6-K
Seadrill Ltd (SDRL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 6-K
REPORT OFFOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2023
Commission File Number 001-39327
Seadrill Limited
(Exactname of Registrant as specified in its Charter)
Park Place
55 Par-la-Ville Road
Hamilton HM 11 Bermuda
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
EXPLANATORY NOTE
As previously disclosed in Seadrill Limited’s (“Seadrill”) Annual Report on Form 20-F filed with the SEC on April 19, 2023 (the “2022 Form 20-F”), on December 22, 2022, Seadrill entered into the Agreement and Plan of Merger by and among Seadrill, Aquadrill LLC (formerly Seadrill Partners), a Marshall Islands limited liability company (“Aquadrill”), and Seadrill Merger Sub, LLC, a Marshall Islands limited liability company (“Merger Sub”), pursuant to which Merger Sub merged with and into Aquadrill, with Aquadrill surviving the merger as a wholly owned subsidiary of Seadrill (the “Merger”). On April 3, 2023, Seadrill completed the Merger. In connection with the Merger, Seadrill issued approximately 29.9 million common shares, par value $0.01 per share (“Common Shares”), to Aquadrill unitholders and equity award holders, representing approximately 37% of the post-Merger issued and outstanding Common Shares.
Included in this Report on Form 6-K (this “Form 6-K”) is financial information related to Seadrill and Aquadrill. Exhibit 99.1 to this Form 6-K includes unaudited pro forma financial information for the nine months ended September 30, 2023 for Seadrill.
This Form 6-K should be read in conjunction with the 2022 Form 20-F, the Form 6-K for the three and nine months ended September 30, 2023 filed by Seadrill on November 27, 2023, and any other documents Seadrill has filed with or furnished to the SEC subsequent to April 19, 2023.
EXHIBITS
| ExhibitNumber | Description |
|---|---|
| 99.1 | Unaudited pro forma condensed combined financial information of Seadrill Limited for the nine months ended September 30, 2023 and the year ended December 31, 2022. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SEADRILL LIMITED | ||
|---|---|---|
| Date: November 27, 2023 | By: | /s/ Grant Creed |
| Name: Grant Creed | ||
| Title: Principal Financial Officer of Seadrill Limited |
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE REGISTRATION STATEMENT ON FORM F-3 (NO. 333-271916) ORIGINALLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 2023.
EX-99.1
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements of Seadrill Limited (“Seadrill” or the “Company”) and the accompanying explanatory notes (the “Pro Forma Financial Information”) have been prepared to illustrate the following transactions that have been completed since January 1, 2022, but have not been included in the results of operations for the entire period presented for the pro forma condensed combined statements of operations (collectively, the “Completed Transactions”):
| • | Refinancing of Secured Debt: On July 27, 2023, Seadrill issued $500 million in aggregate<br>principal amount of 8.375% Senior Secured Second Lien Notes due 2030 (the “Notes”) in an offering (the “Offering”) conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended (the<br>“Securities Act”). |
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Subsequently, on August 8, 2023, the Company issued an additional $75 million in aggregate principal amount of 8.375% Senior Secured Second Lien Notes due 2030 (the “Incremental Notes”). The Incremental Notes mature on August 1, 2030, and were issued at 100.75% of par.
The net proceeds from the issuance of the $575 million of 8.375% Senior Secured Second Lien Notes (the “Second LienNotes”) were used to: (i) prepay in full the outstanding amounts under the existing secured debt facilities, entered into on February 23, 2022, upon emergence from Chapter 11 proceedings, and (ii) pay fees associated with exiting such secured debt facilities.
The existing secured debt facilities included (i) the $300 million term loan (the “Initial Term Loan”) and a $125 million revolving credit facility (the “Initial RCF”) and (ii) the $683 million secured second lien facility (the “Initial Second Lien”). The Initial Term Loan and Initial RCF, if drawn, bore interest at a margin of 7% per annum plus the secured overnight financial rate facility (“SOFR”) (and any applicable credit adjustment spread). The Initial Second Lien bore interest at a total margin of 12.5% per annum plus SOFR (and any applicable credit adjustment spread). At July 27, 2023, the outstanding principal for the Initial Term Loan and Initial Second Lien, $175 million and $115 million, respectively, was prepaid in full with proceeds from the Second Lien Notes issuance. Further, the Initial RCF had not been drawn.
In addition, on July 11, 2023, Seadrill Ltd., along with its subsidiary, Seadrill Finance Limited, established a new Senior Secured Revolving Credit Facility (the “RCF”). The commitments under the RCF, which carries a five-year term, became available for drawdown on July 27, 2023, following the issuance of the Second Lien Notes and repayment of Seadrill’s existing facilities. The RCF permits borrowings of up to $225 million in revolving credit for working capital and other corporate purposes and includes an ‘accordion feature’ allowing Seadrill to increase this limit by up to an additional $100 million subject to agreement from the lenders. It also includes a provision for issuing letters of credit up to $50 million. The RCF incurs interest at a rate equal to a specified margin plus the SOFR. Seadrill is required to pay a quarterly commitment fee on any unused portion of the revolving credit.
The Company incurred issuance costs of approximately $26 million associated with the refinancing.
As a result of the Company’s refinancing (“Debt Refinancing”), the higher interest debt facilities entered into on February 23, 2022, upon emergence from Chapter 11 proceedings, were repaid in full and replaced with the more favorable Secured Second Lien Notes due 2030 at a lower rate of 8.375%.
| • | Business Combination: On April 3, 2023 (the “Closing Date”), pursuant to the<br>definitive merger agreement, dated December 22, 2022 (the “Merger Agreement”), by and among Seadrill, Seadrill Merger Sub, LLC, a Marshall Islands limited liability company, wholly owned subsidiary of Seadrill (“MergerSub”), and Aquadrill LLC, a Marshall Islands limited liability company (“Aquadrill”), Aquadrill merged with and into Merger Sub (the “Merger” or the “Business Combination”) with Aquadrill<br>surviving the Merger as a wholly owned subsidiary of Seadrill. Pursuant to the Merger Agreement, Aquadrill unitholders received (i) 29.9 million Seadrill common shares, (ii) cash consideration of $1 million, and (iii) $30 million<br>settled by tax withholding in lieu of common shares. The Merger is accounted for as a business combination pursuant to Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), where<br>Seadrill is the accounting acquirer. Under the acquisition method of accounting, the assets and liabilities of Aquadrill and its subsidiaries were recorded at their respective fair values as of the Closing Date. The purchase price allocation is<br>based on preliminary estimates and assumptions, which are subject to change for up to one year after the Closing Date as Seadrill finalizes the valuation of the assets acquired, the liabilities assumed and the related tax balances as of the Closing<br>Date. Such adjustments could be material. |
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| • | Seadrill Reorganization: On February 22, 2022 (the “Effective Date”), Seadrill<br>concluded its comprehensive restructuring process and emerged from bankruptcy reorganization under Chapter 11 (the “Seadrill Reorganization”). |
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| • | Paratus Energy Services Limited (“PES”) Sale: On October 26, 2021,<br>Seadrill New Finance Limited and its subsidiaries (formerly “NSNCo” and now “PES”) were classified as a discontinued operation following the Bankruptcy Court’s approval of a proposed sale of 65% of<br>Seadrill’s equity interest in PES to its lenders. The sale was conducted as part of Seadrill’s comprehensive restructuring and was completed on January 20, 2022. On February 24, 2023, Seadrill sold the remaining 35% equity<br>interest, collectively the “PES Sale”. In connection with the PES Sale, on March 14, 2023, the Company provided each of PES and SeaMex Holdings Ltd (“SeaMex Holdings”) with a termination notice regarding<br>(i) the Master Services Agreement by and between PES and Seadrill Management Ltd (“SML”), dated January 20, 2022 (the “Paratus MSA”), and (ii) the Master Services Agreement by and among SeaMex<br>Holdings, certain operating companies party thereto and SML, dated January 20, 2022 (the “SeaMex MSA”), respectively. The Paratus MSA terminated on July 12, 2023 (subject to certain transitional services being provided),<br>and the SeaMex MSA was terminated on September 10, 2023 (subject to certain transitional services being provided). The Company does not believe these terminations will have a material effect on the financial condition of Seadrill.<br> |
| --- | --- |
| • | Sale of Jackup Units: On October 18, 2022, Seadrill sold the entities that own and operate seven<br>jackup units (the “Jackup Sale”) in the Kingdom of Saudi Arabia to ADES Arabia Holding Ltd. (“ADES”). The Jackup Sale caused immediate cash repayment obligations under the Initial Second Lien. The repayment<br>obligations, contractually referred to as mandatory payments, were based on the proceeds received and resulted in a minimum payment of $204 million, comprised of $192 million in debt principal, $10 million in exit fee, and<br>$2 million in accrued interest. |
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The Pro Forma Financial Information has been prepared under the following assumptions:
| • | The unaudited pro forma condensed combined statements of operations for the nine months ended September 30,<br>2023 and the year ended December 31, 2022 assume that the transactions had occurred on January 1, 2022. The impacts from the Seadrill Reorganization, PES Sale and Jackup Sale have already been reflected in the historical consolidated<br>statement of operations of Seadrill for the nine months ended September 30, 2023 and therefore no pro forma statement of operations adjustments were made for the respective interim period. |
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| • | The impacts from the Completed Transactions have already been reflected in the historical consolidated balance<br>sheet of Seadrill as of September 30, 2023 and therefore a pro forma balance sheet is not included herein. |
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The Pro Forma Financial Information presented herein is provided for informational and illustrative purposes only and is not necessarily indicative of the financial results that would have been achieved had the transactions occurred on the dates assumed, nor is this pro forma financial information necessarily indicative of the operations results in future periods. The pro forma adjustments are based on currently available information and certain assumptions that Seadrill believes are reasonable and factually supportable. The Pro Forma Financial Information should be read in conjunction with the following:
| • | The audited historical consolidated financial statements and notes of Seadrill as of December 31, 2022 and<br>December 31, 2021 and for each of the three years ended December 31, 2022 included in Seadrill’s Annual Report on Form 20-F for the fiscal year ended December 31, 2022, filed with the<br>Securities and Exchange Commission (the “SEC”) on April 19, 2023, incorporated by reference herein. |
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| • | The unaudited historical consolidated financial statements and notes of Seadrill included in Seadrill’s<br>Report on Form 6-K as of September 30, 2023 and December 31, 2022 and for the nine months ended September 30, 2023 and 2022 filed with the SEC on November 27, 2023, and incorporated by<br>reference herein. |
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| • | The audited historical consolidated financial statements and notes of Aquadrill as of December 31, 2022 and<br>December 31, 2021 and for each of the two years ended December 31, 2022 included in Seadrill’s Form 6-K filed with the SEC on May 12, 2023, and incorporated by reference herein.<br> |
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| • | The unaudited historical consolidated financial statements and notes of Aquadrill as of March 31, 2023 and<br>December 31, 2022 and for the three months ended March 31, 2023 and 2022 included in Seadrill’s Form 6-K filed with the SEC on June 21, 2023, and incorporated by reference herein.<br> |
| --- | --- |
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Seadrill Limited
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the nine months ended September 30, 2023
| (In millions, except per share data) | Aquadrill<br>Historical<br>(Note 2) | Merger | Debt<br>Refinancing | Pro Forma<br>Combined | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating revenues | ||||||||||||||||
| Contract revenues | 839 | 77 | — | — | 916 | |||||||||||
| Reimbursable revenues | 26 | 1 | — | — | 27 | |||||||||||
| Management contract revenues | 198 | — | — | — | 198 | |||||||||||
| Other revenues | 31 | — | — | — | 31 | |||||||||||
| Total operating revenues | 1,094 | **** | **** | 78 | **** | **** | — | **** | **** | — | **** | 1,172 | **** | |||
| Operating expenses | ||||||||||||||||
| Vessel and rig operating expenses | (485 | ) | (59 | ) | — | — | (544 | ) | ||||||||
| Reimbursable expenses | (23 | ) | (1 | ) | — | — | (24 | ) | ||||||||
| Depreciation and amortization | (112 | ) | (5 | ) | (46 | ) | 3m | — | (163 | ) | ||||||
| Management contract expense | (142 | ) | — | — | — | (142 | ) | |||||||||
| Merger and integration related expenses | (21 | ) | (3 | ) | — | — | (24 | ) | ||||||||
| Selling, general and administrative expenses | (48 | ) | (5 | ) | — | — | (53 | ) | ||||||||
| Total operating expenses | (831 | ) | **** | (73 | ) | **** | (46 | ) | **** | — | **** | (950 | ) | |||
| Other operating items | ||||||||||||||||
| Gain on disposals | 14 | — | — | — | 14 | |||||||||||
| Total other operating items | 14 | **** | **** | — | **** | **** | — | **** | **** | — | **** | 14 | **** | |||
| Operating profit | 277 | **** | **** | 5 | **** | **** | (46 | ) | **** | — | **** | 236 | **** | |||
| Financial and other non-operating items | ||||||||||||||||
| Interest income | 22 | — | — | — | 22 | |||||||||||
| Interest expense | (44 | ) | — | — | 1 | 3n | (43 | ) | ||||||||
| Share in results from associated companies (net of tax) | 27 | — | — | — | 27 | |||||||||||
| Other financial items | (19 | ) | — | — | 10 | 3o | (9 | ) | ||||||||
| Total financial and other non-operating items,<br>net | (14 | ) | **** | — | **** | **** | — | **** | **** | 11 | **** | (3 | ) | |||
| Profit before income taxes | 263 | **** | **** | 5 | **** | **** | (46 | ) | **** | 11 | **** | 233 | **** | |||
| Income tax expense | (36 | ) | (4 | ) | — | — | (40 | ) | ||||||||
| Profit from continuing operations | 227 | **** | **** | 1 | **** | **** | (46 | ) | **** | 11 | **** | 193 | **** | |||
| EPS: continuing operations () | ||||||||||||||||
| Basic | 2.84 | **** | **** | 2.42 | **** | |||||||||||
| Diluted | 2.75 | **** | **** | 2.34 | **** | |||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| Basic | 80 | 3f | 80 | |||||||||||||
| Diluted | 83 | 3f | 83 |
All values are in US Dollars.
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Seadrill Limited
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 2022
| (In millions, except pershare data) | SuccessorCompany<br>from February 23,2022 throughDecember 31, 2022 | Aquadrill<br>Historical<br>(Note 2) | Reorganization | FreshStart | PES<br>Sale | Jackup<br>Sale | Merger | Debt<br>Refinancing | Pro<br>Forma<br>Combined | ||||||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||||||||||||
| Contract revenues | 124 | 574 | 190 | — | — | — | — | — | — | 888 | |||||||||||||||||||||||
| Reimbursable revenues | 4 | 27 | 8 | — | — | — | — | — | — | 39 | |||||||||||||||||||||||
| Management contract revenue | 36 | 203 | — | — | — | — | — | (4 | ) | 3l | — | 235 | |||||||||||||||||||||
| Other revenues | 5 | 39 | — | — | — | — | — | — | — | 44 | |||||||||||||||||||||||
| Total operating revenues | 169 | **** | **** | 843 | **** | **** | 198 | **** | **** | — | **** | **** | — | **** | **** | — | **** | — | **** | (4 | ) | **** | — | **** | **** | 1,206 | **** | ||||||
| Operating expenses | |||||||||||||||||||||||||||||||||
| Vessel and rig operating expenses | (76 | ) | (445 | ) | (213 | ) | (15 | ) | 3a | — | — | — | 4 | 3l | — | (745 | ) | ||||||||||||||||
| Reimbursable expenses | (4 | ) | (24 | ) | (7 | ) | — | — | — | — | — | — | (35 | ) | |||||||||||||||||||
| Depreciation and amortization | (17 | ) | (135 | ) | (16 | ) | 1 | 3b | 1 | 3g | — | — | (12 | ) | 3m | — | (178 | ) | |||||||||||||||
| Management contract expense | (31 | ) | (148 | ) | — | — | — | — | — | — | — | (179 | ) | ||||||||||||||||||||
| Merger and integration related expenses | — | (3 | ) | (2 | ) | — | — | — | — | — | — | (5 | ) | ||||||||||||||||||||
| Selling, general and administrative expenses | (6 | ) | (54 | ) | (21 | ) | — | — | — | — | — | — | (81 | ) | |||||||||||||||||||
| Total operating expenses | (134 | ) | **** | (809 | ) | **** | (259 | ) | **** | (14 | ) | **** | 1 | **** | **** | — | **** | — | **** | (8 | ) | **** | — | **** | **** | (1,223 | ) | ||||||
| Other operating items | |||||||||||||||||||||||||||||||||
| Gain on disposals | 2 | 1 | 27 | — | — | — | — | 30 | |||||||||||||||||||||||||
| Total other operating items | 2 | **** | **** | 1 | **** | **** | 27 | **** | **** | — | **** | **** | — | **** | **** | — | **** | — | **** | — | **** | **** | — | **** | **** | 30 | **** | ||||||
| Operating profit/(loss) | 37 | **** | **** | 35 | **** | **** | (34 | ) | **** | (14 | ) | **** | 1 | **** | **** | — | **** | — | **** | (12 | ) | **** | — | **** | **** | 13 | **** | ||||||
| Financial and other non-operating items | |||||||||||||||||||||||||||||||||
| Interest income | — | 14 | 1 | — | — | — | — | — | — | 15 | |||||||||||||||||||||||
| Interest expense | (7 | ) | (98 | ) | — | (9 | ) | 3c | — | — | 21 | 3k | — | 37 | 3n | (56 | ) | ||||||||||||||||
| Share in results from associated companies | (2 | ) | (2 | ) | — | — | — | 11 | 3i | — | — | — | 7 | ||||||||||||||||||||
| Gain/(loss) on derivative and foreign exchange | 9 | 8 | (2 | ) | — | — | — | — | — | — | 15 | ||||||||||||||||||||||
| Reorganization items, net | 3,683 | (15 | ) | (1 | ) | (3,514 | ) | 3d | (266 | ) | 3h | 112 | 3j | — | — | — | (1 | ) | |||||||||||||||
| Other financial and non-operating items | 21 | (5 | ) | — | (24 | ) | 3e | — | — | — | — | (10 | ) | 3o | (18 | ) | |||||||||||||||||
| Total financial and other non-operating<br>items | 3,704 | **** | **** | (98 | ) | **** | (2 | ) | **** | (3,547 | ) | **** | (266 | ) | **** | 123 | **** | 21 | **** | — | **** | **** | 27 | **** | **** | (38 | ) | ||||||
| Profit/(loss) before income taxes | 3,741 | **** | **** | (63 | ) | **** | (36 | ) | **** | (3,561 | ) | **** | (265 | ) | **** | 123 | **** | 21 | **** | (12 | ) | **** | 27 | **** | **** | (25 | ) | ||||||
| Income tax (expense)/benefit | (2 | ) | (10 | ) | 5 | — | — | — | — | — | — | (7 | ) | ||||||||||||||||||||
| Profit/(loss) from continuing operations | 3,739 | **** | **** | (73 | ) | **** | (31 | ) | **** | (3,561 | ) | **** | (265 | ) | **** | 123 | **** | 21 | **** | (12 | ) | **** | 27 | **** | **** | (32 | ) | ||||||
| Basic/Diluted EPS: continuing operations () | 37.25 | **** | **** | (1.46 | ) | **** | (0.40 | ) | |||||||||||||||||||||||||
| Weighted-average shares outstanding, Basic/Diluted | 100 | 50 | (50 | ) | 3f | 30 | 3f | 80 |
All values are in US Dollars.
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Notes to the Pro Forma Financial Information
Note 1: Basis of Presentation
The Pro Forma Financial Information has been prepared by Seadrill in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” The pro forma adjustments include transaction accounting adjustments, which reflect the application of required accounting for the transactions. Article 11 permits presentation of reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur, otherwise known as Management’s Adjustments. Seadrill has elected not to present Management’s Adjustments as the Company is continuing to evaluate the realizability of synergies including timing and cost to achieve.
Seadrill adopted fresh start accounting in accordance with ASC Topic 852, Reorganizations (“ASC 852”), upon the emergence from reorganization under Chapter 11, resulting in reorganized Seadrill becoming the successor entity (“Successor”) for financial reporting purposes. In accordance with ASC 852, with the application of fresh start accounting, Seadrill allocated reorganization values to individual assets based on estimated fair values in conformity with ASC 805. Liabilities subject to compromise of the predecessor of Seadrill (“Predecessor”) were either reinstated or extinguished as part of the reorganization. Refer to Note 3 for the results of the Seadrill Reorganization for the year ended December 31, 2022.
The historical financial statements of Seadrill and Aquadrill were prepared in accordance with generally accepted accounting principles in the United States and shown in U.S. dollars. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023 and the year ended December 31, 2022 assumes that the transactions had occurred on January 1, 2022. The impacts from the Seadrill Reorganization, PES Sale and Jackup Sale have already been reflected in the historical consolidated statement of operations of Seadrill for the nine months ended September 30, 2023 and therefore no pro forma statement of operations adjustments were made for the respective interim period. Additionally, Aquadrill’s results of operations for the six months ended September 30, 2023 are included in Seadrill’s historical results for the nine months ended September 30, 2023.
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Note 2: Reclassifications
The reclassifications presented below were made as a result of the Business Combination to conform Aquadrill’s historical financial information to Seadrill’s presentation.
Reclassifications included in the Unaudited Pro Forma Condensed Combined Statement of Operations for the three monthsended March 31, 2023
| March 31, 2023(in millions) <br>PresentationReclassifications | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Aquadrill Presentation | Amount | Amount | Seadrill Presentation | ||||||||
| Operating revenues | Operating revenues | ||||||||||
| Contract revenues | 77 | 77 | Contract revenues | ||||||||
| Reimbursable revenues | 1 | 1 | Reimbursable revenues | ||||||||
| Total operating revenues | **** | 78 | **** | 78 | **** | Total operating revenues | |||||
| Operating expenses | Operating expenses | ||||||||||
| Vessel and rig operating expenses | (59 | ) | (59 | ) | Vessel and rig operating expenses | ||||||
| Reimbursable expenses | (1 | ) | (1 | ) | Reimbursable expenses | ||||||
| Depreciation | (5 | ) | (5 | ) | Depreciation and amortization | ||||||
| — | ) | a | (3 | ) | Merger and integration related expenses | ||||||
| Selling, general and administrative expenses | (8 | ) | a | (5 | ) | Selling, general and administrative expenses | |||||
| Total operating expenses | **** | (73 | ) | **** | (73 | ) | Total operating expenses | ||||
| Other operating items | Other operating items | ||||||||||
| Gain on sale of assets | — | — | Gain on disposals | ||||||||
| Total other operating items | **** | — | **** | **** | — | **** | Total other operating items | ||||
| Operating income | **** | 5 | **** | **** | 5 | **** | Operating profit | ||||
| Financial and other items | Financial and other non-operating items | ||||||||||
| Foreign currency exchange loss | — | — | Foreign exchange loss | ||||||||
| Interest income | — | — | Interest income | ||||||||
| Restructuring and other expenses | — | — | Other financial items | ||||||||
| Total financial items, net | **** | — | **** | **** | — | **** | Total financial and other non-operating items, net | ||||
| Income before income taxes | 5 | 5 | Profit before income taxes | ||||||||
| Income tax expense | **** | (4 | ) | **** | (4 | ) | Income tax expense | ||||
| Net income | **** | 1 | **** | **** | 1 | **** | Profit from continuing operations |
All values are in US Dollars.
| a. | Selling, general, and administrative expenses – To reclassify selling, general, and administrative<br>expenses in the amount of $3 million to merger and integration related expenses. |
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Reclassifications included in the Unaudited Pro Forma Condensed Combined Statement of Operations for theyear ended December 31, 2022
| December 31, 2022<br>(in millions) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Aquadrill Presentation | Amount | PresentationReclassifications | Amount | Seadrill Presentation | ||||||
| Operating revenues | Operating revenues | |||||||||
| Contract revenues | 190 | 190 | Contract revenues | |||||||
| Reimbursable revenues | 8 | 8 | Reimbursable revenues | |||||||
| Total operating revenues | **** | 198 | **** | **** | **** | 198 | **** | Total operating revenues | ||
| Operating expenses | Operating expenses | |||||||||
| Vessel and rig operating expenses | (213 | ) | (213 | ) | Vessel and rig operating expenses | |||||
| Reimbursable expenses | (7 | ) | (7 | ) | Reimbursable expenses | |||||
| Depreciation | (16 | ) | (16 | ) | Depreciation and amortization | |||||
| — | ) | a | (2 | ) | Merger and integration related expenses | |||||
| Selling, general and administrative expenses | (23 | ) | a | (21 | ) | Selling, general and administrative expenses | ||||
| Total operating expenses | **** | (259 | ) | **** | **** | (259 | ) | Total operating expenses | ||
| Other operating items | Other operating items | |||||||||
| Gain on sale of assets | 27 | 27 | Gain on disposals | |||||||
| Total other operating items | **** | 27 | **** | **** | **** | 27 | **** | Total other operating items | ||
| Operating loss | **** | (34 | ) | **** | **** | (34 | ) | Operating loss | ||
| Financial and other items | Financial and other non-operating items | |||||||||
| Foreign currency exchange loss | (2 | ) | (2 | ) | Loss on derivative and foreign exchange | |||||
| Interest income | 1 | 1 | Interest income | |||||||
| Restructuring and other expenses | (1 | ) | (1 | ) | Reorganization items, net | |||||
| Total financial items, net | (2 | ) | (2 | ) | Total financial and other non-operating items | |||||
| Loss before income taxes | (36 | ) | (36 | ) | Loss before income taxes | |||||
| Income tax benefit | **** | 5 | **** | **** | **** | 5 | **** | Income tax benefit | ||
| Net loss | **** | (31 | ) | **** | **** | (31 | ) | Loss from continuing operations |
All values are in US Dollars.
| a. | Selling, general, and administrative expenses – To reclassify selling, general, and administrative<br>expenses in the amount of $2 million to merger and integration related expenses. |
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Note 3: Unaudited Pro Forma Combined Statements of Operations
Reorganization Adjustments
| a. | Vessel and rig operating expenses – In conjunction with the Seadrill Reorganization, the Company<br>entered into an amended lease agreement with SFL Corporation Ltd. (“SFL”) for the West Linus drilling unit. Prior to the amendment, this lease was classified as a finance lease and, as a result of the modification, was<br>reclassified as an operating lease. The adjustment below reflects the operating lease expense associated with the modification and reversal of the gain on extinguishment of previously accrued operating costs on the Effective Date.<br> | ||
|---|---|---|---|
| (In $ millions) | Year ended<br>December 31,2022 | ||
| --- | --- | --- | --- |
| West Linus operating lease expense | (3 | ) | |
| Reversal of gain on release of previously accrued operating costs extinguished on the Effective Date | (12 | ) | |
| Total adjustment to Vessel and rig operating expenses | **** | (15 | ) |
| b. | Depreciation and amortization – Reflects the removal of the historical depreciation expense<br>associated with the modification of the lease for the West Linus drilling unit. | ||
| --- | --- | ||
| c. | Interest expense – Reflects the adjustment to remove the historical interest expense for the<br>Predecessor debt instruments and unwind on the SFL leases, and to record the interest expense associated with the debt instruments entered into upon emergence from Chapter 11 proceedings. The pro forma adjustments to interest expense were calculated<br>as follows: | ||
| --- | --- | ||
| (In $ millions) | Year endedDecember 31,2022 | ||
| --- | --- | --- | --- |
| Write-off of Predecessor interest expense | 7 | ||
| Pro forma interest expense on the Initial Term Loan | (3 | ) | |
| Pro forma interest expense on the Initial Second Lien | (13 | ) | |
| Pro forma interest expense on the convertible bonds | (1 | ) | |
| Amortization of debt premium | 1 | ||
| Total adjustment to Interest expense | **** | (9 | ) |
Assuming an increase in interest rates on the debt instruments of 1/8%, pro forma interest would increase by nil for the period from January 1, 2022 through February 22, 2022. The interest rates used for the purposes of calculating pro forma interest expenses for the Initial Term Loan, Initial Second Lien, and convertible bonds were 7.94%, 13.44%, and 6.96% respectively.
| d. | Reorganization items, net – Reflects the removal of reorganization items which represent charges<br>directly attributable to the bankruptcy. The balance excludes the fresh start valuation adjustments which are described in Note 3h below. | ||
|---|---|---|---|
| (In $ millions) | Year ended<br>December 31,2022 | ||
| --- | --- | --- | --- |
| Pre-tax gain on settlement of liabilities subject to<br>compromise | (3,589 | ) | |
| Advisory and professional fees | 59 | ||
| Expense of Predecessor directors and officers insurance policy | 17 | ||
| Interest income on surplus cash | (1 | ) | |
| Total adjustment to Reorganization items, net | **** | (3,514 | ) |
| e. | Other financial and non-operating items – In conjunction<br>with the Seadrill Reorganization, the accrual related to the Dalian yard postponement was extinguished. The adjustment reflects the reversal of the gain on extinguishment of $24 million which is directly attributable to the bankruptcy and is<br>not representative of the Successor. | ||
| --- | --- |
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| f. | Basic/Diluted Weighted Average Shares Outstanding – The calculation of basic and diluted<br>weighted average shares outstanding assumes that the shares issued relating to the Merger have been outstanding for the entire period presented. Thus, the shares issued relating to the Merger shown in the basic and diluted weighted average shares<br>outstanding figure in the table below are assumed to have been outstanding since January 1, 2022. Seadrill has recognized the effects of the Merger as of the Closing Date in its historical financial statements, including the effects to basic<br>and diluted weighted average shares outstanding. In addition to the Merger, the basic and diluted weighted average shares outstanding have been adjusted to reflect the cancellation of the Predecessor equity and issuance of 50 million Successor<br>common shares, which reduced the weighted-average common shares outstanding by 50 million. | ||||
|---|---|---|---|---|---|
| (In $ millions) | Nine months<br>ended September 30,2023 | Year ended<br>December 31,2022 | |||
| --- | --- | --- | --- | --- | --- |
| Seadrill weighted average shares outstanding | 80 | 100 | |||
| Cancellation of Predecessor equity | — | (100 | ) | ||
| Issuance of Successor common stock | — | 50 | |||
| Seadrill shares issued to Aquadrill shareholders | — | 30 | |||
| Total pro forma weighted average shares outstanding - basic/diluted (1) | **** | 80 | **** | 80 | **** |
| Dilutive impact of Seadrill’s pre-transaction<br>convertible bond | 3 | — | |||
| Adjusted pro forma weighted average shares outstanding - diluted (2) | **** | 83 | **** | 80 | **** |
| (1) | For the year ended December 31, 2022, the adjusted historical statement of operations shows a net loss. As<br>a result, diluted loss per share is the same as basic, as any dilutive securities would reduce loss per share. | ||||
| --- | --- | ||||
| (2) | If exercised, the convertible bond would increase common shares in an amount equal to approximately 3% of the<br>fully-diluted pro forma common shares outstanding. | ||||
| --- | --- |
Fresh Start Adjustments
| g. | Depreciation and amortization – Reflects the pro forma decrease in depreciation and amortization<br>expense based on new asset values and useful lives for drilling units and revaluation of drilling and management contracts as a result of adopting fresh start accounting. The pro forma adjustments to depreciation and amortization expense were<br>calculated as follows: | ||
|---|---|---|---|
| (In $ millions) | Year ended<br>December 31,2022 | ||
| --- | --- | --- | --- |
| Write-off of Predecessor depreciation expense on drilling<br>units | 16 | ||
| Pro forma depreciation expense on drilling units | (13 | ) | |
| Pro forma amortization of drilling and management contracts | (2 | ) | |
| Total adjustment to Depreciation and amortization | **** | 1 | **** |
| h. | Reorganization items, net – Remove the cumulative effect of the fresh start accounting adjustments<br>of $266 million. | ||
| --- | --- |
PES Sale Adjustments
| i. | Share in results from associated companies – Reflects the removal of the Successor’s remaining<br>35% investment in PES. |
|---|---|
| j. | Reorganization items, net – Reflects the removal of the loss on deconsolidation of PES which<br>represents a charge directly attributable to the NSNCo restructuring reflected in the Predecessor period. |
| --- | --- |
Jackup Sale Adjustments
| k. | Interest expense – In conjunction with the Jackup Sale, a mandatory payment was required on the<br>Initial Second Lien, entered into upon emergence from Chapter 11 proceedings. This adjustment reflects the removal of Successor and Predecessor interest expense related to the mandatory payment. | |
|---|---|---|
| (In $ millions) | Year ended<br>December 31,2022 | |
| --- | --- | --- |
| Removal of Successor Initial Second Lien interest expense related to Jackup Sale | 17 | |
| Removal of Predecessor Initial Second Lien interest expense related to Jackup Sale | 4 | |
| Total adjustment to Interest expense | **** | 21 |
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Merger Adjustments
| l. | Management contract revenues and Vessel and rig expenses – Reflects the elimination of the<br>preexisting relationship between Seadrill and Aquadrill which related to the Global Services Agreement and other service arrangements. Upon the close of the Business Combination, Seadrill and Aquadrill became a combined company and intercompany<br>relationships were eliminated. | |||||
|---|---|---|---|---|---|---|
| (In $ millions) | Nine monthsended September 30,2023 | Year ended<br>December 31,2022 | ||||
| --- | --- | --- | --- | --- | --- | |
| Seadrill contract revenue removal | — | (4 | ) | |||
| Aquadrill contract expense removal | — | 4 | ||||
| Total adjustment to remove preexisting relationships | **** | — | **** | — | **** | |
| m. | Depreciation and amortization – Reflects the increase in depreciation and amortization<br>expense based on preliminary asset values and useful lives for drilling units and preliminary contract related intangibles as a result of the Merger. The pro forma adjustments to depreciation and amortization expense were calculated as follows:<br> | |||||
| --- | --- | |||||
| (In $ millions) | Nine monthsended September 30,2023 | Year ended<br>December 31,2022 | ||||
| --- | --- | --- | --- | --- | --- | --- |
| Removal of Aquadrill pre-combination historical<br>depreciation expense | 5 | 16 | ||||
| Removal of Aquadrill post-combination historical depreciation and amortization expense | 1 | — | ||||
| Depreciation expense for fair value of drilling units (1) | (52 | ) | (70 | ) | ||
| Amortization expense for unfavorable contract liabilities, net | — | 42 | ||||
| Total adjustment to Depreciation and amortization | **** | (46 | ) | **** | (12 | ) |
| (1) | Drilling units less estimated residual value are depreciated using the straight-line basis over their estimated<br>remaining useful lives. The preliminary estimated remaining useful lives for the acquired drilling units range from 15 to 21 years. | |||||
| --- | --- |
Debt Refinancing Adjustments
| n. | Interest expense – Reflects the decrease in interest expense primarily due to the removal of the<br>Initial Term Loan and Initial Second Lien expense and recording the expense related to the Second Lien Notes. The pro forma adjustments to interest expense were calculated as follows: | |||||
|---|---|---|---|---|---|---|
| (In $ millions) | Nine months<br>ended September 30,2023 | Year ended<br>December 31,2022 | ||||
| --- | --- | --- | --- | --- | --- | --- |
| Removal of Successor historical Initial Term Loan interest expense | 12 | 14 | ||||
| Removal of Successor historical Initial Second Lien interest expense | 16 | 61 | ||||
| Removal of Successor guarantees and commission fees | 3 | 3 | ||||
| Removal of Predecessor pro forma Initial Term Loan interest expense (Note 3c) | — | 3 | ||||
| Removal of Predecessor pro forma Initial Second Lien interest expense (Note 3c &<br>3k) | — | 9 | ||||
| Removal of Predecessor pro forma Initial Second Lien premium amortization (Note 3c) | — | (1 | ) | |||
| Second Lien Notes interest expense | (28 | ) | (48 | ) | ||
| Issuance cost amortization (1) | (2 | ) | (4 | ) | ||
| Total adjustment to Interest expense | **** | 1 | **** | **** | 37 | **** |
| (1) | Issuance costs for the Second Lien Notes and RCF are amortized over 7 years and 5 years, respectively.<br> | |||||
| --- | --- | |||||
| o. | Other financial items – Reflects the removal of make-whole premium expense on Initial Term Loan<br>prepayment from the nine months ended September 30, 2023 and records the make-whole premium expense on the Initial Term Loan prepayment to the year ended December 31, 2022 as though the Debt Refinancing had occurred on January 1,<br>2022. | |||||
| --- | --- |
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