Seadrill : 266KB

Seadrill Limited (SDRL) - First Half 2021 Results

Hamilton, Bermuda, August 20, 2021 - Seadrill Limited ("Seadrill" or "the Company") (OSE:SDRL, OTCPK:SDRLF), a world leader in offshore drilling, announces a commercial update and provides financial results for the six months ended June 30, 2021.

Highlights

Operational/Commercial

• Technical utilization of 92% and economic utilization of 88% due to downtime incidents on West Saturn and West Tellus. Excluding these units, technical utilization and economic utilization stood at 98% and 94% respectively.
• Thirteen owned units operating as of June 30, 2021, with three additional units returning to operations in the second half of 2021. In addition, ten non-owned units remain under Seadrill's management.
• Total backlog of $2.1 billion with approximately $0.5 billion added during the first half of the year.

Health, Safety, and Environment ("HSE")

• Record safety performance with Total Injury Frequency Rate ("TRIR") better than industry average.
• Maintained our industry-leading carbon management position.

Financial

• Operating loss decreased to $252 million, includes non-cash impairment of $152 million against the West Hercules rig.
• Cash and cash equivalents as at June 30, 2021 of $644 million of which $428 million was unrestricted.

Financial Highlights
Figures in USD million, unless otherwise indicated	1H21	2H20	% Change
Total Operating Revenue	452	461	(2)%
Adjusted EBITDA	20	10	100 %
Adjusted EBITDA Margin (%)	4.4	2.2	100 %
Operating Loss	(252)	(3,110)	(92)%
Net loss	(605)	(2,915)	(79)%

Subsequent Events

• Major milestones reached towards emergence from Chapter 11 bankruptcy by entering restructuring agreements with certain senior secured lenders and senior note holders, representing 58% and 79% of debt outstanding, respectively. The proposed plan leaves current shareholders with approximately 0.25% of the go forward equity and as a consequence they face a significant deterioration in value.
• Separate agreements reached with SFL Corporation, to reduce our commitments on the lease agreement for the West Hercules, and with Northern Ocean Ltd., to close out all outstanding balances and claims.
• Approximately $120 million of backlog added after the period end, including contracts secured for the West Hercules in Canada and the West Gemini in Angola.

Stuart Jackson, CEO, commented:

"Seadrill has continued to operate effectively and safely throughout H1 2021, despite ongoing disruptions caused by COVID-19 challenging the industry's logistical capabilities. We are delighted to have increased our order backlog during the period after signing agreements with a number of customers, and we continue to execute on our plan to positively streamline our operations, taking out assets that will not go back to work and addressing the broader leverage issues through the Chapter 11 process.

Looking forward, we will continue to leverage our technical and functional excellence to maintain our leading position in the offshore drilling industry, evident by our West Saturn drillship where the introduction of hydrogen fuel is set to significantly reduce fuel consumption and our carbon footprint.

Addressing the leverage of offshore drilling entities and progressing on the journey on asset rationalization are the first important steps prior to looking to the next stage of industry rationalization through consolidation, where I expect we will play an active part. The filing of our Plan Support Agreement with strong creditor support marked the next step in this journey for Seadrill."

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About Seadrill

Seadrill is a leading offshore drilling contractor utilizing advanced technology to unlock oil and gas resources for clients across harsh and benign locations across the globe. Seadrill's high-quality, technologically advanced fleet spans all asset classes allowing its experienced crews to conduct its operations from shallow to ultra-deep-water environments. The Company operates 42 rigs, which includes drillships, jack-ups and semi-submersibles.

Seadrill is listed on the Oslo Børs and OTC Pink markets. For more information, visit https://www.seadrill.com/.

Forward-Looking Statements

This news release includes forward-looking statements. Such statements are generally not historical in nature, and specifically include statements about the Company's plans, strategies, business prospects, changes and trends in its business and the markets in which it operates. These statements are made based upon management's current plans, expectations, assumptions and beliefs concerning future events impacting the Company and therefore involve a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, which speak only as of the date of this news release. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to offshore drilling market conditions including supply and demand, day rates, customer drilling programs and effects of new rigs on the market, contract awards and rig mobilizations, contract backlog, dry-docking and other costs of maintenance of the drilling rigs in the Company's fleet, the cost and timing of shipyard and other capital projects, the performance of the drilling rigs in the Company's fleet, delay in payment or disputes with customers, Seadrill's ability to successfully employ its drilling units, procure or have access to financing, ability to comply with loan covenants, liquidity and adequacy of cash flow from operations, fluctuations in the international price of oil, international financial market conditions, changes in governmental regulations that affect the Company or the operations of the Company's fleet, increased competition in the offshore drilling industry, the impact of global economic conditions and global health threats and the impact of future negotiations with its lenders to obtain amendments to credit facilities and any related contingency planning efforts, 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 as a result of our Chapter 11 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 post-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, the dispute over production levels among members of the Organization of Petroleum Exporting Countries and other oil and gas producing nations, downtime and other risks associated with offshore rig operations and ability to successfully employ our drilling units, our expected debt levels, the ability of our affiliated or related companies to service their debt requirements, credit risks of our key customers, 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, 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 Chapter 11 Proceedings, internal control risk due to significant employee reductions, 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, customs and environmental 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 and other important factors described from time to time in the reports filed or furnished by us with the SEC. Consequently, no forward-looking statement can be guaranteed. When considering these forward-looking statements, you should keep in mind the risks described from time to time in the Company's filings with the SEC, including its 2020 Annual Report on Form 20-F (File No. 333-224459).

The Company undertakes no obligation to update any forward-looking 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, the Company cannot assess the impact of each such factors on its 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.

August 20, 2021

The Board of Directors

Seadrill Limited

Hamilton, Bermuda

Questions should be directed to Seadrill Management Ltd. represented by:
Stuart Jackson	Chief Executive Officer
Media questions should be directed to:
Iain Cracknell	Director of Communications	+44	7765 221 812
Analyst and investor questions should be directed to:
Hawthorn Advisors	[e-mail]	+44	(0) 203 7454960

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FIRST HALF 2021

OPERATING REVIEW

Operations

The first half status and performance of our owned rig fleet was as follows:

As at June 30, 2021	Harsh Environment	Floaters	Jack-ups	Total
Operating	3	3	7	13
Technical utilization 1	96%	81%	99%	92%
Economic utilization 2	94%	76%	93%	88%
Future contracted	1	2	-	3
Idle	4	7	5	16
Total 3	8	12	12	32

• Technical utilization is calculated as the total hours available for work, excluding planned maintenance, over the total number of hours in the period.

• Economic utilization is calculated as total revenue, excluding bonuses, for the period as a proportion of the full operating dayrate multiplied by the number of days on contract in the period.

• Includes two rigs held under capital lease arrangements from SFL.

Technical utilization and economic utilization stood at 92% and 88% respectively. Downtime on the West Tellus and West Saturn, as a result of incidents on our subsea equipment, led to lower than expected economic utilization for our floater segment. Excluding these units, technical utilization and economic utilization stood at 98% and 94% respectively.

In the harsh environment fleet, we had three rigs operating in the North Sea at the end of the period with the West Hercules continuing work with Equinor and the West Elara and West Linus continuing their long-term contracts with ConocoPhillips. In addition, we had one future contracted harsh environment rig with the West Phoenix mobilizing for a new contract in Norway with VAR Energi.

In the floater fleet, we had three rigs operating across the Americas. The West Neptune was under contract with Talos in the Gulf of Mexico, and the West Tellus and the West Saturn remained under contract in Brazil with Petrobras and ExxonMobil respectively. We had two future contracted floaters with the Sevan Louisiana contracted to operate with Walter Oil and Gas in the US Gulf of Mexico and the West Gemini contracted to work in Angola starting later in the year.

Across the jack-up fleet, high levels of utilization were maintained throughout the period. The AOD I, AOD III, and West Callisto continued working in the Middle East with Saudi Aramco. The suspension on AOD II was lifted during the period and it recommenced operations in July 1, 2021. The West Castor, West Telesto, and West Tucana were on bareboat charter to our joint venture, Gulfdrill, in Qatar.

During the period, we sold the West Vigilant and terminated the lease for the West Taurus (both long-term cold stacked units). This resulted in a decrease in the number of owned and operated rigs from 34 to 32. In addition, we completed the sale of the West Freedom shortly after the end of the reporting period and have entered agreements to recycle five other long-term cold stacked units. In the previous period, we sold the harsh-environmentjack-up rig West Epsilon.

In addition to our owned units, we continue to manage 10 rigs on behalf of Seamex, Sonadrill, Aquadrill (formerly Seadrill Partners) and Northern Ocean. During the period the Aquadrill drillship West Vela was awarded a new contract with Equinor in the US Gulf of Mexico. This will keep the rig under our management until mid-2022.

Financial prudence and cash preservation forms a significant part of our strategy moving forward to ensure that our operations are sustainable with volatile commodity prices and tariffs. Even with improving macroeconomic market conditions, there remains a surplus of offshore rigs across the industry and our inactive assets do not currently justify the cost of reactivation. As noted above, we have recently boosted our efforts to refine our fleet count, targeting specific assets that are not expected to yield profitable returns on investment.

HSE

Seadrill continues to lead the field with its strong HSE performance. The Company has recorded its best safety record, with TRIR reducing from 0.30 in January to 0.26 in July. This compares favorably to the Q2 offshore drilling industry standard of 0.28.

In line with the Company's strategy to maintain a leading position in carbon management across the offshore drilling sector, the Company is pleased to have maintained its "B" rating in accordance with the Carbon Disclosure Project framework ("CDP"). This rating is the highest of all offshore drilling companies marked against CDP. Seadrill's efforts are reflected in the dramatic reduction of the Company's carbon footprint which dropped by 19% over the course of last year, falling from 906,346 tonnes CO2e per year in 2019 to 737,298 tonnes CO2e per year in 2020.

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FINANCIAL REVIEW
Abbreviated Income Statement
(In US$ million)	1H21	2H20
Total operating revenues	452	461
Total operating expenses	(566)	(709)
Total other operating items	(138)	(2,862)
Operating loss	(252)	(3,110)
Total financial and other non-operating items, net	(342)	198
Income tax expense	(11)	(3)
Net loss	(605)	(2,915)
Adjusted EBITDA	20	10

Total operating revenues for 1H21 were $452 million (2H20: $461 million), a decrease of $9 million, and attributed to the following:

Contract revenues increased by $24 million due to a net increase in operating days as the West Saturn, West Bollsta and Sevan Louisiana had more days on contract than in 2H20. This was offset by fewer operating days for the West Phoenix and West Neptune and operational downtime on the West Tellus and West Saturn, as discussed in the operating review above.

Management contract revenues decreased by $23 million due to the completion of mobilization projects with Sonangol and Northern Ocean in 2H20 and the termination of management services previously provided to Aquadrill (formerly Seadrill Partners) in 1H21.

Other revenues decreased by $9 million due primarily to a termination fee received for the West Gemini in 2H20, with no such amount received in 1H21.

Total operating expenses for 1H21 were $566 million (2H20: $709 million), a decrease of $143 million, and attributed to the following:

Rig operating expenses increased by $14 million, which can be attributed to the net increase in operating days as outlined above, partly offset by savings achieved through our ongoing cost-reduction programs. Included within this increase is the charter expense for the West Bollsta, which we have leased from Northern Ocean to complete a contract for Lundin in Norway.

Management contract expenses decreased by $67 million due to the completion of mobilization projects with Sonangol and Northern Ocean and a reduction in the credit loss allowance recognized against our amounts due from our related parties.

Depreciation decreased by $81 million as a direct consequence of impairments recorded in 2020.

Other operating items for 1H21 contributed to a $138 million expense (2H20: $2.9 billion expense), a decrease of $2.7 billion, and attributed to the following:

Impairments recognized against our drilling unit fleet and intangible management contracts decreased by $2,705 million, and attributed primarily to impairments taken against our drillships and benign environment semi-submersible rigs in 2H20. A further impairment was recognized against the West Hercules in 1H21.

Gains were recognized in both periods for the disposal of assets, with the West Vigilant being sold in 1H21 and the sale of the West Epsilon in 2H20.

Adjusted EBITDA was $20 million in 1H21 (2H20: $10 million), delivering an adjusted EBITDA margin of 4.4% (2H20: 2.2%). The increase in EBITDA is due to variances described above.

Total financial and other items for 1H21 contributed an expense of $342 million (2H20: $198 million income), an adverse variance of $540 million that was attributed to the following:

There was a one-timenon-cash gain of $509 million in 2H20 following the deconsolidation of three subsidiaries of SFL, which were previously consolidated by Seadrill under the variable interest model. This did not recur in 1H21.

In February 2021, the lease for the SFL-ownedWest Taurus was rejected through the bankruptcy court, which led to a remeasurement of outstanding amounts due to SFL and resulted in a non-cash $186 million loss in 1H21.

There was a net increase in credit loss allowances recognized against loans provided to related parties, which resulted in an increased expense of $12 million in 1H21

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Interest expense decreased in 1H21 as we ceased recognition of interest on impaired debt following the filing for Chapter 11, resulting in a decrease in interest expense of $83 million. In addition, there was a one-time expense of $87 million in 2H20 as we wrote off deferred debt issuance costs and issue discounts when our senior credit facilities became in-default during October 2020.

Income tax expense for 1H21 was $11 million (2H20: $3 million).

Net loss for 1H21 was $605 million, equivalent to a $6.03 loss per share (2H20: $2.9 billion net loss, or $29.02 loss per share).

Abbreviated Cash Flow Statement

(In US$ million)	1H21	2H20
Net cash used in operating activities	(64)	(142)
Net cash used in investing activities	(19)	(19)
Net cash used in financing activities	-	(139)
Effect of exchange rate changes on cash	4	3
Net decrease in cash and cash equivalents, including restricted cash	(79)	(297)
Cash and cash equivalents, including restricted cash, at beginning of the period	723	1,020
Cash and cash equivalents, including restricted cash, at the end of period	644	723

Net cash used in operating activities for 1H21 was $64 million (2H20: $142 million) a decrease of $78 million.

Cash flows from operating activities were negative, as cash receipts from customers in all segments were insufficient to cover operating costs, payments for long-term maintenance of rigs, interest payments and tax payments.

Net cash used in investing activities in 1H21 was $19 million (2H20: $19 million).

In 1H21, a $23 million loan was granted to our joint venture, Seamex and $13 million was spent on capital expenditure across our fleet. This was offset by $10 million of loan receipts from our joint venture, Seabras Sapura, and $7 million cash proceeds from the sale of the West Vigilant.

In 2H20, $22 million of cash was derecognized on deconsolidation of the SFL SPVs and $13 million was spent on capital expenditure across our fleet. This was offset by $16 million of contingent consideration cash receipts from Aquadrill (formerly Seadrill Partners).

Net cash used in financing activities in 1H21 was nil. In 2H20 we had a cash outflow of $139 million from $108 million of debt repayments by the SFL SPVs and $31 million from the purchase of AOD redeemable non-controlling interest.

Net decrease in cash in 1H21 was $79 million (2H20: $297 million) resulting in total cash and cash equivalents, including restricted cash

of $644 million as at 1H21 (2H20: $723 million).

Abbreviated Balance Sheet
(In US$ million)	1H21	2H20
Cash and cash equivalents	428	526
Restricted Cash	216	197
Other current assets	372	404
Non-current assets (excluding non-current restricted cash)	2,641	2,834
Total assets	3,657	3,961
Current liabilities	878	6,545
Liabilities subject to compromise	6,406	-
Non-current liabilities	113	556
Equity	(3,740)	(3,140)
Total liabilities and equity	3,657	3,961

Cash and cash equivalents including restricted cash was $644 million (2H20: $723 million), a decrease of $79 million that is discussed in detail above.

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