||||
Management contract revenue | 36 | 203 | — | — | — | — | 239 | |||||||||||||||||||||||||||||||||||||
Other revenues | 5 | 39 | — | — | — | — | 44 | |||||||||||||||||||||||||||||||||||||
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Total operating revenues | 169 | 843 | — | — | — | — | 1,012 | |||||||||||||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||||||||||||||
Vessel and rig operating expenses | (76 | ) | (445 | ) | (15 | ) | a | — | — | — | (536 | ) | ||||||||||||||||||||||||||||||||
Reimbursable expenses | (4 | ) | (24 | ) | — | — | — | — | (28 | ) | ||||||||||||||||||||||||||||||||||
Depreciation and amortization | (17 | ) | (135 | ) | 1 | b | 1 | g | — | — | (150 | ) | ||||||||||||||||||||||||||||||||
Management contract expense | (31 | ) | (148 | ) | — | — | — | — | (179 | ) | ||||||||||||||||||||||||||||||||||
Merger and integration related expenses | — | (3 | ) | — | — | — | — | (3 | ) | |||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | (6 | ) | (54 | ) | — | — | — | — | (60 | ) | ||||||||||||||||||||||||||||||||||
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Total operating expenses | (134 | ) | (809 | ) | (14 | ) | 1 | — | — | (956 | ) | |||||||||||||||||||||||||||||||||
Other operating items | ||||||||||||||||||||||||||||||||||||||||||||
Gain on disposals | 2 | 1 | — | — | — | — | 3 | |||||||||||||||||||||||||||||||||||||
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Total other operating items | 2 | 1 | — | — | — | — | 3 | |||||||||||||||||||||||||||||||||||||
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Operating profit/(loss) | 37 | 35 | (14 | ) | 1 | — | — | 59 | ||||||||||||||||||||||||||||||||||||
Financial and other non-operating items | ||||||||||||||||||||||||||||||||||||||||||||
Interest income | — | 14 | — | — | — | — | 14 | |||||||||||||||||||||||||||||||||||||
Interest expense | (7 | ) | (98 | ) | (9 | ) | c | — | — | 21 | k | (93 | ) | |||||||||||||||||||||||||||||||
Share in results from associated companies | (2 | ) | (2 | ) | — | — | 11 | i | — | 7 | ||||||||||||||||||||||||||||||||||
Gain on derivative and foreign exchange | 9 | 8 | — | — | — | — | 17 | |||||||||||||||||||||||||||||||||||||
Reorganization items, net | 3,683 | (15 | ) | (3,514 | ) | d | (266 | ) | h | 112 | j | — | — | |||||||||||||||||||||||||||||||
Other financial and non-operating items | 21 | (5 | ) | (24 | ) | e | — | — | — | (8 | ) | |||||||||||||||||||||||||||||||||
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Total financial and other non-operating items | 3,704 | (98 | ) | (3,547 | ) | (266 | ) | 123 | 21 | (63 | ) | |||||||||||||||||||||||||||||||||
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(Loss)/profit before income taxes | 3,741 | (63 | ) | (3,561 | ) | (265 | ) | 123 | 21 | (4 | ) | |||||||||||||||||||||||||||||||||
Income tax expense | (2 | ) | (10 | ) | — | — | — | — | (12 | ) | ||||||||||||||||||||||||||||||||||
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(Loss)/Income from continuing operations | 3,739 | (73 | ) | (3,561 | ) | (265 | ) | 123 | 21 | (16 | ) | |||||||||||||||||||||||||||||||||
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Basic/Diluted EPS: continuing operations ($) | 37.25 | (1.46 | ) | (0.32 | ) | |||||||||||||||||||||||||||||||||||||||
Weighted-average shares outstanding, Basic/Diluted | 100 | 50 | (50 | ) | f | 50 |
Reorganization Adjustments
a. | Vessel and rig operating expenses – In conjunction with the Seadrill Reorganization, the Company entered into an amended lease agreement with SFL Corporation Ltd. (“SFL”) for West Linus. Prior to the amendment, these lease was classified as finance leases and, as a result of the modification, were reclassified as an operating lease. The adjustment below reflects the operating lease expense associated with the modification and reversal of the gain on extinguishment of previously accrued operating costs on the Effective Date. |
(In $ millions) | Year ended December 31, 2022 | |||
West Linus operating lease expense | (3 | ) | ||
Reversal of gain on release of previously accrued operating costs extinguished on the Effective Date | (12 | ) | ||
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Total adjustment to Vessel and rig operating expenses | (15 | ) | ||
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b. | Depreciation and amortization – Reflects the removal of the historical depreciation expense associated with the modification of the lease for the West Linus drilling unit. |
c. | Interest expense – Reflects the adjustment to remove the historical interest expense for the Predecessor debt instruments and unwind on the SFL leases, and to record the interest expense associated with the new debt instruments. The pro forma adjustments to interest expense were calculated as follows: |
(In $ millions) | Year ended December 31, 2022 | |||
Write-off of Predecessor interest expense | 7 | |||
Pro forma interest expense on the new first lien facility | (3 | ) | ||
Pro forma interest expense on the new second lien facility | (13 | ) | ||
Pro forma interest expense on the convertible bonds | (1 | ) | ||
Amortization of debt premium | 1 | |||
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Total adjustment to Interest expense | (9 | ) | ||
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Assuming an increase in interest rates on the new debt instruments of 1/8%, pro forma interest would increase by nil for the period from January 1, 2022 through February 22, 2022. The interest rates used for the purposes of calculating pro forma interest expenses for the new first lien facility, new second lien facility, and convertible bonds were 7.94%, 13.44%, and 6.96% respectively.
d. | Reorganization items, net – Reflects the removal of reorganization items which represent charges directly attributable to the bankruptcy. The balance excludes the fresh start valuation adjustments which are described in Note 6h below. |
(In $ millions) | Year ended December 31, 2022 | |||
Pre-tax gain on settlement of liabilities subject to compromise | (3,589 | ) | ||
Advisory and professional fees | 59 | |||
Expense of Predecessor directors and officers insurance policy | 17 | |||
Interest income on surplus cash | (1 | ) | ||
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Total adjustment to Reorganization items, net | (3,514 | ) | ||
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e. | Other financial and non-operating items – In conjunction with the Seadrill Reorganization, the accrual related to the Dalian yard postponement was extinguished. The adjustment reflects the reversal of the gain on extinguishment of $24 million which is directly attributable to the bankruptcy and is not representative of the Successor. |
f. | Basic/Diluted Weighted Average Shares Outstanding – Reflects the cancellation of the Predecessor equity and issuance of 50 million Successor common shares, which reduced the weighted-average common shares outstanding from 100 million to 50 million. |
(In $ millions) | Year ended December 31, 2022 | |||
Seadrill weighted average shares outstanding | 100 | |||
Cancellation of Predecessor equity | (100 | ) | ||
Issuance of Successor common stock | 50 | |||
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Total pro forma weighted average shares outstanding - basic/diluted (1) | 50 |
(1) | For the year ended December 31, 2022, the adjusted historical statement of operations shows a net loss. As a result, diluted loss per share is the same as basic, as any dilutive securities would reduce loss per share. |
Fresh Start Adjustments
g. | Depreciation and amortization – Reflects the pro forma decrease in depreciation and amortization expense based on new asset values and useful lives for drilling units and revaluation of drilling and management contracts as a result of adopting fresh start accounting. The pro forma adjustments to depreciation and amortization expense was calculated as follows: |
(In $ millions) | Year ended December 31, 2022 | |||
Write-off of Predecessor depreciation expense on drilling units | 16 | |||
Pro forma depreciation expense on drilling units | (13 | ) | ||
Pro forma amortization of drilling and management contracts | (2 | ) | ||
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Total adjustment to Depreciation and amortization | 1 | |||
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h. | Reorganization items, net – Remove the cumulative effect of the fresh start accounting adjustments of $266 million. |
PES Sale Adjustments
i. | Share in results from associated companies – Reflects the removal of the Successor’s remaining 35% investment in PES. |
j. | Reorganization items, net – Reflects the removal of the loss on deconsolidation of PES which represents a charge directly attributable to the NSNCo restructuring reflected in the Predecessor period. |
Jackup Sale Adjustments
k. | Interest expense – In conjunction with the Jackup Sale, a mandatory payment was required on the new second lien facility. This adjustment reflects the removal of Successor interest expense of $4 million and Predecessor interest expense of $17 million for the year ended December 31, 2022. |
Note 7: Adjusted Seadrill Historical Balance Sheet
The following table reflects Seadrill historical adjustments included in the Unaudited Pro Forma Condensed Combined Balance Sheet as at December 31, 2022 assuming the PES sale had occurred on December 31, 2022.
(In $ millions) | Seadrill Limited | PES Sale | Seadrill Pro Forma | |||||||||||
ASSETS | ||||||||||||||
Current assets | ||||||||||||||
Cash and cash equivalents | 480 | 42 | a | 522 | ||||||||||
Restricted cash | 44 | — | 44 | |||||||||||
Accounts receivable, net | 137 | — | 137 | |||||||||||
Amounts due from related parties, net | 27 | — | 27 | |||||||||||
Other current assets | 169 | — | 169 | |||||||||||
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Total current assets | 857 | 42 | 899 | |||||||||||
Non-current assets | ||||||||||||||
Investments in associated companies | 84 | (31 | ) | b | 53 | |||||||||
Drilling units | 1,668 | — | 1,668 | |||||||||||
Restricted cash | 74 | — | 74 | |||||||||||
Deferred tax assets | 15 | — | 15 | |||||||||||
Equipment | 10 | — | 10 | |||||||||||
Other non-current assets | 93 | (11 | ) | c | 82 | |||||||||
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Total non-current assets | 1,944 | (42 | ) | 1,902 | ||||||||||
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Total assets | 2,801 | — | 2,801 | |||||||||||
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LIABILITIES AND EQUITY | ||||||||||||||
Current liabilities | ||||||||||||||
Debt due within one year | 22 | — | 22 | |||||||||||
Trade accounts payable | 76 | — | 76 | |||||||||||
Other current liabilities | 306 | — | 306 | |||||||||||
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Total current liabilities | 404 | — | 404 | |||||||||||
Non-current liabilities | ||||||||||||||
Long-term debt | 496 | — | 496 | |||||||||||
Deferred tax liabilities | 9 | — | 9 | |||||||||||
Other non-current liabilities | 190 | — | 190 | |||||||||||
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Total non-current liabilities | 695 | — | 695 | |||||||||||
Equity | ||||||||||||||
Common shares | — | — | — | |||||||||||
Additional paid-in capital | 1,499 | — | 1,499 | |||||||||||
Accumulated other comprehensive income | 2 | — | 2 | |||||||||||
Retained earnings | 201 | — | 201 | |||||||||||
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Total equity | 1,702 | — | 1,702 | |||||||||||
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Total liabilities and equity | 2,801 | — | 2,801 | |||||||||||
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PES Sale Adjustments
a. | Cash and cash equivalents – Reflects cash consideration received for the sale of remaining 35% ownership in PES. |
b. | Investment in associated companies – Reflects the removal of the remaining 35% investment in PES. |
c. | Other non-current assets – As part of the Seadrill Reorganization, the management incentive fee award from PES was determined to have a fair value of $11 million. This adjustment reflect the removal of this amount as a result of the sale of the Successor’s remaining 35% investment in PES. |