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. As at December 31, 2019 we owned and operated 35 offshore drilling units and an option to acquire one semi-submersible rig. 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 Drilling and 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.
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" or "US$") rounded to the nearest million, unless otherwise stated.
The accompanying Consolidated Financial Statements present the financial position of Seadrill Limited, the consolidated subsidiaries and the group’s interest in associated entities. 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 interest entities of which we are deemed to be the primary beneficiary.
Basis of consolidation
The Consolidated Financial Statements include the revenue, expenses, assets and liabilities of our principal holding company, our majority owned and controlled subsidiaries and certain variable interest entities (“VIE”s) in which we are deemed to be the primary beneficiary. Subsidiaries, even if fully owned, would be excluded from the Consolidated Financial Statements if we are not deemed to be the primary beneficiary as assessed under the variable interest model. All intercompany balances and transactions have been eliminated on consolidation.
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 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, (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 requires a VIE to be consolidated by its primary beneficiary, being the interest holder, if any, which has 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 we hold a variable interest, in order to determine whether we are the primary beneficiary of the entity, and where it is determined that we are the primary beneficiary we consolidate the entity. We have certain investments in the common stock or in-substance common stock of associated companies. Refer to Note 2 – Accounting policies for further information on our equity investments.
Bankruptcy accounting
As set out in Note 4 - Chapter 11 Proceedings, we 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"). 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 Chapter 11 reorganization process were classified on the Consolidated Balance Sheets within "Liabilities subject to compromise".
Fresh Start Reporting
Upon emergence from bankruptcy on July 2, 2018 (the "Effective Date"), in accordance with ASC 852 related to fresh start reporting, Seadrill Limited became a new entity for financial reporting purposes. Upon adoption of fresh start reporting, our assets and liabilities were recorded at their fair values. We elected to apply fresh start reporting effective July 2, 2018 (the “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 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", with the related predominantly deferred tax effects through "Income tax expense", during the period from January 1, 2018 through 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 be different from historical trends and the differences may be material.
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.
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.
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 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 assets and liabilities are translated using rates of exchange at the balance sheet date. Gains and losses on foreign currency transactions are included in the Consolidated Statements of Operations.
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 31 – 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. Refer to Note 7 - Revenue from Contracts with Customers.
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.
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 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, external management fees, and early termination fees. Refer to Note 8 – Other revenues.
Management fees - Revenues related to operation support and management services provided to Seadrill Partners, Seamex, Sonadrill & Northern Drilling. This includes both related and non-related companies.
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.
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 "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'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 is a Bermudan 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 exempt 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 12 – 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.
Loss per share
Basic loss per share (“LPS”) is calculated based on the loss for the period available to common stockholders divided by the weighted average number of shares outstanding. Diluted loss per share includes the effect of the assumed conversion of potentially dilutive instruments such as our restricted stock units. The determination of dilutive loss per share may require us to make adjustments to net loss and the weighted average shares outstanding. Refer to Note 13 – Loss per share.
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.
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 current.
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.
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 than one year are classified as non-current assets. Refer to Note 14 – 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 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 16 – Accounts receivable & Note 31 – Related party transactions.
Contract assets and liabilities
Accounts receivables (see above) are recognized when the right to consideration becomes unconditional based upon contractual billing schedules. If we are required to recognize revenue ahead of this point, we categorize the balance as a contract asset. 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.
Equity investments
Investments in common stock are accounted for using the equity method of accounting if the investment gives us the ability to exercise significant influence, but not control over, the investee. Significant influence is generally deemed to exist if our ownership interest in the voting stock of the investee is between 20% and 50%, although other factors such as representation on the investee’s Board of Directors and the nature of commercial arrangements are also considered. We classify our other equity investments either as "Marketable Securities" or "Investments in Associated Companies" depending on their nature. We classify 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 "Loss on Marketable Securities". Refer to Note 15 – Marketable securities and Note 18 – Investment in associated companies.
We analyze our equity method investments for impairment at each reporting period to evaluate whether an event or change in circumstances has occurred in that period that may have a significant adverse effect on the value of the investment. 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. If an impairment charge is recorded, subsequent recoveries in value are not reflected in earnings until sale of the equity method investee occurs.
All other equity investments, which consist of investments that do not gives us the ability to exercise significant influence as well as investments in equity instruments other than common stock, are accounted for at fair value, if readily determinable. If we can’t 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's is impaired. If an event or change in circumstances has occurred in that period that indicates that the investment's is impaired, then we record an impairment charge for the difference between the estimated fair value of the investment and 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 investments in associated companies for details.
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't 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 Chapter 11, the Newbuildings carrying value was adjusted to a fair value of nil. In addition, we have not capitalized interest since emergence as work on our Newbuild projects had substantially ceased. Refer to Note 5 – Fresh Start Accounting and Note 19 – Newbuildings.
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. The direct and incremental costs of significant capital projects, such as rig upgrades and reactivation projects, 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 20 – Drilling units.
Drilling units recognized through a business combination or through the application of fresh start accounting are measured at fair value as of the date of acquisition or the date of emergence, respectively. Cost of property and equipment sold or retired, with the related accumulated depreciation and write-downs are removed from the Consolidated Balance Sheet, and resulting gains or losses are included in the Consolidated Statement of Operations.
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, 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.
Equipment
Equipment is recorded at historical cost less accumulated depreciation 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 21 – Equipment.
Leases
Lessee - When we enter 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 leases classified as finance leases. 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 the 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 will adjust the measurement of the lease liability by the amount of payments made in the period as well as the unwinding of the discount over lease term using the interest method. After commencement date, we will subsequently adjust the measurement of the ROU asset by amortizing 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 will determine whether a ROU asset is impaired and shall recognize any impairment loss in accordance with the company policy on impairment of long-lived assets. If a ROU asset is determined to be impaired, then it will be measured at its carrying amount immediately after the impairment less any accumulated amortization. After a ROU asset has been impaired, we will unwind the remaining asset on a straight-line basis over the remaining lease term.
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 result 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 be the amount which the carrying value of the asset exceeds the discounted future net cash flows.
Other intangible assets and liabilities
Intangible assets and liabilities were recorded at fair value on the date of emergence less accumulated amortization. The amounts of these assets and liabilities less the estimated residual value, if any, is generally 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 to 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 17 – Other assets. Our intangible liabilities include unfavorable drilling contracts and unfavorable leasehold improvements. Refer to Note 23 – Other liabilities.
Prior to emergence, we classified the amortization of these intangible assets or liabilities within other revenues.
Derivative financial instruments and hedging activities
None of our derivative financial instruments have been formally designated as a hedging instruments, and therefore are recorded at fair value. Changes in 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 32 – Financial instruments and risk management and Note 33 - Fair values of financial instruments.
Trade payables
Trade payables are recorded in the balance sheet to recognize a liability to a supplier for a good or service they have provided 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 the amortization is included in interest expense. On emergence from Chapter 11, our loan costs were reduced to nil and we recorded a discount against our debt to reduce its carrying value to equal its fair value. The debt discount will be unwound over the remaining terms of the debt facilities. Refer to Note 5 – Fresh Start Accounting and Note 10 – 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 Chapter 11, we issued new debt instruments and the carrying values of our third-party debt liabilities were adjusted to fair value. Refer to Note 5 – Fresh start accounting and Note 22 – 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 record the service cost, as “Vessel and rig operating expenses” or as "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. 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. Refer to Note 30 - 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 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 34 – Commitments and 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 Chapter 11, we no longer had any treasury shares.
Share-based compensation
Since emerging from Chapter 11, we have made several awards under our employee benefit plan (see Note 29 – Share based compensation). We record an accounting charge equal to the fair value of awards that are expected to vest. The expense is classified as compensation cost and recognized ratably over the vesting period. The offsetting entry is recorded directly to equity.
Note 3 - Recent Accounting Standards
1) Recently adopted accounting standards
We adopted the following accounting standard updates ("ASUs") in the year:
a) ASU 2016-02 Leases (also 2018-10, 2018-11, 2018-20, 2019-01 & 2019-10)
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The update requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. It also offers 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 became effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years using a modified retrospective application.
We transitioned to the new standard using the modified retrospective approach as permitted by the standard. We determined that our drilling contracts contain a lease component (from a lessor perspective) as well as a revenue component. We have elected to apply the practical expedient provided to lessors and will not separate the lease and nonlease components within our drilling contracts. We will continue to apply the Topic 606 to our drilling contracts instead of Topic 842 because the nonlease component is the predominant component within our drilling contracts. As a result, our pattern of revenue recognition did not change significantly compared to prior accounting standards due to the adoption of this update.
In addition, within our operating leases, where we are lessees, we elected not to separate nonlease components from lease components and instead we account for each separate lease component and the nonlease components associated with that lease component as a single lease component in accordance with Topic 842. We have also elected not to apply the recognition requirements in Topic 842 to short-term leases, being leases lasting less than one year. Instead, we recognize short-term lease payments in our Consolidated Statement of Operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.
We recognized an aggregate lease liability of $25 million and a right-of-use asset of $23 million on adoption on January 1, 2019. There was no impact to our opening retained earnings as a result of adopting this update. Prior period amounts are not adjusted and continue to be reported in accordance with the previous guidance in Topic 840.
b) Other accounting standard updates
We additionally adopted the following accounting standard updates in the year which did not have any material impact on our Consolidated Financial Statements and related disclosures:
|
|
|
|
•
|
ASU 2018-07 Compensation - Stock compensation (Topic 718)
|
|
|
|
|
•
|
ASU 2018-16 Derivatives and Hedging (Topic 815)
|
2) Recently issued accounting standards
We have kept abreast of 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 2016-13 - Financial Instruments - Measurement of Credit Losses (Also 2019-04, 2019-05, 2019-10 & 2019-11)
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 to estimate expected lifetime credit losses (CECL model) on financial assets ranging from short term trade accounts receivable to long-term financings and modifies the impairment model for available-for-sale debt securities. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which provides additional guidance on the accounting for credit losses. In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, which provides transition guidance for entities to elect the fair value option of certain financial instruments. 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 process of evaluating the impact of this standard update. Financial assets held by us subject to evaluation under the CECL model include our external trade receivables and related party receivables (See Note 31 for details). Our external customers are international oil companies, national oil companies and large independent oil companies with high credit standing and with whom we have had a low incidence of bad debt expense. Therefore we do not expect this guidance to create any significant reserve on our external receivables. We are however expecting to establish an allowance on our loans and trade receivables due from related parties under the new guidance to reflect the current financial position of the counterparties. We estimate that we will record an initial reserve in the range of $75 - $135 million, which will be booked in a credit loss allowance account as an offset to equity. The allowance will be reassessed quarterly with any adjustment to the reserve recorded as credit loss expense in the P&L.
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 - 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. The guidance is expected to result in the following additional disclosures; 1) 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 reporting period; 2) The range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements; 3) For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, a reconciliation from the opening balances to the closing balances for each class of assets and liabilities, except for derivative assets and liabilities, which may be presented net. We continue to evaluate the impact of this standard update on our consolidated financial statements and related disclosures.
c) 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.
d) 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.
e) 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. We are in the process of evaluating the impact of this standard update on our consolidated financial statements and related disclosures.
f) ASU 2019-08 Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606)
In November 2019, the FASB issued ASU 2019-08. The amendments in this Update require that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded as a reduction of the transaction price is required to be measured on the basis of the grant-date fair value of the share-based payment award in accordance with Topic 718, not as a reduction of transaction price at contract inception under ASC 606. 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.
g) 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 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.
h) Other accounting standard updates issued by the FASB
As of February 29, 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 - Chapter 11 Proceedings
In this note we have provided an overview of our Chapter 11 Reorganization and related transactions.
Overview
Prior to the filing of 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 "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 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 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.
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 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.
|
|
|
|
|
◦
|
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.
|
This is summarized in the below table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
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
|
%
|
|
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
|
%
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Professional and advisory fees
|
—
|
|
|
(9
|
)
|
|
|
(187
|
)
|
|
(66
|
)
|
|
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
|
|
|
—
|
|
|
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
|
|
|
Total reorganization items, net
|
—
|
|
|
(9
|
)
|
|
|
(3,365
|
)
|
|
(1,337
|
)
|
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 Chapter 11 filing.
ii. New investor commitment fees
Commitment fee of 5% of the committed funds agreed under the terms of the investment agreement.
iii. 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.
iv. Gain on liabilities subject to compromise
On emergence from Chapter 11 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 5 – Fresh Start Accounting for further information.
v. Fresh start valuation adjustments
On emergence from Chapter 11, 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 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 5 – Fresh Start Accounting for further information.
vi. 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.
vii. 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.
viii. Interest income on surplus cash invested
Interest income recognized on cash held within entities that had filed for Chapter 11.
Note 5 – Fresh Start Accounting
Fresh Start Accounting
Upon emergence from bankruptcy, 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 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. 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 of 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 projects 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 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 WACC as follows:
|
|
|
|
|
|
|
Investment
|
WACC
|
|
|
Seadrill Capricorn Holdings LLC
|
11.4
|
%
|
|
Seadrill Operating LP
|
12.0
|
%
|
|
Seadrill Deepwater Drillship Ltd
|
12.0
|
%
|
|
Seabras Sapura Holding
|
14.3
|
%
|
|
Seabras Sapura Participacoes
|
13.7
|
%
|
|
SeaMex
|
12.7
|
%
|
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 from the discounted cash flow model was crosschecked against 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 deem the implied control premium to be 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 amortizing 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.
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 value
|
11,056
|
|
|
Less: non-controlling interest
|
(154
|
)
|
|
Less: fair value of debt
|
(7,301
|
)
|
|
Less: fair value of other non-operating liabilities
|
(108
|
)
|
|
Add: fair value of tax attributes
|
8
|
|
|
Fair value of Successor common stock issued upon emergence
|
3,501
|
|
|
|
|
|
Shares issued and outstanding on July 2, 2018
|
100.0
|
|
|
Per share value
|
35.01
|
|
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 value
|
11,056
|
|
|
Add: other working capital liabilities
|
478
|
|
|
Add: other non-current operating liabilities
|
57
|
|
|
Add: fair value of tax attributes
|
8
|
|
|
Add: redeemable non-controlling interest
|
30
|
|
|
Total reorganization value
|
11,629
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 1, 2018
|
|
(In $ millions)
|
Predecessor Company
|
|
|
Reorganization Adjustments
|
|
|
Fresh Start Adjustments
|
|
|
Successor Company
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
809
|
|
|
790
|
|
(a)
|
—
|
|
|
1,599
|
|
|
Restricted cash
|
409
|
|
|
169
|
|
(a)
|
—
|
|
|
578
|
|
|
Marketable securities
|
121
|
|
|
—
|
|
|
—
|
|
|
121
|
|
|
Accounts receivable, net
|
272
|
|
|
—
|
|
|
—
|
|
|
272
|
|
|
Amount due from related parties - current
|
181
|
|
|
—
|
|
|
14
|
|
(l)
|
195
|
|
|
Other current assets
|
247
|
|
|
—
|
|
|
181
|
|
(m)
|
428
|
|
|
Total current assets
|
2,039
|
|
|
959
|
|
|
195
|
|
|
3,193
|
|
|
Investment in associated companies
|
1,615
|
|
|
—
|
|
|
(687
|
)
|
(n)
|
928
|
|
|
Newbuildings
|
249
|
|
|
—
|
|
|
(249
|
)
|
(o)
|
—
|
|
|
Drilling units
|
12,531
|
|
|
—
|
|
|
(5,734
|
)
|
(p)
|
6,797
|
|
|
Deferred tax assets
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
Equipment
|
35
|
|
|
—
|
|
|
(6
|
)
|
(q)
|
29
|
|
|
Amount due from related parties - non-current
|
565
|
|
|
—
|
|
|
11
|
|
(r)
|
576
|
|
|
Assets held for sale - non-current
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other non-current assets
|
3
|
|
|
—
|
|
|
95
|
|
(s)
|
98
|
|
|
Total assets
|
17,045
|
|
|
959
|
|
|
(6,375
|
)
|
|
11,629
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Debt due within one year
|
90
|
|
|
—
|
|
|
(33
|
)
|
(t)
|
57
|
|
|
Trade accounts payable
|
96
|
|
|
17
|
|
(b)
|
—
|
|
|
113
|
|
|
Amounts due to related parties - current
|
4
|
|
|
4
|
|
(c)
|
—
|
|
|
8
|
|
|
Other current liabilities
|
229
|
|
|
100
|
|
(d)
|
32
|
|
(u)
|
361
|
|
|
Total current liabilities
|
419
|
|
|
121
|
|
|
(1
|
)
|
|
539
|
|
|
Liabilities subject to compromise
|
9,050
|
|
|
(9,050
|
)
|
(e)
|
—
|
|
|
—
|
|
|
Long-term debt
|
856
|
|
|
6,292
|
|
(f)
|
(104
|
)
|
(t)
|
7,044
|
|
|
Long-term debt due to related parties
|
294
|
|
|
—
|
|
|
(94
|
)
|
(v)
|
200
|
|
|
Deferred tax liabilities
|
105
|
|
|
—
|
|
|
(6
|
)
|
(w)
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 1, 2018
|
|
(In $ millions)
|
Predecessor Company
|
|
|
Reorganization Adjustments
|
|
|
Fresh Start Adjustments
|
|
|
Successor Company
|
|
|
Other non-current liabilities
|
57
|
|
|
3
|
|
(b)
|
2
|
|
(x)
|
62
|
|
|
Total non-current liabilities
|
1,312
|
|
|
6,295
|
|
|
(202
|
)
|
|
7,405
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable non-controlling interest
|
25
|
|
|
—
|
|
|
5
|
|
(y)
|
30
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Predecessor common shares
|
1,008
|
|
|
(1,008
|
)
|
(g)
|
—
|
|
|
—
|
|
|
Predecessor additional paid-in capital
|
3,316
|
|
|
(3,322
|
)
|
(g)
|
—
|
|
|
—
|
|
|
|
|
|
6
|
|
(h)
|
|
|
|
|
Predecessor contributed surplus
|
1,956
|
|
|
(1,956
|
)
|
(g)
|
—
|
|
|
—
|
|
|
Predecessor accumulated other comprehensive income
|
41
|
|
|
—
|
|
|
(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' equity
|
6,175
|
|
|
3,700
|
|
|
(6,374
|
)
|
|
3,501
|
|
|
Non-controlling interest
|
64
|
|
|
(107
|
)
|
(k)
|
197
|
|
(bb)
|
154
|
|
|
Total equity
|
6,239
|
|
|
3,593
|
|
|
(6,177
|
)
|
|
3,655
|
|
|
Total liabilities and equity
|
17,045
|
|
|
959
|
|
|
(6,375
|
)
|
|
11,629
|
|
Reorganization Adjustments:
|
|
|
|
(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 commitment
|
200
|
|
|
Payment to newbuild counterparty members
|
(18
|
)
|
|
Amendment consent fees to senior secured creditors
|
(26
|
)
|
|
Funding of the escrow account for Senior Secured Notes collateral
|
(227
|
)
|
|
Payment of closing fees for the debt commitment
|
(9
|
)
|
|
Payment new commitment parties fee
|
(1
|
)
|
|
Payment to the bank coordinating committee
|
(4
|
)
|
|
Change in cash and cash equivalents
|
790
|
|
|
|
|
|
(1)
|
Pursuant to the Investment Agreement, on the Effective Date we received cash of $875 million for the issuance of Senior 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 Senior Secured Notes
|
227
|
|
|
Payment of post confirmation accrued professional fees in connection with emergence
|
(31
|
)
|
|
Payment of success fees incurred upon emergence
|
(22
|
)
|
|
Distribution from the cash pool to general unsecured claims
|
(2
|
)
|
|
Payment of unsecured creditor committee advisor fees
|
(3
|
)
|
|
Change in restricted cash
|
169
|
|
|
|
|
|
(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 emergence
|
28
|
|
|
Undistributed cash pool balance for general unsecured claims on emergence
|
35
|
|
|
Cash payment made for post confirmation accrued professional fees in connection with emergence
|
(31
|
)
|
|
Reinstatement of other current liabilities as part of liabilities subject to compromise
|
64
|
|
|
Amendment fees on SFL loans accrued upon emergence
|
4
|
|
|
Change in other liabilities
|
100
|
|
(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 debt
|
5,266
|
|
|
Unsecured bonds
|
2,334
|
|
|
Newbuild claims
|
1,064
|
|
|
Accrued interest payable
|
49
|
|
|
Derivatives previously recorded at fair value
|
249
|
|
|
Accounts payable and other liabilities
|
84
|
|
|
Amount due to related party
|
4
|
|
|
Liabilities subject to compromise
|
9,050
|
|
|
Less: Distribution from cash pool to holders of general unsecured claims on emergence
|
(2
|
)
|
|
Less: Undistributed cash pool balance for holders of general unsecured claims on emergence
|
(35
|
)
|
|
Less: Payment to newbuild counterparty members
|
(17
|
)
|
|
Less: Fair value of equity issued to holders of general unsecured claims
|
(498
|
)
|
|
Less: Reinstatement of amount due to related party
|
(4
|
)
|
|
Less: Reinstatement of trade accounts payable
|
(84
|
)
|
|
Less: Reinstatement of senior undersecured or impaired external debt
|
(5,266
|
)
|
|
Less: Recognition of adequate protection payments on senior undersecured or impaired external debt
|
(186
|
)
|
|
Gain on settlement of liabilities subject to compromise
|
2,958
|
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
(In $ millions)
|
|
|
Reinstated Senior undersecured or impaired external debt
|
5,266
|
|
|
Recognition of adequate protection payments
|
186
|
|
|
Lender consent fee
|
(26
|
)
|
|
Total reinstated senior secured credit facilities
|
5,426
|
|
|
Issuance of Senior Secured Notes
|
880
|
|
|
Capitalized pre-issuance interest for Senior Secured Notes for 8% paid-in kind
|
10
|
|
|
Debt issuance cost in related to the issuance of the Senior Secured Notes
|
(9
|
)
|
|
Discount on Senior 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
|
)
|
|
Net increase in long-term debt
|
6,292
|
|
|
|
|
|
(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
|
|
|
|
|
|
|
|
(In $ millions)
|
|
|
Gain on settlement of liabilities subject to compromise
|
2,958
|
|
|
Cancellation of predecessor common stock, contributed surplus, and additional paid in capital
|
6,286
|
|
|
Recognition of unamortized stock compensation expense upon cancellation of the Predecessor Company common stock, contributed surplus, and additional paid in capital
|
(6
|
)
|
|
Fair value of Successor Common Shares issued upon emergence
|
(2,176
|
)
|
|
Success fees incurred upon emergence
|
(51
|
)
|
|
New Commitment Parties, bank coordinating committee, and unsecured creditor committee advisor fees
|
(8
|
)
|
|
Elimination of NADL and Sevan non-controlling interest
|
107
|
|
|
Total change in predecessor retained (loss)/earnings
|
7,110
|
|
|
|
|
|
(j)
|
Reflects the issuance of 23,750,000 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.
|
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.
|
|
|
|
|
(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 Senior Secured Notes, unamortized debt issuance cost and lender consent fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
|
|
|
|
As at July 2, 2018
|
Senior Secured Notes
|
|
|
Senior Secured Credit Facilities
|
|
|
Ship Finance Loans
|
|
|
Total
|
|
|
Carrying value after reorganization adjustments
|
866
|
|
|
5,636
|
|
|
736
|
|
|
7,238
|
|
|
Adjustments to record debt at fair value:
|
|
|
|
|
|
|
—
|
|
|
Write-off of unamortized debt issuance costs
|
9
|
|
|
26
|
|
|
1
|
|
|
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 emergence
|
890
|
|
|
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 information
Operating segments
We provide drilling and related services to the offshore oil and gas industry. We have three operating segments:
|
|
|
|
1.
|
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;
|
|
|
|
|
2.
|
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 in shallow waters; and
|
|
|
|
|
3.
|
Other: Operations including management services to third parties and related parties. Income and expenses from these management services are classified under this segment.
|
Segment results are evaluated on the basis of operating income and the information given below is based on information used for internal management reporting.
Total operating revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Floaters
|
686
|
|
|
322
|
|
|
|
482
|
|
|
1,387
|
|
|
Jack-up rigs
|
362
|
|
|
167
|
|
|
|
193
|
|
|
617
|
|
|
Other
|
340
|
|
|
52
|
|
|
|
37
|
|
|
84
|
|
|
Total
|
1,388
|
|
|
541
|
|
|
|
712
|
|
|
2,088
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Floaters
|
346
|
|
|
190
|
|
|
|
298
|
|
|
601
|
|
|
Jack-up rigs
|
80
|
|
|
46
|
|
|
|
93
|
|
|
197
|
|
|
Total
|
426
|
|
|
236
|
|
|
|
391
|
|
|
798
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Floaters
|
106
|
|
|
37
|
|
|
|
—
|
|
|
—
|
|
|
Jack-ups
|
28
|
|
|
21
|
|
|
|
—
|
|
|
—
|
|
|
Total
|
134
|
|
|
58
|
|
|
|
—
|
|
|
—
|
|
Operating profit/(loss) - net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Floaters
|
(340
|
)
|
|
(161
|
)
|
|
|
(446
|
)
|
|
(622
|
)
|
|
Jack-up Rigs
|
23
|
|
|
(16
|
)
|
|
|
(167
|
)
|
|
(112
|
)
|
|
Other
|
22
|
|
|
2
|
|
|
|
—
|
|
|
6
|
|
|
Operating loss
|
(295
|
)
|
|
(175
|
)
|
|
|
(613
|
)
|
|
(728
|
)
|
|
Unallocated items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial items and other
|
(966
|
)
|
|
(422
|
)
|
|
|
(3,242
|
)
|
|
(2,308
|
)
|
|
Loss before income taxes
|
(1,261
|
)
|
|
(597
|
)
|
|
|
(3,855
|
)
|
|
(3,036
|
)
|
Drilling assets - Total assets
Total assets by operating segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Floaters
|
5,297
|
|
|
5,508
|
|
|
Jack-up Rigs
|
1,104
|
|
|
1,151
|
|
|
Total Drilling Units and Newbuildings
|
6,401
|
|
|
6,659
|
|
|
|
|
|
|
|
Unallocated items:
|
|
|
|
|
Investments in Associated companies
|
389
|
|
|
800
|
|
|
Marketable securities
|
11
|
|
|
57
|
|
|
Cash and restricted cash
|
1,357
|
|
|
2,003
|
|
|
Other assets
|
1,121
|
|
|
1,329
|
|
|
Total
|
9,279
|
|
|
10,848
|
|
Drilling units - Capital expenditures (1)
Capital expenditure by operating segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Floaters
|
139
|
|
|
74
|
|
|
|
93
|
|
|
128
|
|
|
Jack-ups
|
23
|
|
|
24
|
|
|
|
24
|
|
|
22
|
|
|
Total
|
162
|
|
|
98
|
|
|
|
117
|
|
|
150
|
|
|
|
|
|
(1)
|
The successor periods include additions to equipment
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Norway
|
469
|
|
|
117
|
|
|
|
82
|
|
|
219
|
|
|
Nigeria
|
198
|
|
|
108
|
|
|
|
105
|
|
|
193
|
|
|
Brazil
|
137
|
|
|
91
|
|
|
|
188
|
|
|
358
|
|
|
Saudi Arabia
|
130
|
|
|
78
|
|
|
|
79
|
|
|
159
|
|
|
United States
|
74
|
|
|
34
|
|
|
|
30
|
|
|
291
|
|
|
Angola
|
215
|
|
|
29
|
|
|
|
100
|
|
|
482
|
|
|
Others (1)
|
165
|
|
|
84
|
|
|
|
128
|
|
|
386
|
|
|
Total Revenue
|
1,388
|
|
|
541
|
|
|
|
712
|
|
|
2,088
|
|
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Norway
|
1,818
|
|
|
1,326
|
|
|
Malaysia
|
805
|
|
|
1,070
|
|
|
USA
|
644
|
|
|
658
|
|
|
Spain
|
615
|
|
|
875
|
|
|
Brazil
|
332
|
|
|
688
|
|
|
Others (2)
|
2,187
|
|
|
2,042
|
|
|
Total
|
6,401
|
|
|
6,659
|
|
|
|
|
|
(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.
|
Major customers
In the years ended December 31, 2019, the period from July 2, 2018 through December 31, 2018 (Successor), the period from January 1, 2018 through July 1, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor), we had the following customers with total revenues greater than 10% in any of the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Total
|
18
|
%
|
|
24
|
%
|
|
|
19
|
%
|
|
23
|
%
|
|
Equinor
|
16
|
%
|
|
7
|
%
|
|
|
5
|
%
|
|
4
|
%
|
|
Northern Drilling
|
12
|
%
|
|
—
|
%
|
|
|
—
|
%
|
|
—
|
%
|
|
ConocoPhillips
|
11
|
%
|
|
13
|
%
|
|
|
8
|
%
|
|
6
|
%
|
|
Saudi Aramco
|
10
|
%
|
|
14
|
%
|
|
|
11
|
%
|
|
8
|
%
|
|
Petrobras
|
7
|
%
|
|
10
|
%
|
|
|
23
|
%
|
|
17
|
%
|
|
LLOG
|
4
|
%
|
|
6
|
%
|
|
|
4
|
%
|
|
14
|
%
|
|
ExxonMobil
|
—
|
%
|
|
—
|
%
|
|
|
10
|
%
|
|
7
|
%
|
Note 7 - Revenue from Contracts with Customers
The following table provides information about receivables, contract assets and contract liabilities from our contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
Successor
|
|
(In $ millions)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Accounts receivable, net
|
|
173
|
|
|
208
|
|
|
Current contract assets (1)
|
|
—
|
|
|
1
|
|
|
Non-current contract assets (1)
|
|
—
|
|
|
—
|
|
|
Current contract liabilities (deferred revenues) (1)
|
|
(20
|
)
|
|
(12
|
)
|
|
Non-current contract liabilities (deferred revenues) (1)
|
|
(9
|
)
|
|
(9
|
)
|
|
|
|
|
(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, 2019 (Successor).
|
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 through December 31, 2018 (Successor) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
|
Contract Assets
|
|
Contract Liabilities
|
|
Net Contract
Balances
|
|
Net contract liability at January 1, 2018 (Predecessor)
|
|
7
|
|
|
(55
|
)
|
|
(48
|
)
|
|
Amortization of revenue that was included in the beginning contract liability balance
|
|
—
|
|
|
25
|
|
|
25
|
|
|
Cash received, excluding amounts recognized as revenue
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
Cash received against the beginning contract asset balance
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
|
Contract assets recognized during the period
|
|
9
|
|
|
—
|
|
|
9
|
|
|
Net contract liability at July 1, 2018 (Predecessor)
|
|
9
|
|
|
(32
|
)
|
|
(23
|
)
|
|
Fresh start adjustments
|
|
—
|
|
|
32
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net contract asset at July 2, 2018 (Successor)
|
|
9
|
|
|
—
|
|
|
9
|
|
|
Cash received, excluding amounts recognized as revenue
|
|
—
|
|
|
(21
|
)
|
|
(21
|
)
|
|
Cash received against the beginning contract asset balance
|
|
(9
|
)
|
|
—
|
|
|
(9
|
)
|
|
Contract assets recognized during the period
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Net contract liability at December 31, 2018 (Successor)
|
|
1
|
|
|
(21
|
)
|
|
(20
|
)
|
Significant changes in the contract assets and the contract liabilities balances during the year ended December 31, 2019 (Successor) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
|
Contract Assets
|
|
Contract Liabilities
|
|
Net Contract
Balances
|
|
Net contract liability at January 1, 2019 (Successor)
|
|
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
|
)
|
|
Contract assets recognized during the period
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net contract liability at December 31, 2019 (Successor)
|
|
—
|
|
|
(29
|
)
|
|
(29
|
)
|
Deferred revenue - The deferred revenue balance of $20 million reported in "Other current liabilities" at December 31, 2019 (Successor) is expected to be realized within the next twelve months and $9 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 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, 2019. The actual timing of recognition of such amounts may vary due to factors outside of our control.
Note 8 – Other revenues
Other revenues consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Related party management fees
|
109
|
|
|
46
|
|
|
|
43
|
|
|
110
|
|
|
Other management fees
|
6
|
|
|
—
|
|
|
|
—
|
|
|
1
|
|
|
Leasing revenues
|
1
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Amortization of unfavorable contracts
|
—
|
|
|
—
|
|
|
|
21
|
|
|
43
|
|
|
Early termination fees
|
11
|
|
|
—
|
|
|
|
8
|
|
|
8
|
|
|
Total other revenues
|
127
|
|
|
46
|
|
|
|
72
|
|
|
162
|
|
Related party revenues
Related party revenues relate to management support and administrative services provided during the year to Seadrill Partners, SeaMex, Northern Drilling and Sonadrill. Refer to Note 31 - Related party transactions for more information.
Other management fees
Revenue from management services provided to third parties.
Leasing revenues
Revenue earned on the charter of the West Castor to Gulfdrill.
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 Chapter 11 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 Chapter 11 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.
Early termination fees
The termination fee revenue in the year ended December 31, 2019 relates to the fees recognized for the West Jupiter and West Castor, the period from January 1, 2018 through July 1, 2018 relates to the fees recognized for the West Pegasus and the termination revenue in 2017 relates to the West Hercules.
Note 9 – Other operating items
Other operating items consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Impairment of long lived assets (i)
|
—
|
|
|
—
|
|
|
|
(414
|
)
|
|
(696
|
)
|
|
Loss on disposals (ii)
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(245
|
)
|
|
Other operating income (iii)
|
39
|
|
|
21
|
|
|
|
7
|
|
|
27
|
|
|
Total other operating items
|
39
|
|
|
21
|
|
|
|
(407
|
)
|
|
(914
|
)
|
i. Impairment of long lived assets
In the year ended December 31, 2017 (Predecessor), as part of the Chapter 11 reorganization, 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 newbuild assets for these rigs. We also recorded a reorganization expense of $1,064 million for the allowed claim.
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 three of our older rigs.
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.
ii. Loss on disposals
There were no loss on asset disposals in the years ended December 31, 2019 (Successor) or 2018 (Successor). There was a loss on disposal for the year ended December 31, 2017 (Predecessor) which comprised the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
Net proceeds/recoverable amount
|
|
|
Book value on
disposal
|
|
|
Loss
|
|
|
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, 2017 (Predecessor)
|
351
|
|
|
596
|
|
|
(245
|
)
|
1) 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.
2) 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.
3) 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.
iii. Other operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31, 2017
|
|
|
Loss of hire insurance settlement (a)
|
|
10
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Receipt of overdue receivable (b)
|
|
26
|
|
|
21
|
|
|
|
—
|
|
|
—
|
|
|
Contingent consideration (c)
|
|
—
|
|
|
—
|
|
|
|
7
|
|
|
27
|
|
|
Settlement with shipyard
|
|
3
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Total other operating income
|
|
39
|
|
|
21
|
|
|
|
7
|
|
|
27
|
|
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 receivable
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 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 and year ended 2019.
Note 10 – Interest expense
Interest expense consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
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
|
(440
|
)
|
|
(237
|
)
|
|
|
(37
|
)
|
|
(286
|
)
|
|
Unwind of discount debt
|
(47
|
)
|
|
(24
|
)
|
|
|
—
|
|
|
—
|
|
|
Loan fee amortization
|
—
|
|
|
—
|
|
|
|
(1
|
)
|
|
(27
|
)
|
|
Capitalized interest
|
—
|
|
|
—
|
|
|
|
—
|
|
|
28
|
|
|
Interest expense
|
(487
|
)
|
|
(261
|
)
|
|
|
(38
|
)
|
|
(285
|
)
|
1) 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
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
|
(327
|
)
|
|
(162
|
)
|
|
|
(116
|
)
|
|
(320
|
)
|
|
Less: adequate protection payments
|
—
|
|
|
—
|
|
|
|
104
|
|
|
81
|
|
|
Senior Secured Notes
|
(66
|
)
|
|
(50
|
)
|
|
|
—
|
|
|
—
|
|
|
Debt of consolidated variable interest entities
|
(47
|
)
|
|
(25
|
)
|
|
|
(25
|
)
|
|
(47
|
)
|
|
Cash and payment-in-kind interest
|
(440
|
)
|
|
(237
|
)
|
|
|
(37
|
)
|
|
(286
|
)
|
We are charged interest on our senior credit facilities at LIBOR plus a margin. For periods after July 2, 2018, this margin increased by one percentage point following the emergence from Chapter 11. There has also been an increase in LIBOR rates, which when combined with the additional post-emergence margin, has led to an increased effective interest rate on our senior credit facilities in the year ended 2019.
During the period we were in Chapter 11 (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 Chapter 11.
On emergence from Chapter 11 we issued $880 million of Senior 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.
Our Consolidated Balance Sheet includes approximately $0.6 billion of debt facilities held by subsidiaries of Ship Finance that we consolidate as variable interest entities. Our interest expense includes the interest incurred by these entities on those facilities.
2) Unwind of discount on debt
On emergence from Chapter 11 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 is unwound over the remaining terms of the debt facilities.
3) 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. No new debt facilities have been entered into since emerging from Chapter 11.
4) Capitalized interest
We capitalize the interest cost incurred to finance Newbuilds. This ceased when we filed for Chapter 11 on September 12, 2017. No Newbuild finance has been entered into since emerging from Chapter 11.
Note 11 – Impairment loss on investments in associated companies
Each reporting period, we are required to consider (i) whether there have been any indicators of ’other than temporary impairment’ (“OTTI”) of our equity method investments and (ii) whether there has been an impairment of investments held at cost less impairment. We record an impairment charge 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.
We have recognized the following impairments on investments in associated companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Impairments of Investment in associated companies and joint ventures (refer to Note 18)
|
|
|
|
|
|
|
|
|
|
Seadrill Partners - Direct ownership investments
|
248
|
|
|
—
|
|
|
|
—
|
|
|
723
|
|
|
Seadrill Partners - Subordinated units
|
—
|
|
|
—
|
|
|
|
—
|
|
|
82
|
|
|
Seadrill Partners - Seadrill member interest and IDRs
|
54
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
SeaMex Limited
|
—
|
|
|
—
|
|
|
|
—
|
|
|
36
|
|
|
Total impairment of investments in associated companies and joint ventures
|
302
|
|
|
—
|
|
|
|
—
|
|
|
841
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment of investments
|
302
|
|
|
—
|
|
|
|
—
|
|
|
841
|
|
Impairment loss recognized for the year ended December 31, 2019 (Successor)
1) Seadrill Partners
Seadrill Partners primary debt finance comes from a $2.6 billion Term Loan B (“TLB”) which comes due for repayment in February 2021 and will need to be refinanced. There has been a decrease in the share price of Seadrill Partners common units since November 2018 which culminated in the common units being suspended from trading on the NYSE in August 2019 as the market capitalization decreased below $15 million for a period of 30 consecutive days. We interpreted this decrease in share price as both (i) an indicator of OTTI for the subordinated units and direct interests and (ii) an impairment indicator for the IDRs.
Having identified an indicator of OTTI, we were required to value our investments in Seadrill Partners to calculate the impairment. At the time of the impairment review, we calculated the fair value of our investments in Seadrill Partners direct interests and IDRs to be $134 million and nil, compared to pre-impairment book values of $382 million and $54 million respectively. As a result, we recorded an impairment charge of $302 million. We have recognized the impairment of these investments within “Loss on impairment of investments” in our Consolidated Statement of Operations for the year ended December 31, 2019.
We valued our investments in the direct interests using an income approach which discounted future free cash flows (“DCF model”). 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 between 11.25-12.25%. The DCF model derived an enterprise value of the OPCOs, after which associated debt was subtracted to provide equity values. 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 inputs based on our best judgments and assumptions available at the time of performing the impairment test.
The underlying assumptions used to model future rig cash flows used a methodology that examined historical data for each rig, considering the rig’s age, rated water depth and other attributes and then assessed its future marketability considering the current and projected market environment at the time of assessment. Other assumptions, such as operating, maintenance and inspection costs, were estimated using historical data adjusted for known developments and future events that are anticipated by management at the time of the assessment. These 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.
We valued our IDR investments using an option pricing model. The assumptions used in the 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 values different tranches in the capital structure in sequence of seniority. We employ significant judgment in developing these estimates and assumptions.
Impairment loss recognized for the year ended December 31, 2017 (Predecessor)
1) Seadrill Partners
In 2017, there was a sustained decrease in the trading price of Seadrill Partners common units, which we determined to be an indicator of other than temporary impairment against our equity method investments in Seadrill Partners. We therefore performed an impairment test at December 31, 2017. The findings of the review were that (i) the carrying value of the subordinated units exceeded the fair value by $82 million, and the carrying value of the direct ownership interests exceeded 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 a DCF model. The estimated future free cash flows associated with the investments were 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 assumptions used in the DCF model were derived from significant unobservable inputs (representative of level 3 inputs for fair value measurement) and were based on management’s judgments and assumptions available at the time of performing the impairment test. We employed significant judgment in developing these estimates and assumptions.
2) 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 was 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 a 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.
Note 12 – Taxation
Income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Current tax (benefit)/expense:
|
|
|
|
|
|
|
|
|
|
Bermuda
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Foreign
|
22
|
|
|
30
|
|
|
|
34
|
|
|
56
|
|
|
Deferred tax (benefit)/expense:
|
|
|
|
|
|
|
|
|
|
Bermuda
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Foreign
|
(61
|
)
|
|
(22
|
)
|
|
|
(4
|
)
|
|
10
|
|
|
Total tax (benefit)/expense
|
(39
|
)
|
|
8
|
|
|
|
30
|
|
|
66
|
|
|
Effective tax rate
|
3.1
|
%
|
|
(1.3
|
)%
|
|
|
(0.8
|
)%
|
|
(2.2
|
)%
|
The effective tax rate for 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 3.1%, (1.3)% and (0.8)% respectively. For the year ended December 31, 2017 (Predecessor) the rate was (2.2)%.
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 it might have losses in others.
The income taxes for the year ended December 31, 2019 (Successor), the period from July 2, 2018 through December 31, 2018 (Successor), the period from January 1, 2018 through July 1, 2018 (Predecessor) and the year ended December 31, 2017 (Predecessor) differed from the amount computed by applying the Bermudan statutory income tax rate of 0% as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Income taxes at statutory rate
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Effect of change on unrecognized tax benefits
|
(6
|
)
|
|
49
|
|
|
|
12
|
|
|
(5
|
)
|
|
Effect of unremitted earnings of subsidiaries
|
(17
|
)
|
|
(10
|
)
|
|
|
—
|
|
|
3
|
|
|
Effect of taxable income in various countries
|
(16
|
)
|
|
(31
|
)
|
|
|
18
|
|
|
68
|
|
|
Total tax (benefit)/expense
|
(39
|
)
|
|
8
|
|
|
|
30
|
|
|
66
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Pensions and stock options
|
2
|
|
|
4
|
|
|
Provisions
|
30
|
|
|
28
|
|
|
Net operating losses carried forward
|
259
|
|
|
263
|
|
|
Gross deferred tax assets
|
291
|
|
|
295
|
|
|
Valuation allowance
|
(255
|
)
|
|
(254
|
)
|
|
Deferred tax assets, net of valuation allowance
|
36
|
|
|
41
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
December 31,
2019
|
|
|
December 31,
2018
|
|
|
Property, plant and equipment
|
30
|
|
|
49
|
|
|
Unremitted Earnings of Subsidiaries
|
10
|
|
|
27
|
|
|
Intangibles
|
4
|
|
|
34
|
|
|
Gross deferred tax liabilities
|
44
|
|
|
110
|
|
|
Net deferred tax liability
|
(8
|
)
|
|
(69
|
)
|
As at December 31, 2019 (Successor), deferred tax assets related to net operating loss (“NOL”) carry forwards was $259 million (December 31, 2018 (Successor): $263 million), which can be used to offset future taxable income. NOL carry forwards which were generated in various jurisdictions, include $249 million (December 31, 2018 (Successor): $257 million) that will not expire and $10 million (December 31, 2018 (Successor): $6 million) that will expire between 2021 and 2039 if unutilized.
As at December 31, 2019 (Successor), deferred tax liability related to intangibles from the application of fresh start accounting was $4 million (December 31, 2018 (Successor): $34 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 valuation allowance consists of $259 million on NOL carry forwards as at December 31, 2019 (Successor) (December 31, 2018 (Successor): $242 million).
Uncertain tax positions
As at December 31, 2019 (Successor), we had a total amount of unrecognized tax benefits of $89 million excluding interest and penalties of which $65 million was included in other non-current liabilities, and $24 million was presented as a reduction of deferred tax assets. The changes to our balance related to unrecognized tax benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Balance at the beginning of the period
|
132
|
|
|
61
|
|
|
|
55
|
|
|
44
|
|
|
Increases as a result of positions taken in prior periods
|
8
|
|
|
69
|
|
|
|
7
|
|
|
23
|
|
|
Increases as a result of positions taken during the current period
|
29
|
|
|
18
|
|
|
|
1
|
|
|
—
|
|
|
Decreases as a result of positions taken in prior periods
|
(34
|
)
|
|
(9
|
)
|
|
|
(2
|
)
|
|
(9
|
)
|
|
Decreases as a result of positions taken in the current period
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Decreases due to settlements
|
(46
|
)
|
|
(7
|
)
|
|
|
—
|
|
|
(3
|
)
|
|
Balance at the end of the period
|
89
|
|
|
132
|
|
|
|
61
|
|
|
55
|
|
Accrued interest and penalties totaled $18 million and $26 million as of December 31, 2019 (Successor) and December 31, 2018 (Successor) respectively and were included in "Other liabilities" on our Consolidated Balance Sheets. We recognized expenses of $7 million, $11 million and $3 million during 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)), 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, 2019 (Successor), $83 million of our unrecognized tax benefits, including penalties and interest, would have a favorable impact to the Company’s effective tax rate if recognized.
The decrease in our unrecognized tax benefits was primarily related to recognizing the U.S. position following a guidance from the U.S. Department of Treasury. The liability for the U.S. unrecognized tax benefit was originally recorded in the fourth quarter of 2018.
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. During the year ended December 31, 2019, the Company posted approximately $83 million collateral with a financial institution in order to continue the appeal against certain tax years. The collateral is included in "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 Chapter 11 process 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 U.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.
The following table summarizes the earliest tax years that remain subject to examination by other major taxable jurisdictions in which we operate.
|
|
|
|
|
|
Jurisdiction
|
Earliest Open Year
|
|
Angola
|
2015
|
|
Nigeria
|
2014
|
|
United States
|
2016
|
|
Norway
|
2015
|
|
Brazil
|
2008
|
Note 13 – Loss per share
The computation of basic loss per share (“LPS”) is based on the weighted average number of shares outstanding during the period. Diluted LPS includes the effect of the assumed conversion of potentially dilutive instruments.
The components of the numerator for the calculation of basic and diluted LPS are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
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 attributable to the parent
|
(1,219
|
)
|
|
(602
|
)
|
|
|
(3,881
|
)
|
|
(2,973
|
)
|
|
Less: Allocation to participating securities
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Net loss available to stockholders
|
(1,219
|
)
|
|
(602
|
)
|
|
|
(3,881
|
)
|
|
(2,973
|
)
|
|
Effect of dilution
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Diluted net loss available to stockholders
|
(1,219
|
)
|
|
(602
|
)
|
|
|
(3,881
|
)
|
|
(2,973
|
)
|
The components of the denominator for the calculation of basic and diluted LPS are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Basic loss per share:
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
100
|
|
|
100
|
|
|
|
504
|
|
|
505
|
|
|
Diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilution
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Weighted average number of common shares outstanding adjusted for the effects of dilution
|
100
|
|
|
100
|
|
|
|
504
|
|
|
505
|
|
The basic and diluted loss per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Basic loss per share
|
(12.18
|
)
|
|
(6.02
|
)
|
|
|
(7.71
|
)
|
|
(5.89
|
)
|
|
Diluted loss per share
|
(12.18
|
)
|
|
(6.02
|
)
|
|
|
(7.71
|
)
|
|
(5.89
|
)
|
Note 14 – Restricted cash
Restricted cash consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Accounts pledged as collateral for Senior Secured Notes (1)
|
24
|
|
|
328
|
|
|
Accounts pledged as collateral for performance bonds and similar guarantees
|
104
|
|
|
101
|
|
|
Demand deposit pledged as collateral for tax related guarantee (2)
|
83
|
|
|
—
|
|
|
Other
|
31
|
|
|
32
|
|
|
Total restricted cash
|
242
|
|
|
461
|
|
|
|
|
|
(1)
|
The balance as at December 31, 2018 was used to repurchase Senior Secured Notes on April 10, 2019 (see Note 22 - Debt for further details). In 2019, Seabras Sapura repaid $24 million of related party and shareholder loans, with the cash proceeds held in escrow against a future redemption of Senior Secured Notes. This is held as non-current within the Consolidated Balance Sheet.
|
|
|
|
|
(2)
|
We placed a total of 330 million Brazilian Reais of collateral with BTG Bank 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 non-current within the Consolidated Balance Sheet.
|
Restricted cash is presented in our Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Current restricted cash
|
135
|
|
|
461
|
|
|
Non-current restricted cash
|
107
|
|
|
—
|
|
|
Total restricted cash
|
242
|
|
|
461
|
|
Note 15 – 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. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Seadrill Partners - Common units
|
|
2
|
|
|
45
|
|
|
Archer
|
|
9
|
|
|
12
|
|
|
Total marketable securities
|
|
11
|
|
|
57
|
|
The below table shows the gain and losses recognized through net income for the periods presented in this report since the adoption of ASU 2016-01.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
(In $ millions)
|
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Seadrill Partners - Common Units - unrealized loss on marketable securities
|
|
(43
|
)
|
|
(45
|
)
|
|
|
(5
|
)
|
|
Archer - unrealized (loss)/gain on marketable securities
|
|
(3
|
)
|
|
(19
|
)
|
|
|
2
|
|
|
Total unrealized loss on marketable securities
|
|
(46
|
)
|
|
(64
|
)
|
|
|
(3
|
)
|
The below table shows the gain and losses recognized through other comprehensive income for the periods presented in this report before the adoption of ASU 2016-01.
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
(In $ millions)
|
|
Year ended December 31, 2017
|
|
|
Seadrill Partners - Common Units - unrealized loss on marketable securities
|
|
(14
|
)
|
|
Archer - unrealized gain on marketable securities
|
|
28
|
|
|
Total unrealized gain on marketable securities
|
|
14
|
|
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. However, there were no impairments recorded against our investments in marketable securities during any of the periods presented.
Note 16 – Accounts receivable
Accounts receivables are held at their nominal amount less an allowance for doubtful accounts. Doubtful accounts are recognized when it is unlikely that required payments of specific amounts will occur as a result of the financial condition of the customer. As at December 31, 2019 (Successor) we had no allowances for doubtful accounts netted against our accounts receivable (December 31, 2018 (Successor): nil).
The below table sets out the bad debt expense incurred for the periods presented in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Bad debt expense
|
—
|
|
|
—
|
|
|
|
48
|
|
|
—
|
|
|
Total bad debt expense
|
—
|
|
|
—
|
|
|
|
48
|
|
|
—
|
|
In November 2018 and January 2019, we recovered a total of $47 million from a $48 million overdue receivable that was fully provided against in the Predecessor company. This was recognized as other operating income in our 2018 and 2019 Successor periods.
Note 17 – Other assets
As at December 31, 2019 and 2018 (Successor), other assets included the following:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
As at December 31,
2019
|
|
|
As at December 31,
2018
|
|
|
Favorable drilling and management services contracts
|
33
|
|
|
186
|
|
|
Taxes receivable
|
38
|
|
|
50
|
|
|
Prepaid expenses
|
33
|
|
|
32
|
|
|
Right of use asset
|
35
|
|
|
—
|
|
|
Reimbursable amounts due from customers (1)
|
21
|
|
|
10
|
|
|
Deferred contract costs
|
12
|
|
|
15
|
|
|
Derivative asset - interest rate cap (2)
|
3
|
|
|
39
|
|
|
Insurance receivable (3)
|
14
|
|
|
1
|
|
|
Other
|
28
|
|
|
25
|
|
|
Total other assets
|
217
|
|
|
358
|
|
(1) Includes related party balances of $5 million from Northern Drilling. For further information refer to Note 31 - Related party transactions.
(2) Refer to Note 32 - Financial instruments and risk management.
(3) In January 2019, there was a loss incident on the Sevan Louisiana related to a malfunction of its subsea equipment. As of December 31, 2019, we have incurred $19 million of costs to repair the equipment, of which $4 million has been recovered and an additional $14 million will be recoverable under our physical damage insurance.
Other assets are presented in our Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
As at December 31,
2019
|
|
|
As at December 31,
2018
|
|
|
Other current assets
|
158
|
|
|
322
|
|
|
Other non-current assets
|
59
|
|
|
36
|
|
|
Total other assets
|
217
|
|
|
358
|
|
Favorable drilling contracts and management services contracts
On emergence from Chapter 11, we recognized favorable drilling and management service 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2019
|
|
As at December 31, 2018
|
|
(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
|
|
(101
|
)
|
186
|
|
|
287
|
|
—
|
|
287
|
|
|
Amortization of favorable contracts
|
|
—
|
|
(153
|
)
|
(153
|
)
|
|
—
|
|
(101
|
)
|
(101
|
)
|
|
Balance at end of period
|
|
287
|
|
(254
|
)
|
33
|
|
|
287
|
|
(101
|
)
|
186
|
|
The amortization is recognized in the Consolidated Statements of Operations under "Amortization of intangibles". The weighted average remaining amortization period for the favorable contracts is 20 years, 6 months.
The table below shows the amounts relating to favorable contracts that is expected to be amortized over the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended December 31,
|
|
(In $ millions)
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024 and after
|
|
Total
|
|
|
Amortization of favorable contracts
|
|
2
|
|
2
|
|
2
|
|
2
|
|
25
|
|
33
|
|
Note 18 – Investment in associated companies
We have the following investments in associated companies:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
Ownership percentage
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
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
|
%
|
|
Sonadrill (b)
|
50.0
|
%
|
|
—
|
%
|
|
Gulfdrill (b)
|
50.0
|
%
|
|
—
|
%
|
|
|
|
|
(a)
|
Refer to the Seadrill Partners subsidiaries paragraph below for additional information.
|
|
|
|
|
(b)
|
For transactions with related parties refer to Note 31 - Related party transactions.
|
Seadrill Partners
Seadrill Partners investments consist of the following:
(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 are 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, 2019:
|
|
|
|
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 interests and IDR's - Seadrill applies the cost method to account for its investment in Seadrill member interest 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.
We additionally hold an investment in the common units of Seadrill Partners, which are classified as marketable securities on our Consolidated Balance Sheet. Refer to Note 15 - Marketable Securities for further information.
Seabras Sapura
Seabras Sapura is 50% owned by Sapura Energy, and 50% owned by Seadrill. We account for our 50% investment in Seabras Sapura under the equity method.
SeaMex
We own a 50% equity interest in SeaMex. The remaining 50% is owned by Fintech. We account for our 50% investment in the joint venture under the equity method.
Sonadrill
We own a 50% equity interest in Sonadrill. The remaining 50% is owned by Sonangol E.P. We account for our 50% investment in the joint venture under the equity method.
Gulfdrill
We own 50% equity interest in Gulfdrill. The remaining 50% is owned by Gulf Drilling International. Gulfdrill is a joint venture that will manage and operate five premium jack-ups in Qatar with Qatargas.
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Seadrill Partners - Direct ownership interests
|
(107
|
)
|
|
(82
|
)
|
|
|
77
|
|
|
82
|
|
|
Seadrill Partners - Subordinated units
|
(17
|
)
|
|
(20
|
)
|
|
|
22
|
|
|
22
|
|
|
Seabras Sapura
|
29
|
|
|
24
|
|
|
|
46
|
|
|
80
|
|
|
SeaMex
|
(19
|
)
|
|
(12
|
)
|
|
|
4
|
|
|
—
|
|
|
Sonadrill
|
(1
|
)
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Archer
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(10
|
)
|
|
Total share in results from associated companies (net of tax)
|
(115
|
)
|
|
(90
|
)
|
|
|
149
|
|
|
174
|
|
Summary of Consolidated Statements of Operations for our equity method investees
The results of the Direct ownership interests in the SDLP companies and our share in those results (net of tax) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SDLP
|
Successor
|
|
|
Predecessor
|
|
(in $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Operating revenues
|
750
|
|
|
426
|
|
|
|
612
|
|
|
1,128
|
|
|
Net operating income
|
51
|
|
|
100
|
|
|
|
257
|
|
|
464
|
|
|
Net income
|
(187
|
)
|
|
(127
|
)
|
|
|
201
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income allocated to SDLP direct ownership interests
|
(92
|
)
|
|
(59
|
)
|
|
|
77
|
|
|
93
|
|
|
Amortization of basis differences
|
(15
|
)
|
|
(23
|
)
|
|
|
—
|
|
|
(11
|
)
|
|
Share in results of SDLP direct investments (net of tax)
|
(107
|
)
|
|
(82
|
)
|
|
|
77
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income allocated to SDLP subordinated units
|
(17
|
)
|
|
(15
|
)
|
|
|
22
|
|
|
24
|
|
|
Amortization of basis differences
|
—
|
|
|
(5
|
)
|
|
|
—
|
|
|
(2
|
)
|
|
Share in results of SDLP subordinated units (net of tax)
|
(17
|
)
|
|
(20
|
)
|
|
|
22
|
|
|
22
|
|
The results of the Seabras Sapura companies and our share in those results (net of tax) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seabras Sapura
|
Successor
|
|
|
Predecessor
|
|
(in $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Operating revenues
|
434
|
|
|
232
|
|
|
|
241
|
|
|
487
|
|
|
Net operating income
|
198
|
|
|
124
|
|
|
|
125
|
|
|
244
|
|
|
Net income
|
113
|
|
|
88
|
|
|
|
92
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
Seadrill ownership percentage
|
50
|
%
|
|
50
|
%
|
|
|
50
|
%
|
|
50
|
%
|
|
Share of net income
|
57
|
|
|
44
|
|
|
|
46
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of basis differences
|
(28
|
)
|
|
(20
|
)
|
|
|
—
|
|
|
—
|
|
|
Share in results from Seabras Sapura (net of tax)
|
29
|
|
|
24
|
|
|
|
46
|
|
|
80
|
|
The results of the SeaMex companies and our share in those results (net of tax) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SeaMex
|
Successor
|
|
|
Predecessor
|
|
(in $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Operating revenues
|
232
|
|
|
118
|
|
|
|
121
|
|
|
239
|
|
|
Net operating income
|
70
|
|
|
40
|
|
|
|
40
|
|
|
80
|
|
|
Net income
|
18
|
|
|
4
|
|
|
|
7
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Seadrill ownership percentage
|
50
|
%
|
|
50
|
%
|
|
|
50
|
%
|
|
50
|
%
|
|
Share of net income
|
9
|
|
|
2
|
|
|
|
4
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of basis differences
|
(28
|
)
|
|
(14
|
)
|
|
|
—
|
|
|
—
|
|
|
Share in results from SeaMex (net of tax)
|
(19
|
)
|
|
(12
|
)
|
|
|
4
|
|
|
—
|
|
The results of the Sonadrill companies and our share in those results (net of tax) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sonadrill
|
Successor
|
|
|
Predecessor
|
|
(in $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Operating revenues
|
22
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Net operating income
|
(1
|
)
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Net income
|
(2
|
)
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Seadrill ownership percentage
|
50
|
%
|
|
—
|
%
|
|
|
—
|
%
|
|
—
|
%
|
|
Share of net income
|
(1
|
)
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Share in results from Sonadrill (net of tax)
|
(1
|
)
|
|
—
|
|
|
|
—
|
|
|
—
|
|
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
|
|
Successor
|
|
(In $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Seadrill Partners - Direct ownership interest
|
122
|
|
|
479
|
|
|
Seadrill Partners - Subordinated units
|
—
|
|
|
17
|
|
|
Seadrill Partners - IDRs
|
—
|
|
|
54
|
|
|
Seabras Sapura
|
98
|
|
|
77
|
|
|
Seabras Sapura Holding GmbH - shareholder loans held as equity
|
123
|
|
|
132
|
|
|
SeaMex Ltd
|
22
|
|
|
41
|
|
|
Sonadrill
|
24
|
|
|
—
|
|
|
Total
|
389
|
|
|
800
|
|
Quoted market prices for all of our investments are not available.
Summarized Consolidated Balance sheets for our equity method investees
The summarized balance sheets of the directly owned SDLP companies and our share of recorded equity in those companies was as follows:
|
|
|
|
|
|
|
|
|
|
SDLP
|
Successor
|
|
Successor
|
|
(in $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Current assets
|
833
|
|
|
1,110
|
|
|
Non-current assets
|
4,847
|
|
|
5,076
|
|
|
Current liabilities
|
(533
|
)
|
|
(433
|
)
|
|
Non-current liabilities
|
(2,623
|
)
|
|
(3,039
|
)
|
|
Net Assets
|
2,524
|
|
|
2,714
|
|
|
|
|
|
|
|
Seadrill share of book equity
|
1,305
|
|
|
1,399
|
|
|
Basis difference allocated to rigs (2)
|
(1,220
|
)
|
|
(1,019
|
)
|
|
Basis difference allocated to contracts (2)
|
37
|
|
|
99
|
|
|
SDLP book equity allocated to direct investments
|
122
|
|
|
479
|
|
|
|
|
|
|
|
SDLP book equity allocated to subordinated units (1)
|
—
|
|
|
17
|
|
|
|
|
|
(1)
|
Seadrill Partners subordinated units have a lock-up period during which they have subordinated liquidation and dividend rights. On application 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. We allocated a further net loss of $17 million for the year ended December 31, 2019. After allocating this loss the remaining balance of the investment in subordinated units was nil.
|
|
|
|
|
(2)
|
In September 2019, an impairment of $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" (December 31, 2018 (Successor), nil). See Note 11 – Impairment loss on investments in associated companies.
|
The summarized balance sheets of the Seabras Sapura companies and our share of recorded equity in those companies was as follows:
|
|
|
|
|
|
|
|
|
|
Seabras Sapura
|
Successor
|
|
Successor
|
|
(in $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Current assets
|
195
|
|
|
255
|
|
|
Non-current assets
|
1,495
|
|
|
1,567
|
|
|
Current liabilities
|
(510
|
)
|
|
(599
|
)
|
|
Non-current liabilities
|
(504
|
)
|
|
(637
|
)
|
|
Net Assets
|
676
|
|
|
586
|
|
|
Seadrill ownership percentage
|
50
|
%
|
|
50
|
%
|
|
Seadrill share of book equity
|
338
|
|
|
293
|
|
|
|
|
|
|
|
Shareholder loans held as equity (1)
|
123
|
|
|
132
|
|
|
Basis difference allocated to rigs
|
(369
|
)
|
|
(394
|
)
|
|
Basis difference allocated to contracts
|
129
|
|
|
178
|
|
|
Total adjustments
|
(117
|
)
|
|
(84
|
)
|
|
Book value of Seadrill investment
|
221
|
|
|
209
|
|
(1) In September 2019, Seabras Sapura repaid $9 million of shareholder loans, with the cash proceeds held in escrow against a future redemption of Senior Secured Notes.
The summarized balance sheets of the SeaMex companies and our share of recorded equity in those companies was as follows:
|
|
|
|
|
|
|
|
|
|
SeaMex
|
Successor
|
|
Successor
|
|
(in $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Current assets
|
260
|
|
|
253
|
|
|
Non-current assets
|
939
|
|
|
977
|
|
|
Current liabilities
|
(141
|
)
|
|
(149
|
)
|
|
Non-current liabilities
|
(586
|
)
|
|
(627
|
)
|
|
Net Assets
|
472
|
|
|
454
|
|
|
Seadrill ownership percentage
|
50
|
%
|
|
50
|
%
|
|
Seadrill share of book equity
|
236
|
|
|
227
|
|
|
|
|
|
|
|
Basis difference allocated to rigs
|
(341
|
)
|
|
(357
|
)
|
|
Basis difference allocated to contracts
|
127
|
|
|
171
|
|
|
Total adjustments
|
(214
|
)
|
|
(186
|
)
|
|
|
|
|
|
|
Book value of Seadrill investment
|
22
|
|
|
41
|
|
The summarized balance sheets of the Sonadrill companies and our share of recorded equity in those companies was as follows:
|
|
|
|
|
|
|
|
|
|
Sonadrill
|
Successor
|
|
Successor
|
|
(in $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Current assets
|
57
|
|
|
—
|
|
|
Non-current assets
|
—
|
|
|
—
|
|
|
Current liabilities
|
(9
|
)
|
|
—
|
|
|
Non-current liabilities
|
—
|
|
|
—
|
|
|
Net Assets
|
48
|
|
|
—
|
|
|
Seadrill ownership percentage
|
50
|
%
|
|
—
|
%
|
|
Seadrill share of book equity
|
24
|
|
|
—
|
|
|
|
|
|
|
|
Book value of Seadrill investment
|
24
|
|
|
—
|
|
Note 19 – Newbuildings
Changes in drilling units for the periods presented in this report were as follows:
|
|
|
|
|
|
|
|
(In $ millions)
|
|
|
|
|
Opening balance as at January 1, 2018 (Predecessor)
|
|
248
|
|
|
Additions
|
|
1
|
|
|
Closing balance as at July 1, 2018 (Predecessor)
|
|
249
|
|
|
Fresh Start adjustments
|
|
(249
|
)
|
|
|
|
|
|
|
|
|
|
Balance as at July 2, 2018, December 31, 2018 and December 31, 2019 (Successor)
|
|
—
|
|
On emergence from Chapter 11, the carrying values of our newbuilds were adjusted to fair value. The loss was recognized in the Consolidated Statement of Operations under the heading "Reorganization items".
Note 20 – Drilling units
Changes in drilling units for the periods presented in this report were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
|
|
Cost
|
|
|
Accumulated depreciation
|
|
|
Net book value
|
|
|
Opening balance as at January 1, 2018 (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
|
|
|
Additions
|
|
|
158
|
|
|
—
|
|
|
158
|
|
|
Depreciation
|
|
|
—
|
|
|
(416
|
)
|
|
(416
|
)
|
|
Closing balance as at December 31, 2019 (Successor)
|
|
|
7,048
|
|
|
(647
|
)
|
|
6,401
|
|
We recognized an impairment expense of $414 million 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). Please refer to Note 9- Other operating items for further information.
On emergence from Chapter 11, the carrying values of our drilling units were adjusted to fair value and the accumulated depreciation of each asset was reset to nil. The loss of $5,734 million was recognized in the Consolidated Statement of Operations under the heading "Reorganization items".
As at December 31, 2019, as part of the joint venture with Gulfdrill, we have leased the West Castor to Gulfdrill. The net book value of the West Castor was $53 million split between $72 million cost offset by $19 million accumulated depreciation. Refer to Note 24 - Leases for further information.
Note 21 – 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)
|
|
|
Cost
|
|
|
Accumulated depreciation
|
|
|
Net book value
|
|
|
Opening balance as at January 1, 2018 (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
|
|
|
Additions
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
Depreciation
|
|
|
—
|
|
|
(10
|
)
|
|
(10
|
)
|
|
Closing balance as at December 31, 2019 (Successor)
|
|
|
38
|
|
|
(15
|
)
|
|
23
|
|
On emergence from Chapter 11, the carrying value of our equipment was adjusted to fair value and the accumulated depreciation of each asset was reset to nil. The loss of $6 million was recognized in the Consolidated Statement of Operations under the heading "Reorganization items".
Note 22 – Debt
As at December 31, 2019 (Successor) and 2018 (Successor), we had the following liabilities for third party debt agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Secured credit facilities
|
|
5,662
|
|
|
5,662
|
|
|
Senior Secured Notes
|
|
476
|
|
|
769
|
|
|
Credit facilities contained within variable interest entities
|
|
621
|
|
|
655
|
|
|
Total debt principal
|
|
6,759
|
|
|
7,086
|
|
|
Less: debt discount and fees
|
|
(136
|
)
|
|
(172
|
)
|
|
Carrying value
|
|
6,623
|
|
|
6,914
|
|
This was presented in our Consolidated Balance Sheet as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Debt due within one year
|
|
343
|
|
|
33
|
|
|
Long-term debt
|
|
6,280
|
|
|
6,881
|
|
|
Total debt principal
|
|
6,623
|
|
|
6,914
|
|
In the next sections we cover key terms of our debt facilities at December 31, 2019:
Secured Credit Facilities
We have summarized the key terms of our secured credit facilities as at December 31, 2019 in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility name
|
Maturity
|
Repayments before maturity ($m)
|
|
Final Repayment (3)
($m)
|
|
Total ($m)
|
|
Margin on LIBOR floating interest (2)
|
Collateral vessels
|
Book value of collateral vessels ($m)
|
|
Notes
|
|
$400 million facility
|
4Q 2022
|
47
|
|
88
|
|
135
|
|
3.50%
|
West Cressida West Callisto West Leda
|
150
|
|
|
|
$2,000 million facility
|
1Q 2023
|
248
|
|
660
|
|
908
|
|
3.00%
|
West Alpha West Venture West Phoenix West Navigator West Epsilon West Elara
|
732
|
|
|
|
$440 million facility
|
3Q 2023
|
23
|
|
41
|
|
64
|
|
4.25%
|
West Telesto
|
58
|
|
|
|
$1,450 million facility
|
4Q 2023
|
88
|
|
235
|
|
323
|
|
3.35%-4.00%
|
West Tellus
|
332
|
|
(2)
|
|
$360 million facility
|
4Q 2023
|
73
|
|
137
|
|
210
|
|
3.75%
|
AOD I AOD II AOD III
|
191
|
|
(1)
|
|
$300 million facility
|
1Q 2024
|
48
|
|
96
|
|
144
|
|
4.00%
|
West Tucana West Castor
|
107
|
|
|
|
$1,750 million facility
|
1Q 2024
|
299
|
|
576
|
|
875
|
|
3.50%-3.90%
|
Sevan Driller Sevan Brasil Sevan Louisiana
|
865
|
|
(2)
|
|
$450 million facility
|
2Q 2024
|
54
|
|
211
|
|
265
|
|
3.50%
|
West Eminence
|
275
|
|
|
|
$1,500 million facility
|
4Q 2024
|
355
|
|
770
|
|
1,125
|
|
2.70%-4.78%
|
West Saturn West Neptune West Jupiter
|
1,020
|
|
(2)
|
|
$1,350 million facility
|
4Q 2024
|
351
|
|
594
|
|
945
|
|
3.00%
|
West Pegasus West Gemini West Orion
|
895
|
|
|
|
$950 million facility
|
4Q 2024
|
198
|
|
368
|
|
566
|
|
3.00%-4.42%
|
West Eclipse West Carina
|
648
|
|
(2)
|
|
$450 million facility (2015)
|
4Q 2024
|
63
|
|
39
|
|
102
|
|
3.85%
|
West Freedom West Vigilant West Prospero West Ariel
|
176
|
|
|
|
Total secured credit facilities
|
5,662
|
|
|
|
|
|
|
|
|
|
(1)
|
The facility is held by AOD, by which we hold a 67% ownership.
|
|
|
|
|
(2)
|
Certain debt facilities are split into different tranches set at different margins. Under the ACE facility the margin is 5.5%.
|
|
|
|
|
(3)
|
The final repayment shown in the above table includes balloon amount due on maturity and one quarters worth of amortization payments deferred in the fourth quarter of 2019 under the ACE facility amounting to $63 million. We have the ability to defer a further $437 million of amortization payments that would otherwise fall due between June 2020 and March 2021 through future use of the ACE facility.
|
Senior Secured Notes
On July 2, 2018, we raised $880 million of aggregate principle amount of 12.00% Senior 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 Chapter 11.
Per the terms of the Senior 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 Senior 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 Senior 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.
After the two redemptions, there was a remaining $476 million principal outstanding on the notes.
The Senior Secured Notes are secured by, among other things, our investments in Seadrill Partners, SeaMex and Seabras Sapura. Refer to Note 18 - Investment in associated companies for further information.
Credit facilities contained within variable interest entities
We consolidate three legal subsidiaries of Ship Finance that own the West Taurus, West Hercules and West Linus. Please refer to Note 35 for further details of this arrangement. These facilities were also amended during the period to conform with the charter payment schedules which were amended as part of the RSA linked to our reorganization.
The terms of these facilities are set out in the below table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility Name
|
Maturity
|
Repayments before maturity ($m)
|
|
Final Repayment ($m)
|
|
Total ($m)
|
|
Margin on LIBOR floating interest
|
Collateral vessels
|
Book value of collateral vessels ($m)
|
|
|
$390 million facility
|
4Q 2022
|
43
|
|
144
|
|
187
|
|
Margin not disclosed
|
West Taurus
|
271
|
|
|
$375 million facility
|
2Q 2023
|
53
|
|
149
|
|
202
|
|
Margin not disclosed
|
West Hercules
|
322
|
|
|
$475 million facility
|
2Q 2023
|
52
|
|
180
|
|
232
|
|
Margin not disclosed
|
West Linus
|
191
|
|
|
Total credit facilities within VIEs
|
621
|
|
|
|
|
Debt maturities
The outstanding debt as at December 31, 2019 is repayable as follows:
|
|
|
|
|
|
|
|
(In $ millions)
|
|
December 31, 2019
|
|
|
2020
|
|
343
|
|
|
2021
|
|
569
|
|
|
2022
|
|
984
|
|
|
2023
|
|
1,774
|
|
|
2024
|
|
2,613
|
|
|
2025 and thereafter
|
|
476
|
|
|
Total debt principal
|
|
6,759
|
|
Covenants and restrictions contained in our debt facilities
We have provided a summary of the main financial 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 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. Breach of this covenant leads to an event of default.
|
|
|
|
|
•
|
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 ended
|
|
Net leverage ratio
|
|
March 31, 2022
|
|
4.5x
|
|
June 30, 2022
|
|
4.2x
|
|
September 30, 2022
|
|
3.9x
|
|
December 31, 2022
|
|
3.7x
|
|
March 31, 2023
|
|
3.4x
|
|
June 30, 2023
|
|
3.3x
|
|
September 30, 2023
|
|
3.1x
|
|
December 31, 2023
|
|
3.0x
|
|
March 31, 2024
|
|
2.8x
|
|
June 30, 2024
|
|
2.7x
|
|
September 30, 2024
|
|
2.4x
|
|
December 31, 2024
|
|
2.2x
|
|
|
|
|
•
|
Debt service coverage ratio: in summary to maintain a ratio of EBITDA 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).
|
For 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 ended
|
|
Net leverage ratio
|
|
March 31, 2021
|
|
7.3x
|
|
June 30, 2021
|
|
6.6x
|
|
September 30, 2021
|
|
6.2x
|
|
December 31, 2021
|
|
5.8x
|
In addition to the above there are various non-financial covenants.
The covenants included in the Senior 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.
Since the fourth quarter of 2019, we have been engaged in discussions with our secured lenders regarding potential amendments to our credit facilities to provide operational flexibility and additional near-term liquidity by, among other things, converting certain interest payments under our credit facilities to payment-in-kind (“PIK”) interest and deferring certain scheduled amortization payments (or increasing the aggregate amount of such payments that may be converted to loans payable at the final scheduled maturity date of the relevant facility pursuant to the amortization conversion election provisions contained in the facility agreements). Our debt service is anticipated to be primarily comprised of interest through at least Q1 2021 because our facility agreements contain certain provisions that allow us to elect to defer and convert up to $500 million in the aggregate of scheduled amortization payments under certain of our credit facilities. We have already elected to use a portion of this capacity with respect to the first scheduled amortization installments under our credit facilities occurring in Q1 2020. We intend to continue exercising this option for each subsequent scheduled amortization payment date until such capacity is fully utilized; however, we cannot guarantee that we will be able to satisfy the conditions set forth in the facility agreements in order to be able to do so. We have also requested that our lenders consent to an extension of the periods before which we are required to comply with the net leverage and debt service coverage financial covenants in our facility agreements because we currently anticipate that we will not be able to meet these requirements when such covenants begin to be tested at the end of Q1 2021. 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 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. If our amendment requests for certain liquidity enhancing measures are not successful, including with respect to the conversion of certain interest payments to PIK and the deferral of certain scheduled amortization payments then there is an increased risk that we will breach these liquidly requirements sooner than currently anticipated after such twelve-month period following the date of this report. Failure to comply with such liquidity requirements could result in a default under the terms of our facility agreements if we are unable to obtain a waiver or amendment from our lenders for such non-compliance.
Although lender discussions are well advanced and significant progress has been made, until such time as an agreement is reached, uncertainty remains and therefore we are also preparing certain contingency plans. The Company's business operations remain unaffected by these amendment negotiations and related contingency planning efforts, and the Company expects to meet its ongoing customer and business counterparty obligations as they become due.
Note 23 – Other liabilities
As at December 31, 2019 and 2018 (Successor), other liabilities included the following:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
As at December 31,
2019
|
|
|
As at December 31,
2018
|
|
|
Taxes payable
|
33
|
|
|
42
|
|
|
Contract liabilities
|
29
|
|
|
21
|
|
|
Unfavorable drilling contracts
|
8
|
|
|
27
|
|
|
Employee withheld taxes, social security and vacation payments
|
51
|
|
|
40
|
|
|
Accrued interest expense
|
40
|
|
|
61
|
|
|
Accrued expenses
|
137
|
|
|
107
|
|
|
Lease liabilities
|
36
|
|
|
—
|
|
|
Uncertain tax provisions
|
83
|
|
|
100
|
|
|
Other liabilities
|
33
|
|
|
33
|
|
|
Total Other Liabilities
|
450
|
|
|
431
|
|
Other liabilities are presented in our Consolidated Balance Sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
As at December 31,
2019
|
|
|
As at December 31,
2018
|
|
|
Other current liabilities
|
322
|
|
|
310
|
|
|
Other non-current liabilities
|
128
|
|
|
121
|
|
|
Total Other Liabilities
|
450
|
|
|
431
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
(In $ millions)
|
|
Gross Carrying Amount
|
|
Accumulated amortization
|
|
Net carrying amount
|
|
|
Gross Carrying Amount
|
|
Accumulated amortization
|
|
Net carrying amount
|
|
|
Unfavorable contracts
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
(66
|
)
|
39
|
|
(27
|
)
|
|
(66
|
)
|
—
|
|
(66
|
)
|
|
Amortization of unfavorable contracts
|
|
—
|
|
19
|
|
19
|
|
|
—
|
|
39
|
|
39
|
|
|
Balance at end of period
|
|
(66
|
)
|
58
|
|
(8
|
)
|
|
(66
|
)
|
39
|
|
(27
|
)
|
The amortization is recognized in the Consolidated Statement of Operations under "Amortization of 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 7 years, 9 months.
The table below shows the amounts relating to unfavorable contracts that is expected to be amortized over the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended December 31,
|
|
(In $ millions)
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024 and after
|
|
Total
|
|
|
Amortization of unfavorable contracts
|
|
(1
|
)
|
(1
|
)
|
(1
|
)
|
(1
|
)
|
(4
|
)
|
(8
|
)
|
Note 24 - 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.
On August 15, 2019 and September 3, 2019, in connection with the Gulfdrill joint venture, Seadrill entered charter agreements to lease three jack-up rigs from a third-party shipyard. These arrangements are to be novated to Gulfdrill prior to the commencement of its operations. On November 27, 2019, we received delivery of the jack-up rig Lovanda (formerly Zhenhai 5) under a charter agreement and a lease liability and offsetting right of use asset were recognized accordingly.
Below are the significant assumptions and judgments we applied to account for our leases in accordance with Topic 842.
|
|
|
|
1.
|
We apply judgment in determination whether a contract contains a lease or a lease component as defined by Topic 842.
|
|
|
|
|
2.
|
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.
|
|
|
|
|
3.
|
The discount rate applied to our operating leases is our incremental borrowing rate. We estimated our incremental borrowing rate based on the rate for our traded debt.
|
|
|
|
|
4.
|
Within the terms and conditions of some of our operating leases we have options to 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.
|
For operating leases where we are the lessee, our future undiscounted cash flows are as follows:
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
(In $ millions)
|
|
Year ended December 31, 2019
|
|
|
2020
|
|
17
|
|
|
2021
|
|
16
|
|
|
2022
|
|
9
|
|
|
2023
|
|
2
|
|
|
2024 and thereafter
|
|
1
|
|
|
Total
|
|
45
|
|
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, 2019:
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
(In $ millions)
|
|
Year ended December 31, 2019
|
|
|
Total undiscounted cash flows
|
|
45
|
|
|
Less short term leases
|
|
(1
|
)
|
|
Less discount
|
|
(8
|
)
|
|
Operating lease liability
|
|
36
|
|
|
Of which:
|
|
|
|
Current
|
|
12
|
|
|
Non-current
|
|
24
|
|
Prior to the adoption of the New Lease Accounting Standard, rental commitments on an undiscounted basis were approximately $38 million at December 31, 2018 under long-term non-cancelable operating leases and were payable as follows: $11 million in 2019, $9 million in 2020, $9 million in 2021, $5 million in 2022, $3 million in 2023 and $1 million thereafter.
The following table gives supplementary information regarding our lease accounting at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
(In $ million)
|
|
Year ended December 31,
2019
|
|
|
Operating Lease Cost:
|
|
|
|
Operating lease cost
|
|
13
|
|
|
Total Lease cost
|
|
13
|
|
|
|
|
|
|
Other information:
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities- Operating Cash flows
|
|
13
|
|
|
Right-of-use assets obtained in exchange for operating lease liabilities during the period
|
|
19
|
|
|
Weighted-average remaining lease term in months
|
|
18
|
|
|
Weighted-average discount rate
|
|
13
|
%
|
We also have operating subleases, where we are the lessor, relating to some of our premises. The most significant subleases being our offices in Stavanger and Houston. We do not expect to derive further value from the subleased portion of our right-of-use assets following the end of the sublease term. These subleases do not include variable payments, and do not include options for a lessee to purchase the underlying asset. We do not allocate lease consideration between lease and non-lease components because we have elected not to separate lease and non-lease components for our operating leases where Seadrill is the lessor.
For our operating subleases, the future undiscounted cash flows are as follows:
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
(In $ millions)
|
|
Year ended December 31,
2019
|
|
|
2020
|
|
1
|
|
|
2021
|
|
1
|
|
|
2022
|
|
1
|
|
|
2023
|
|
—
|
|
|
2024 and thereafter
|
|
—
|
|
|
Total
|
|
3
|
|
Rental expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Rent expense
|
13
|
|
|
7
|
|
|
|
9
|
|
|
19
|
|
|
Total rent expense
|
13
|
|
|
7
|
|
|
|
9
|
|
|
19
|
|
On November 25, 2019 we leased the West Castor to Gulfdrill.
For operating leases where we are the lessor, our future undiscounted cash flows are as follows:
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
(In $ millions)
|
|
Year ended December 31,
2019
|
|
|
2020
|
|
10
|
|
|
2021
|
|
10
|
|
|
2022
|
|
10
|
|
|
2023
|
|
9
|
|
|
2024 and thereafter
|
|
—
|
|
|
Total
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
(In $ million)
|
|
Year ended December 31,
2019
|
|
|
Operating Lease Income:
|
|
|
|
Operating lease income
|
|
1
|
|
|
Total Lease income
|
|
1
|
|
Note 25 – 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, 2017, December 31, 2017 and 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 issuance
|
100,000,000
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 2, 2018 (Successor)
|
100,000,000
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
At December 31, 2018 (Successor)
|
100,000,000
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
RSU share issuance
|
234,973
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
At December 31, 2019 (Successor)
|
100,234,973
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common share transactions for periods presented
On the Effective Date, the common stock of the Predecessor Company was cancelled and the Successor Company allocated 100,000,000 shares of $0.10 par value in accordance with the Plan. The Successor Company's authorized share capital on the Effective Date was 111,111,111 common shares each with a par value of $0.10. The unissued 11,111,111 common shares were reserved for issuance under our employee incentive plan (see note 29).
On June 5, 2019 an additional 27,768,889 authorized share capital was approved at a par value of $0.10. This increased authorized share capital to 138,880,000.
On September 4, 2019, 234,973 shares were issued to employees following a vesting of restricted stock units awarded under our employee incentive plan.
Key terms of shares 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 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.
Note 26 – Non-controlling interest
Changes in non-controlling interests for the periods presented in this report were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
North Atlantic Drilling Ltd
|
|
|
Sevan Drilling Limited
|
|
|
Asia Offshore Drilling Ltd
|
|
|
Ship Finance VIEs
|
|
|
Seadrill Nigeria Operations Limited
|
|
|
Total
|
|
|
January 1, 2017 (Predecessor)
|
165
|
|
|
291
|
|
|
149
|
|
|
(69
|
)
|
|
6
|
|
|
542
|
|
|
Changes in 2017
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(14
|
)
|
|
Net (loss)/income attributable to non-controlling interest in 2017
|
(89
|
)
|
|
(65
|
)
|
|
—
|
|
|
24
|
|
|
1
|
|
|
(129
|
)
|
|
December 31, 2017 (Predecessor)
|
76
|
|
|
226
|
|
|
149
|
|
|
(59
|
)
|
|
7
|
|
|
399
|
|
|
Adoption of new accounting standard ASU 2016-16 - Income Taxes
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
Net (loss)/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
|
)
|
|
Elimination of NCI of North Atlantic Drilling Ltd and Sevan Drilling Limited
|
109
|
|
|
(216
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(107
|
)
|
|
Fair value adjustment of the non-controlling interest in the Ship Finance VIEs and Seadrill Nigeria Operations Limited
|
—
|
|
|
—
|
|
|
—
|
|
|
199
|
|
|
(2
|
)
|
|
197
|
|
|
July 1, 2018 (Predecessor)
|
—
|
|
|
—
|
|
|
—
|
|
|
147
|
|
|
7
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2018 (Successor)
|
—
|
|
|
—
|
|
|
—
|
|
|
147
|
|
|
7
|
|
|
154
|
|
|
Net (loss)/income attributable to non-controlling interest in period from July 2, 2018 to December 31, 2018
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
December 31, 2018 (Successor)
|
—
|
|
|
—
|
|
|
—
|
|
|
145
|
|
|
7
|
|
|
152
|
|
|
Net (loss)/income attributable to non-controlling interest in 2019
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
4
|
|
|
(1
|
)
|
|
December 31, 2019 (Successor)
|
—
|
|
|
—
|
|
|
—
|
|
|
140
|
|
|
11
|
|
|
151
|
|
On emergence from Chapter 11 the non-controlling interest was adjusted to fair value. Refer to Note 5 - Fresh Start Accounting for further information.
North Atlantic Drilling Ltd and Sevan Drilling Limited
In the predecessor, we held a 70.36% interest in NADL and 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
We hold a 66.24% interest in Asia Offshore Drilling Ltd. In the predecessor, the amount of shareholders' equity not attributable to us was included in non-controlling interests. Subsequent to filing bankruptcy petitions, the predecessor executed a Transaction Support Agreement on April 4, 2018, which included a put option to the holders of the non-controlling interest shares. 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' within the Consolidated Balance Sheets. Refer to Note 27 - Redeemable non-controlling interest for further information.
Ship Finance VIEs
In 2007, 2008 and 2014, we entered into sale and leaseback arrangements for drilling units with SFL Corporation Ltd, who incorporated subsidiary companies for the sole purpose of owning and leasing the drilling units. We concluded that we are the primary beneficiary of these companies and therefore consolidate them under the variable interest model. Accordingly, these subsidiary companies are included in our Consolidated Financial Statements, with the SFL Corporation Ltd equity in these companies included in non-controlling interest. Refer to Note 35 – Variable Interest Entities for more information.
On emergence from Chapter 11 the non-controlling interest was adjusted to fair value. Refer to Note 5 – Fresh Start Accounting for further information.
Seadrill Nigeria Operations Limited
HH Global Alliance Investments Limited ("Heirs Holdings"), an unrelated party registered in Nigeria, owns a non-controlling interest in one of our subsidiaries, Seadrill Nigeria Operations Limited, which holds a 10% interest in 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 Heirs Holdings is classified as a non-controlling interest in our consolidated balance sheet. In February 2020, we paid $11 million to Heirs Holdings for an option to buy the non-controlling interest at any point in the future for a $1 purchase price.
Note 27 - Redeemable non-controlling interest
Changes in redeemable non-controlling interests for the periods presented in this report were as follows:
|
|
|
|
|
|
|
|
(In $ millions)
|
|
Asia Offshore Drilling Ltd
|
|
|
As at January 1, 2018 (Predecessor)
|
|
—
|
|
|
Reclassification from non-controlling interest
|
|
150
|
|
|
Fair value adjustment on initial recognition
|
|
(127
|
)
|
|
Net income attributable to redeemable non-controlling interest
|
|
2
|
|
|
Fresh start fair value adjustment
|
|
5
|
|
|
As at July 1, 2018 (Predecessor)
|
|
30
|
|
|
|
|
|
|
|
|
|
|
As at July 2, 2018 (Successor)
|
|
30
|
|
|
Net loss attributable to redeemable non-controlling interest
|
|
(1
|
)
|
|
Fair value adjustment
|
|
9
|
|
|
As at December 31, 2018 (Successor)
|
|
38
|
|
|
Net loss attributable to redeemable non-controlling interest
|
|
(2
|
)
|
|
Fair value adjustment
|
|
21
|
|
|
As at December 31, 2019 (Successor)
|
|
57
|
|
We hold a 66.24% interest in Asia Offshore Drilling Limited (“AOD”), which owns 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").
On April 4, 2018, subsequent to filing bankruptcy petitions, the Predecessor executed a Transaction Support Agreement (“TSA”) with Mermaid in order to (i) provide a framework for a monetization event for Mermaid and (ii) obtain unanimous approval for AOD to become a party to the RSA and participate in Seadrill’s broader debt restructuring under its Chapter 11 reorganization.
The TSA provided Mermaid with put option that gave them the right (with no obligation) to sell their non-controlling interest shares to Seadrill. The repurchase price is based 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 started on October 1, 2019 and ends on September 30, 2020.
If Mermaid do not exercise their option, Seadrill will have a call option that gives them the right (with no obligation) to buy Mermaid's non-controlling interest shares for fair value, subject to a price floor of $75 million. The exercise window for the call option starts on October 1, 2020 and ends on March 31, 2021.
If the purchase price is less than $50 million then it will be settled in cash. If the purchase price is greater than $50 million, then Seadrill is required to settle the first $50 million in cash and any excess fair value in a variable number of Seadrill common shares (based on the 60 day volume-weighted average price).
The put option generated a redemption feature for Mermaid that is outside the control of Seadrill. This caused the fair value of Mermaid's non-controlling interest shares to be reclassified from equity to "Redeemable non-controlling interest" within the consolidated balance sheet of the Predecessor. Each reporting period, we are required to (i) attribute Mermaid's share of AOD's profit to the redeemable non-controlling interest and (ii) make an adjustment to record the redeemable non-controlling interest shares at fair value, with the offsetting entry going to equity. These entries are set out in the table above.
Note 28 – Accumulated other comprehensive income/(loss)
Changes in accumulated other comprehensive income/(loss) for the periods presented in this report were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 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/(loss) before reclassifications
|
—
|
|
|
—
|
|
|
1
|
|
|
(5
|
)
|
|
—
|
|
|
(3
|
)
|
|
(7
|
)
|
|
Balance as at December 31, 2018 (Successor)
|
—
|
|
|
—
|
|
|
1
|
|
|
(5
|
)
|
|
—
|
|
|
(3
|
)
|
|
(7
|
)
|
|
Other comprehensive (loss)/income
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(8
|
)
|
|
—
|
|
|
3
|
|
|
(6
|
)
|
|
Balance as at December 31, 2019 (Successor)
|
—
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
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 recognized 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 nil for the year ended December 31, 2019 (Successor) (nil for the period July 2, 2018 to December 31, 2018 (Successor) and $1 million for the period from January 1, 2018 to July 1, 2018 (Predecessor) as this item is related to companies domiciled in Norway where the tax rate is 22% (December 31, 2018 (Successor): 23%).
Note 29 – Share based compensation
The share-based compensation expense for our share options and Restricted Stock Unit ("RSU") plans in the Consolidated Statements of Operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Share-based compensation expense (1)
|
5
|
|
|
—
|
|
|
|
9
|
|
|
7
|
|
|
Total share-based compensation expense
|
5
|
|
|
—
|
|
|
|
9
|
|
|
7
|
|
|
|
|
|
(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 Chapter 11. 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.
On September 4, 2018 we made a grant of 0.5 million RSUs to certain employees and directors under the employee incentive plan. The awards 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 Seadrill 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.
The compensation cost for non-vested awards not yet recognized as at December 31, 2019 is $9 million (December 31, 2018: $9 million), with a weighted average vesting period of 2 years.
Note 30 - 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 start a pre-retirement pension at 62 years of age.
Consolidated Balance Sheet position
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Accrued pension liabilities - Non-current liabilities
|
2
|
|
|
4
|
|
|
Less: Deferred tax (Asset)
|
(1
|
)
|
|
(1
|
)
|
|
Shareholders' equity
|
1
|
|
|
3
|
|
Annual pension cost
We record pension costs in the period during which the services are rendered by the employees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Service cost
|
3
|
|
|
2
|
|
|
|
1
|
|
|
2
|
|
|
Interest cost on prior years’ benefit obligation
|
1
|
|
|
1
|
|
|
|
—
|
|
|
2
|
|
|
Gross pension cost for the year
|
4
|
|
|
3
|
|
|
|
1
|
|
|
4
|
|
|
Expected return on plan assets
|
(1
|
)
|
|
(1
|
)
|
|
|
—
|
|
|
(1
|
)
|
|
Net pension cost for the year
|
3
|
|
|
2
|
|
|
|
1
|
|
|
3
|
|
|
Impact of settlement/curtailment funded status
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(1
|
)
|
|
Total net pension cost
|
3
|
|
|
2
|
|
|
|
1
|
|
|
2
|
|
The funded status of the defined benefit plan
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Projected benefit obligations at end of period
|
40
|
|
|
37
|
|
|
Plan assets at market value
|
(39
|
)
|
|
(33
|
)
|
|
Accrued pension liabilities
|
1
|
|
|
4
|
|
Change in projected benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
June 30, 2018
|
|
|
Projected benefit obligations at beginning of period
|
37
|
|
|
36
|
|
|
|
38
|
|
|
Interest cost
|
1
|
|
|
1
|
|
|
|
—
|
|
|
Service cost
|
3
|
|
|
1
|
|
|
|
1
|
|
|
Benefits paid
|
(2
|
)
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Change in unrecognized actuarial gain
|
—
|
|
|
2
|
|
|
|
(2
|
)
|
|
Foreign currency translations
|
1
|
|
|
(2
|
)
|
|
|
—
|
|
|
Projected benefit obligations at end of period
|
40
|
|
|
37
|
|
|
|
36
|
|
Change in pension plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
June 30, 2018
|
|
|
Fair value of plan assets at beginning of year
|
33
|
|
|
33
|
|
|
|
33
|
|
|
Estimated return
|
1
|
|
|
1
|
|
|
|
—
|
|
|
Contribution by employer
|
6
|
|
|
—
|
|
|
|
2
|
|
|
Administration charges
|
—
|
|
|
—
|
|
|
|
—
|
|
|
Benefits paid
|
(2
|
)
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Actuarial gain
|
—
|
|
|
2
|
|
|
|
(1
|
)
|
|
Foreign currency translations
|
1
|
|
|
(2
|
)
|
|
|
—
|
|
|
Fair value of plan assets at end of year
|
39
|
|
|
33
|
|
|
|
33
|
|
The accumulated benefit obligation for all defined benefit pension plans was $37 million and $33 million at December 31, 2019 (Successor) and 2018 (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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Rate of compensation increase at the end of year
|
2.25
|
%
|
|
2.75
|
%
|
|
|
2.50
|
%
|
|
2.50
|
%
|
|
Discount rate at the end of year
|
2.30
|
%
|
|
2.60
|
%
|
|
|
2.40
|
%
|
|
2.40
|
%
|
|
Prescribed pension index factor
|
2.00
|
%
|
|
2.00
|
%
|
|
|
2.00
|
%
|
|
1.50
|
%
|
|
Expected return on plan assets for the year
|
2.60
|
%
|
|
2.60
|
%
|
|
|
2.40
|
%
|
|
2.40
|
%
|
|
Employee turnover
|
4.00
|
%
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
4.00
|
%
|
|
Expected increases in Social Security Base
|
2.50
|
%
|
|
2.50
|
%
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Successor
|
|
|
|
December 31, 2019
|
|
|
|
December 31, 2018
|
|
|
Equity securities
|
13.6
|
%
|
|
|
12.7
|
%
|
|
Debt securities
|
58.4
|
%
|
|
|
70.0
|
%
|
|
Real estate
|
11.0
|
%
|
|
|
9.9
|
%
|
|
Money market
|
16.5
|
%
|
|
|
6.9
|
%
|
|
Other
|
0.5
|
%
|
|
|
0.5
|
%
|
|
Total
|
100.0
|
%
|
|
|
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. We diversify our 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.
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, 2020-2029. The expected payments are based on the assumptions used to measure our obligations at December 31, 2019 and include estimated future employee services.
|
|
|
|
|
|
|
(In $ millions)
|
December 31, 2019
|
|
|
2020
|
4
|
|
|
2021
|
2
|
|
|
2022
|
2
|
|
|
2023
|
3
|
|
|
2024
|
2
|
|
|
2025-2029
|
13
|
|
|
Total payments expected during the next 10 years
|
26
|
|
Defined contribution and other plans
We made contributions to personal defined contribution pension and other plans totaling $16 million for the year ended December 31, 2019 and $9 million for 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) the charge was $17 million. These were charged as operational expenses as they became payable.
Note 31 – Related party transactions
Our main related parties include (i) affiliated companies over which we hold significant influence and (ii) companies who are either controlled by or whose operating policies may be significantly influenced by our major shareholder, Hemen.
Companies in which we hold significant influence include (i) Seadrill Partners, (ii) SeaMex and (iii) Seabras Sapura (iv) Sonadrill and (v) Gulfdrill. 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 and (v) Northern Drilling. 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
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Management fee revenues (a)
|
109
|
|
|
41
|
|
|
|
41
|
|
|
84
|
|
|
In country support services revenues (b)
|
—
|
|
|
—
|
|
|
|
1
|
|
|
23
|
|
|
Related party inventory sales
|
1
|
|
|
1
|
|
|
|
1
|
|
|
—
|
|
|
Other
|
—
|
|
|
4
|
|
|
|
—
|
|
|
3
|
|
|
Total related party operating revenues
|
110
|
|
|
46
|
|
|
|
43
|
|
|
110
|
|
(a) We provide management and administrative services to Seadrill Partners and SeaMex and operation and technical support services to Seadrill Partners, SeaMex, Sonadrill and Northern Drilling. 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, 2017, so we no longer earn revenues under this arrangement.
In addition to the amounts shown above, we recognized reimbursable revenues and expenses from Northern Drilling of $167 million for the year ended December 31, 2019 for work to perform the first mobilization of the Northern Drilling rigs, West Mira and West Bollsta. As at December 31, 2019 our Consolidated Balance Sheet included a $55 million receivable from Northern Drilling included in related parties and $5 million unbilled reimbursables amounts within Other Assets for costs to be recovered from this arrangement.
Related party operating expenses
The below table provides an analysis of related party operating expenses for periods presented in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
In country support services expenses (c)
|
—
|
|
|
—
|
|
|
|
1
|
|
|
8
|
|
|
Related party inventory purchases
|
1
|
|
|
—
|
|
|
|
—
|
|
|
3
|
|
|
Other related party operating expenses (d)
|
2
|
|
|
1
|
|
|
|
3
|
|
|
3
|
|
|
Net bareboat charter arrangements (e)
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(1
|
)
|
|
Total related party operating expenses
|
3
|
|
|
1
|
|
|
|
4
|
|
|
13
|
|
(c) Seadrill Partners previously provided us with in country support services for the West Jupiter in Nigeria. This arrangement ended in early 2018. In addition, SeaMex previously provided us with in country support services for the West Pegasus and West Freedom when those rigs operated in Mexico and Venezuela.
(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.
(e) We previously acted as an intermediate charterer for the Seadrill Partners rig West Aquarius, during its contract with Hibernia in Canada, which ended in April 2017.
Related party financial items
The below table provides an analysis of related party financial income for periods presented in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Interest income (f)
|
26
|
|
|
15
|
|
|
|
12
|
|
|
34
|
|
|
Gains on related party derivatives
|
—
|
|
|
—
|
|
|
|
—
|
|
|
1
|
|
|
Interest income recognized on deferred contingent consideration (g)
|
4
|
|
|
1
|
|
|
|
2
|
|
|
3
|
|
|
Total related party financial items
|
30
|
|
|
16
|
|
|
|
14
|
|
|
38
|
|
(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 in 2017.
(g) We record interest income on deferred consideration receivables from Seadrill Partners (see item (i) below).
Related party receivable balances
The below table provides an analysis of related party receivable balances for periods presented in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Related party loans and interest (h)
|
|
488
|
|
|
476
|
|
|
Deferred consideration arrangements (i)
|
|
31
|
|
|
59
|
|
|
Convertible bond (j)
|
|
35
|
|
|
43
|
|
|
Trading balances (k)
|
|
150
|
|
|
138
|
|
|
Total related party receivables
|
|
704
|
|
|
716
|
|
|
Of which:
|
|
|
|
|
|
Amounts due from related parties - current
|
|
181
|
|
|
177
|
|
|
Amounts due from related parties - non-current
|
|
523
|
|
|
539
|
|
(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
|
|
|
Successor
|
|
|
(In $ millions)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
SeaMex seller's credit and loans receivable
|
|
422
|
|
|
398
|
|
|
Seabras loans receivable
|
|
66
|
|
|
78
|
|
|
Total related party loans and interest
|
|
488
|
|
|
476
|
|
SeaMex loans include (i) $250 million "sellers credit" provided to SeaMex in March 2015 which matured in December 2019 but is subordinated to SeaMex's external debt facility, which matures in March 2022, and therefore cannot be repaid. As such, we have classified this balance as non-current on our Consolidated Balance Sheets. (ii) $45 million working capital loan advanced in November 2016 and (iii) $127 million accrued interest on above loans and other funding. The sellers credit and working capital loan both earn interest at 6.5% and are subordinated to SeaMex's external debt facility.
Seabras loans include a series of loan facilities that we extended to Seabras Sapura between May 2014 and December 2016. The $66 million balance shown in the table above includes (i) $54 million of loan principal and (ii) $12 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 $15 million during 2019.
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. See Note 18 - "Investments in Associated Companies" for further details. We received repayments against these shareholder loans of $9 million during 2019.
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
West Vela - Mobilization receivable
|
|
17
|
|
|
31
|
|
|
West Vela - Share of dayrate
|
|
14
|
|
|
27
|
|
|
West Polaris
|
|
—
|
|
|
1
|
|
|
Total deferred consideration receivable
|
|
31
|
|
|
59
|
|
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 were 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.
We recorded the following gains in other operating income for these arrangements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
West Polaris earn out realized
|
—
|
|
|
—
|
|
|
|
—
|
|
|
13
|
|
|
West Vela earn out realized
|
—
|
|
|
—
|
|
|
|
7
|
|
|
14
|
|
|
Total contingent consideration recognized
|
—
|
|
|
—
|
|
|
|
7
|
|
|
27
|
|
(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.
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, 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. As a result, we recorded an other than temporary impairment against our investment in the convertible bond issued to us by Archer. Following the other-than-temporary impairment, the fair value of the convertible debt instrument was $35 million of which the split between debt and embedded derivative option was $35 million and nil respectively. See Note 33 - Fair values of financial instruments for further details.
Subsequent to the year end, on March 13, 2020, Archer announced that it had successfully secured a consensual amendment and extension to its debt facilities. This included a reduction to the principal and accrued interest on the convertible loan due to us from Archer, in exchange for a reduced stock conversion price and removal of certain restrictions regarding the sale or conversion of the loan. Following the amendment, the principal due on the loan would be $13 million and the stock conversion price would decrease from $2.083 per share to $0.40. The maturity date of the loan would also extend to April 1, 2024. The transaction is subject to execution of final agreements and completion of closing conditions.
The fair value gain/(loss) on the convertible bond for periods presented is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
Other than temporary impairment
|
(11
|
)
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
Fair value gain / (loss) of Archer debt component
|
3
|
|
|
(3
|
)
|
|
|
2
|
|
|
1
|
|
|
Fair value (loss) / gain of Archer embedded conversion option
|
—
|
|
|
(9
|
)
|
|
|
2
|
|
|
(4
|
)
|
(k) Trading balances primarily comprise receivables from Seadrill Partners, SeaMex, Northern Drilling and Sonadrill for related party management fees. In addition, certain receivables and payables arise when we pay an invoice on behalf of Seadrill Partners or SeaMex and vice versa. Receivables and payables are generally settled quarterly in arrears.
Related party payable balances
The below table provides an analysis of related party payable balances for periods presented in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Successor
|
|
|
(In $ millions)
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
Related party loans payable (n)
|
|
239
|
|
|
222
|
|
|
Trading balances (o)
|
|
19
|
|
|
39
|
|
|
Total related party liabilities
|
|
258
|
|
|
261
|
|
|
Of which:
|
|
|
|
|
|
Amounts due to related parties - current
|
|
(19
|
)
|
|
(39
|
)
|
|
Long-term debt due to related parties
|
|
(239
|
)
|
|
(222
|
)
|
(n) Related party loans include related party loans from Ship Finance to the Ship Finance subsidiaries that we consolidated as variable interest entities (see Note 35 – Variable Interest Entities (VIEs) for further details). The carrying amount of the loans was $239 million at December 31, 2019 (2018: $222 million). The principal outstanding on the loans was $314 million at December 31, 2019, (2018: $314 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, 2019 (Successor) the trading position was a net liability position of nil.
The loans bear interest at a fixed rate of 4.5% per annum and mature between 2023 and 2029. The total interest expense incurred for the year ended December 31, 2019 (Successor) was $14 million, 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).
(o) Trading balances primarily include 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.
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 maturity in 2020. As a condition to the lenders making the loan available, we 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, 2019 (Successor) was $146 million (December 31, 2018 (Successor): $165 million).
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.
Other guarantees - In addition, we have made certain guarantees over the performance of Seadrill Partners and SeaMex on behalf of customers. Please refer to Note 34 - "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.
Note 32 – 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, 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.
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, adjusted for our non-performance credit risk assumption.
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. We consider these risks to be remote. 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 6 - Segment information. For details on amounts due from affiliated companies, refer to Note 31 - Related Party transactions.
Foreign exchange risk
As is customary in the oil and gas industry, 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.
Our foreign exchange exposures primarily relate to foreign denominated cash and working capital balances. 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, the effect of fluctuations in currency exchange rates caused by 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.
On May 11, 2018, we purchased an interest rate cap for $68 million to mitigate our exposure to future increases in LIBOR on our Senior Credit Facility debt. The interest rate cap is not designated as a hedge and therefore we 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.
We have set out our exposure to interest rate risk on our net debt obligations at December 31, 2019 (Successor) in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
|
Principal
|
|
|
Hedging instruments
|
|
|
Total
|
|
|
Impact of 1% increase in rates
|
|
|
Senior Credit Facilities
|
|
5,662
|
|
|
(4,500
|
)
|
|
1,162
|
|
|
12
|
|
|
Ineffective portion of interest rate cap (1)
|
|
—
|
|
|
4,320
|
|
|
4,320
|
|
|
43
|
|
|
Debt contained within VIEs
|
|
621
|
|
|
—
|
|
|
621
|
|
|
6
|
|
|
Debt exposed to interest rate fluctuations
|
|
6,283
|
|
|
(180
|
)
|
|
6,103
|
|
|
61
|
|
|
Less: Cash and Restricted Cash
|
|
(1,357
|
)
|
|
—
|
|
|
(1,357
|
)
|
|
(14
|
)
|
|
Net debt exposed to interest rate fluctuations (2)
|
|
4,926
|
|
|
(180
|
)
|
|
4,746
|
|
|
47
|
|
(1) The 3-month LIBOR rate as at December 31, 2019 was 1.91%. At this date, the interest cap would mitigate 4% of the impact of a theoretical 1% point increase in LIBOR.
(2) The $476 million of Senior Secured Notes are a fixed rate debt instrument and are therefore excluded from the above table.
Gains and losses on derivatives reported in consolidated statement of operations
Gains and losses on derivatives reported in our consolidated statement of operations included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
|
|
Period from July 2, 2018 through December 31, 2018
|
|
|
|
Period from January 1, 2018 through July 1, 2018
|
|
|
Year ended December 31,
2017
|
|
|
(Loss)/gain recognized in the Consolidated Statement of Operations relating to derivative financial instruments
|
|
|
|
|
|
|
|
|
|
Interest rate cap agreement
|
(37
|
)
|
|
(22
|
)
|
|
|
(6
|
)
|
|
—
|
|
|
Archer convertible debt instrument
|
—
|
|
|
(9
|
)
|
|
|
2
|
|
|
(4
|
)
|
|
Interest rate swaps not designated for hedge accounting
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(31
|
)
|
|
Cross currency swaps not designated for hedge accounting
|
—
|
|
|
—
|
|
|
|
—
|
|
|
46
|
|
|
Loss/(gain) on derivative financial instruments
|
(37
|
)
|
|
(31
|
)
|
|
|
(4
|
)
|
|
11
|
|
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 million convertible bond issued to us by Archer. Please see Note 31 - Related party transactions for further details.
c) 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
Derivative financial instruments included in our Consolidated Balance Sheet, within "Other Assets" included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In $ millions)
|
Maturity date
|
Applicable rate
|
Outstanding principal - December 31, 2019
|
|
As at December 31, 2019
|
|
As at December 31, 2018
|
|
|
|
|
|
Interest rate cap
|
June 2023
|
2.87% LIBOR cap
|
4,500
|
|
3
|
|
39
|
|
|
|
|
|
|
|
3
|
|
39
|
|
Note 33 - 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 at December 31, 2019 (Successor) and December 31, 2018 (Successor) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
Successor
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
(In $ millions)
|
Fair
value
|
|
|
Carrying
value
|
|
|
Fair
value
|
|
|
Carrying
value
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Related party loans receivable (1) (Level 2)
|
395
|
|
|
488
|
|
|
476
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Secured credit facilities (Level 2)
|
5,464
|
|
|
5,549
|
|
|
5,388
|
|
|
5,519
|
|
|
Credit facilities contained within variable interest entities (Level 2)
|
590
|
|
|
598
|
|
|
612
|
|
|
626
|
|
|
Senior Secured Notes (Level 1)
|
404
|
|
|
476
|
|
|
770
|
|
|
769
|
|
|
Related party loans payable by the VIE (Level 2)
|
229
|
|
|
239
|
|
|
222
|
|
|
226
|
|
|
|
|
|
(1)
|
Excludes Archer convertible debt receivable, which is measured at fair value on a recurring basis
|
Level 1
The fair value of the Senior Secured Notes are derived using market traded value. We have categorized this at level 1 on the fair value measurement hierarchy. Refer to Note 22 – Debt for further information.
Level 2
Upon the adoption of fresh start accounting, the related party loans receivable from SeaMex and Seabras Sapura were recorded at fair value. We estimate the fair value to be equal to the carrying value after 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 the loans were entered into at market rates. The 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 under Note 31 - Related party transactions. The fair value of other trading balances with related parties are also assumed to be equal to their carrying value after adjusting for expected credit losses on the receivables.
The fair value of the secured credit facilities and Ship Finance loans are derived using the discounted cash flow model, using a cost of debt of 6%.
The fair value of the loans provided by Ship Finance to our VIE's are derived using the discounted cash flow model, using a cost of debt of 11%. We have categorized this at level 2 on the fair value measurement hierarchy. Refer to Note 31 - Related party transactions 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, 2019 (Successor) and December 31, 2018 (Successor) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
Successor
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
(In $ millions)
|
Fair
value
|
|
|
Carrying
value
|
|
|
Fair
value
|
|
|
Carrying
value
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Level 1)
|
1,115
|
|
|
1,115
|
|
|
1,542
|
|
|
1,542
|
|
|
Restricted cash (Level 1)
|
242
|
|
|
242
|
|
|
461
|
|
|
461
|
|
|
Marketable securities (Level 1)
|
11
|
|
|
11
|
|
|
57
|
|
|
57
|
|
|
Related party loans receivable - Archer convertible debt (Level 3)
|
35
|
|
|
35
|
|
|
43
|
|
|
43
|
|
|
Interest rate cap (Level 2)
|
3
|
|
|
3
|
|
|
39
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary equity
|
|
|
|
|
|
|
|
|
Redeemable non-controlling interest (Level 3)
|
57
|
|
|
57
|
|
|
38
|
|
|
38
|
|
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 on 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, 2019 is calculated using well-established independent valuation techniques and counterparty non-performance credit risk assumptions. 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 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 on 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 to the instrument.
The redeemable non-controlling interest in AOD is calculated by applying a fair value 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 6%.
Fair value considerations on one-time transactions
Archer convertible bond fair value
As at December 31, 2019 we reassessed the fair value of the Archer convertible bond held as a related party balance as a result of the current negotiations to restructure Archer's debt with senior lenders and Seadrill. We have re-assessed the fair value of the bond using a discounted cashflow model approach. For the purposes of the valuation, we have assumed that the maturity date of the bond will be pushed out to December 2024, which we expect to be required in order for Archer to refinance their bank borrowings to which the Seadrill bond is subordinate. We applied a discount rate of 14%.
As a result, an impairment of $11 million was recognized in the Consolidated Statements of Operations within "Impairment of convertible bond from related party" and $3 million recognized in the Consolidated Statements of Comprehensive loss within "Change in fair value of debt component of Archer convertible bond" for the year ended December 31, 2019.
The convertible bond outstanding as at December 31, 2019 was $35 million (December 31, 2018: $43 million). For further information and fair value considerations, refer to Note 31 - Related Party Transactions.
Impairment of investments in associated companies
On September 6, 2019, Seadrill Partners LLC received notification from the New York Stock Exchange ("the NYSE") that trading of their common units had been suspended due to the Company's low market capitalization. We determined that this was a trigger of other-than-temporary impairment against our investments in Seadrill Partners. As a result, we recognized an impairment of $302 million against the Seadrill Partners direct ownership interests, subordinated units and IDRs. This expense was classified under the line item "Loss on impairment of investments" in the consolidated statement of operations, in the year ended December 31, 2019.
Fresh start valuations
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 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, under fresh start accounting, we are required to allocate the reorganization value to individual assets based on their estimated fair values. For further information, refer to Note 5 - Fresh Start Accounting.
Drilling unit impairment
In our reported Predecessor period ended July 1, 2018 (Predecessor), we recorded an impairment expense 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 9 - Other operating items.
Impairment of marketable securities and investments in associated companies and joint ventures
In the year ended December 31, 2017 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 investments in associated companies.
Note 34 – 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. Our best estimate of the outcome of the various disputes has been reflected in our Consolidated Financial Statements as at December 31, 2019.
Seabras Sapura joint venture
The Sapura Esmeralda operates under a Brazilian flag. The right to operate under such Brazilian flag is being challenged in the Brazilian courts. An adverse decision in the Brazilian courts could affect the operations of the Sapura Esmeralda and potentially impact its commercial agreements and related financing. Due to the backlog of cases we estimate a decision within approximately 3 years.
Dalian Newbuilds
As at December 31, 2019, all eight of the newbuilding contracts with Dalian had been terminated by both parties. Accordingly, the Seadrill contracting entities had no contractual obligation to take delivery of the 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 eight 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 insolvency 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 has submitted a draft reorganization plan to the insolvency court which has stated that it will convene a creditor’s meeting 30 days from when it receives the same for a vote on the draft plan. The contracts are all with limited liability subsidiaries of Seadrill. There are no parent company guarantees. As at 31 March 2020, the date of the creditor’s meeting remains unconfirmed.
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 JV partner 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. On January 3, 2020, Oro Negro’s foreign representative was changed to Jose Gerardo Badin Cherit. As a consequence there has been an extension to Seadrill responding to Gil White’s response in further support of its motion to dismiss until further notice. . We intend to vigorously defend against the claims Oro Negro asserts and dispute the allegations set forth in the Complaint. The costs of defending the claims against Seadrill and its JV partner are being met by the joint venture, SeaMex.
Guarantees
We have issued guarantees in favor of third parties as follows, which is the maximum potential future payment for each type of guarantee:
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Successor
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Successor
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|
(In $ millions)
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December 31, 2019
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|
|
December 31, 2018
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|
|
Guarantees in favor of customers (1)(2)(3)
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215
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|
|
7
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|
|
Guarantees in favor of banks (4)
|
146
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|
|
165
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|
|
Guarantees in favor of suppliers
|
—
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|
|
1
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|
|
Total
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361
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|
|
173
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|
(1) Guarantees to Seadrill Partners - Guarantees in favor of customers are performance guarantees provided on behalf of Seadrill Partners of $15 million (December 31, 2018 (Successor): $7 million). Guarantees in favor of suppliers includes guarantees on behalf of Seadrill Partners of nil (December 31, 2018 (Successor): $1 million). Contractual maturity from 2020-2021.
(2) Guarantees to Northern Drilling - Guarantees in favor of customers are performance guarantees provided on behalf of Northern Drilling of $150 million (December 31, 2018 (Successor): $nil). These guarantees are indemnified by Northern Drilling. Contractual maturity till 2022.
(3) Guarantees to Sonadrill - Guarantees in favor of customers are performance guarantees provided on behalf of Sonadrill of $50 million (December 31, 2018 (Successor): $nil). Contractual maturity till 2021 and remains in full force and effect until all obligations under the contract have been discharged and in any event shall terminate on the 90th day after completion of demobilization.
(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 $146 million (December 31, 2018 (Successor): $165 million). Contractual maturity till 2021.
As of December 31, 2019 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 is up to $22 million of which we are joint and severally liable.
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, 2019, we have incurred $19 million of costs to repair the equipment, of which $4 million has been recovered and an additional $14 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 $10 million insurance income from loss of hire of the Sevan Louisiana, covering the period until May 2019. As any further loss of hire in bringing the rig back to work in August 2019 was not readily determined as at December 31, 2019 we have not recognized the gain contingency for further amounts recoverable under the policy.
Note 35 – Variable Interest Entities
Between 2007 and 2013, we entered into sale and leaseback arrangements for drilling units with SFL Corporation Ltd, who incorporated subsidiary companies for the sole purpose of owning and leasing the drilling units ("Ship Finance VIEs"). We concluded that we are the primary beneficiary of these companies and therefore consolidate them under the variable interest model.
As at December 31, 2019 (Successor), the Ship Finance VIEs lease two semi-submersible rigs and a jack-up rig to certain fully owned Seadrill entities under long-term charter agreements. These agreements include options for the Seadrill entities to purchase the rigs during the charter periods and obligations to purchase the assets at the end of the lease.
The following table gives a summary of the sale and leaseback arrangements and repurchase options, as at December 31, 2019:
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Unit
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Effective
from
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Sale value
(In $ millions)
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First
repurchase
option
(In $ millions)
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Month of first
repurchase
option
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Last
repurchase
option (1)
(In $ millions)
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Month of last
repurchase
Option (1)
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West Taurus
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Nov 2008
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850
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418
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Feb 2015
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154
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Dec 2024
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|
West Hercules
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Oct 2008
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|
850
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|
580
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Aug 2011
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|
138
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Dec 2024
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|
West Linus
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|
June 2013
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|
600
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|
370
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Jun 2018
|
|
170
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May 2029
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(i) Ship Finance has a right to require us to purchase the West Linus for $86 million if we don’t exercise the final repurchase option.
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.
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(In $ thousands)
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2020
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2021
|
|
2022
|
|
2023
|
|
2024
|
|
West Taurus
|
|
101
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|
96
|
|
96
|
|
181
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|
177
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|
West Hercules
|
|
100
|
|
96
|
|
96
|
|
183
|
|
176
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|
West Linus
|
|
99
|
|
99
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|
92
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|
189
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|
153
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The Ship Finance VIEs are fully consolidated in our Consolidated Financial Statements. The equity attributable to Ship Finance in the VIEs is included in non-controlling interests. The rigs are reported within drilling units in our balance sheet. No gain from the sale of the units was recorded at the time of each transaction. The investment in the capital leases recorded in the Ship Finance VIEs are eliminated on consolidation against the corresponding capital lease liability held within Seadrill entities. The other assets and liabilities of the VIEs are fully reflected within the Consolidated Financial Statements.
The balance sheets of the VIEs on a stand-alone basis at December 31, 2019 and December 31, 2018 (Successor) were as follows:
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Successor
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Successor
|
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(In $ millions)
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|
As at December 31, 2019
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As at December 31, 2018
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Cash and cash equivalents
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|
22
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|
2
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Investment in finance lease
|
|
972
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|
|
1,024
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|
|
Total assets of the VIEs (1)
|
|
994
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|
|
1,026
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|
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Short-term interest bearing debt (2)
|
|
48
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|
|
33
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|
|
Long-term interest bearing debt (2)
|
|
550
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|
|
593
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Other liabilities
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|
5
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|
|
2
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Short-term amounts due to related parties
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|
12
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|
31
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|
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Long-term debt due to related parties (3)
|
|
239
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|
|
222
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|
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Total liabilities of the VIEs
|
|
854
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|
|
881
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|
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Equity of the VIEs
|
|
140
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|
|
145
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|
(1) Book value of units in the Company's consolidated financial statements as at December 31, 2019 was $784 million (December 31, 2018: $823 million).
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(2)
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Total interest bearing debt comprises principal outstanding of $621 million offset by $23 million debt discount (December 31, 2018: $655 million principal outstanding offset by $29 million debt discount).
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(3)
|
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 as shown in the table below:
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|
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Successor
|
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Successor
|
|
(In $ millions)
|
As at December 31, 2019
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|
|
As at December 31, 2018
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|
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Debt principal outstanding
|
314
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|
|
314
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|
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Debt discount
|
(75
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)
|
|
(88
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)
|
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Trading liability positions held against long-term loan
|
—
|
|
|
(4
|
)
|
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Long-term loan due to related parties
|
239
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|
|
222
|
|
Note 36 - Supplementary cash flow information
The table below summarizes the non-cash investing and financing activities relating to the periods presented:
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Successor
|
|
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Predecessor
|
|
(In $ millions)
|
Year ended December 31,
2019
|
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Period from July 2, 2018 through December 31, 2018
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Period from January 1, 2018 through July 1, 2018
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|
Year ended December 31,
2017
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Non-cash investing activities
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Sale of rigs and equipment (1)
|
—
|
|
|
—
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|
|
|
—
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|
|
103
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|
|
Proceeds from repayment of short-term loan from related parties due to Seadrill Partners insulation from Seadrill Limited (2)
|
—
|
|
|
—
|
|
|
|
—
|
|
|
109
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|
|
Derecognition of Sevan Developer newbuild asset (3)
|
—
|
|
|
—
|
|
|
|
—
|
|
|
620
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|
|
Derecognition of Sevan Developer construction obligation (3)
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities
|
|
|
|
|
|
|
|
|
|
Repayment of debt following sale of rigs and equipment (1)
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(103
|
)
|
|
Repayment of debt following insulation of Seadrill Partners from Seadrill Limited (3)
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(109
|
)
|
|
Dividend to non-controlling interests in VIEs (4)
|
—
|
|
|
—
|
|
|
|
—
|
|
|
(14
|
)
|
|
|
|
|
(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 - Other operating items for further information.
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|
|
|
|
(2)
|
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 31 - Related party transactions for further information on related party transactions.
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|
|
|
|
(3)
|
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 – Other operating items for further information.
|
|
|
|
|
(4)
|
During the years ended December 31, 2017, the Ship Finance VIEs declared dividends payable to Ship Finance. Refer to Note 35 - Variable interest entities for further information.
|
Note 37 – Subsequent Events
Archer convertible note
On March 13, 2020, Archer announced that it had successfully secured a consensual amendment and extension to its debt facilities. This included a reduction to the principal and interest on the convertible loan due to us from Archer, in exchange for a reduced stock conversion price and removal of certain restrictions regarding the sale or conversion of the loan (see Note 31 - "Related party transactions" for details of loan). Following the amendment, the principal due on the loan would be $13 million and the stock conversion price would decrease from $2.083 per share to $0.40. The maturity date of the loan would also extend to April 1, 2024. The transaction is subject to execution of final agreements and completion of closing conditions.
