Seadrill Limited (SDRL) was incorporated in Bermuda under the Companies Act on May 10, 2005 as an exempted company limited by shares. The company's shares of common stock have been listed under the symbol “SDRL” on the Oslo Stock Exchange, or the “OSE”, since November 2005 and on the NYSE since April 2010. The company's principal executive offices are located at Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda and its telephone number is +1 (441) 295-6935.¹

Seadrill is an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. The company's primary business is the ownership and operation of drillships, semi-submersible rigs and jack-up rigs for operations in shallow-, mid-, deep-, and ultra-deepwater areas, and in benign and harsh environments. The company contract its drilling units primarily on a dayrate basis to drill wells for its customers, who are oil super-majors and major integrated oil and gas companies, state-owned national oil companies, and independent oil and gas companies. A dayrate drilling contract generally extends over a period of time covering either the drilling of a single well or group of wells or covering a stated term. The company also provide management services to certain unconsolidated companies in which the company hold investments.

Through a number of acquisitions of companies, secondhand units and contracts for newbuildings, Seadrill has developed into one of the world’s largest international offshore drilling contractors, employing approximately 4,780 skilled employees. As of April 21, 2017 , the company had a fleet of 38 offshore drilling units consisting of 12 semi-submersible rigs, 7 drillships and 19 jack-up rigs in operation, and contracts for the construction of 13 offshore drilling units. Of the total fleet, 18 are currently idle. Please see “Item 4. Information on the Company—D. Property, Plant and Equipment,” for further information on its fleet of drilling units and newbuildings.

Majority-Owned Subsidiaries

NADL is a Bermuda company formed in 2011 that focuses entirely on harsh environment offshore drilling operations. In January 2014, NADL completed its initial public offering in the United States of 13,513,514 common shares at $9.25 per share. As of April 21, 2017 , the company owned approximately 70.4% of NADL’s outstanding common shares, which are listed for trading on the NYSE and the Norwegian Over-the-Counter Exchange, or Norwegian OTC, under the symbol “NADL.” For the year ended December 31, 2016 , NADL contributed $535 million (or 17% ) to its revenues, and $91 million (or 9% ) to its operating income. The outstanding debt of NADL as of December 31, 2016 amounted to $2,164 million (or 23% ), of which $1,564 million is guaranteed by Seadrill.

Sevan Drilling, a controlled subsidiary, is a Bermuda company that focuses on owning and operating drilling units and specializes in the ultra-deepwater segment. As of April 21, 2017 , the company owned 50.1% of the outstanding shares in Sevan Drilling. Sevan Drilling’s common shares trade on the OSE under the symbol “SEVDR.” For the year ended December 31, 2016 , Sevan Drilling contributed $320 million (or 10% ), and $89 million (or 9% ) to its revenue and operating income, respectively. The outstanding debt of Sevan Drilling as of December 31, 2016 amounted to $945 million (or 10% ), all of which is guaranteed by Seadrill.

AOD, a controlled subsidiary, is a company incorporated in Bermuda that owns three high-specification jack-up drilling rigs, which are leased to a Seadrill operating subsidiary. As of April 21, 2017 , the company owned 66.2% of the outstanding shares in AOD. For the year ended December 31, 2016 , AOD contributed $77 million (or 2% ) and $37 million (or 4% ) to its revenue and operating income, respectively. The outstanding debt of AOD as of December 31, 2016 amounted to $237 million (or 2% ), all of which is guaranteed by Seadrill.

Investments in Other Companies

In addition to owning and operating its offshore drilling units through its subsidiaries, the company also, from time to time, make investments in other offshore drilling and oil services companies. The company currently have the following significant equity investments, among others, in other companies in its industry:

• Seadrill Partners, an associated company, is a Marshall Islands limited liability company that focuses on owning and operating offshore drilling rigs under long-term contracts with major oil companies. Seadrill Partners was a consolidated subsidiary of Seadrill, but as of January 2, 2014, the company deconsolidated Seadrill Partners from its Consolidated Financial Statements. As of April 21, 2017 , the company own 46.6% of the outstanding limited liability interests of Seadrill Partners, which includes outstanding common and subordinated units. Seadrill Partners’ common units trade on the NYSE under the symbol “SDLP.” The company also own significant non-controlling interests in various subsidiaries of Seadrill Partners. Furthermore, Seadrill is a guarantor under certain Seadrill Partners’ credit facilities, and the company also have joint and several liability under certain Seadrill Partners’ credit facilities. Please see Note 23 "Long term debt" of its Consolidated Financial Statements included herein for more information.
• Archer is a global oilfield service company that specializes in drilling and well services. As of April 21, 2017 the company own 16.3% of the outstanding common shares of Archer, as compared to 39.7% as of December 31, 2016 . The company's shareholding was diluted following Archer's $100 million private placement on February 28, 2017. In addition the company provide various financial and performance guarantees on behalf of Archer. The total outstanding guarantees to Archer as of December 31, 2016 were $296 million .
• On April 25, 2017, as part of its restructuring plans, Seadrill has signed and closed an agreement with Archer and its lenders to extinguish approximately $253 million in financial guarantees provided by it in exchange for a cash payment of approximately $25 million . The company remain in constructive discussions with Archer and its lenders to extinguish the remaining $25 million of financial guarantees in exchange for a cash payment representing 10% of their face value. As part of Archer’s restructuring plans Seadrill has also agreed to convert $146 million outstanding in subordinated loans, fees, and interest provided to Archer into a $45 million subordinated convertible loan. The subordinated convertible loan will bear interest of 5.5% , matures in December 2021 and have a conversion right into equity of Archer Limited in 2021 based on a strike price of US $2.083 per share (subject to appropriate adjustment mechanics), which is approximately 75% above the subscription price in Archer’s private placement on February 28, 2017.
• Seabras Sapura is a group of related companies that construct, own and operate pipe-laying service vessels in Brazil. As of April 21, 2017 , Seadrill has a 50% ownership stake in each of these companies. Seadrill has provided Seabras Sapura with various loans to finance working capital and financial guarantees. The total amount of loans outstanding as of December 31, 2016 was $95 million and the total amount guaranteed as of December 31, 2016 was $787 million .
• SeaMex, a joint venture, that owns and operates five jack-up drilling units located in Mexico under contract with Pemex. As of April 21, 2017 , the company and an investment fund controlled by Fintech Advisory Inc., or Fintech, each have a 50% ownership stake in SeaMex. SeaMex was deconsolidated from its Consolidated Financial Statements on March 10, 2015. Seadrill has provided a $250 million seller’s credit to SeaMex divided into two facilities: (a) a term loan facility for an amount up to $230 million and (b) a revolving loan facility of up to $20 million, and made available a subordinated unsecured credit facility of $20 million, which is to be provided by both Seadrill and Fintech at a ratio of 50% each. As of April 21, 2017 and December 31, 2016 , the facility remained undrawn.

In addition, Seadrill has entered into sale and leaseback agreements for three drilling units: the West Taurus , West Hercules and West Linus with Ship Finance, a related party. The company consolidate certain related subsidiaries of Ship Finance into its Consolidated Financial Statements as variable interest entities or VIEs. As of April 21, 2017 , through its VIEs the company had gross loans outstanding to Ship Finance amounting to $415 million and net loans of $330 million .

Please see the notes to its Consolidated Financial Statements included herein for further information on its investments.

Management of the Company Overall responsibility for the management of Seadrill Limited and its subsidiaries rests with the Board. The Board has organized the provision of management services through Seadrill Management Ltd., or Seadrill Management, one of its subsidiaries incorporated in the United Kingdom. The Board has defined the scope and terms of the services to be provided by Seadrill Management. The Board must be consulted on all matters of material importance and/or of an unusual nature and, for such matters, will provide specific authorization to personnel in Seadrill Management to act on its behalf. The company's consolidated subsidiaries, NADL, Sevan Drilling and AOD, have their own boards, with delegated authority and responsibility for the management of the respective subgroups.

Seadrill Management also has service and other management agreements with Seadrill Partners and SeaMex (associated companies), pursuant to which Seadrill Management provides management and operational services relating to various drilling units owned by these companies.

Recent Developments

NADL Revolving credit facility On January 31, 2017, the company provided a $25 million revolving credit facility to NADL that was set to mature on March 31, 2017. On March 15, 2017, the maturity was extended until April 30, 2017. On April 25, 2017, the revolving credit facility was increased to $50 million and extended to June 30, 2017. This interim funding arrangement has been put in place while comprehensive restructuring negotiations continue at both companies.

West Mira On March 13, 2017, the company reached settlement with HSHI with regard to the West Mira , pursuant to which the company received a cash payment of $170 million on March 14, 2017, representing the yard installment receivable excluding any additional accrued interest. The company recorded a non-cash impairment of $44 million for the year ended December 31, 2016 to reflect the difference in the carrying value of the West Mira receivable and the settlement value.

As part of this settlement, Seatankers, a related party, has purchased the West Mira from HSHI. Seatankers is an asset holding company and is not expected to engage in offshore drilling activities in competition with Seadrill. The Company expects to execute an agreement with Seatankers for the commercial and technical management of the West Mira as well as a right of first refusal for purchase of the Unit.

Amendments to its secured credit facilities On April 4, 2017, the company extended from June 30, 2017 to September 30, 2017 the expiration of covenant amendments and waivers of its secured credit facilities, which among other things, temporarily amended the equity ratio, leverage ratio, minimum-value-clauses, and minimum liquidity requirement covenants therein. In addition, the maturity dates of the $450 million senior secured credit facility, the $400 million senior secured credit facility, and the $2,000 million senior secured credit facility for its consolidated subsidiary, NADL, have been amended to August 15, 2017, August 31, 2017 and September 14, 2017, respectively. Please see Note 23 "Long-term debt—Covenants contained within its debt facilities” for more information. The agreement also extended the milestone to implement a comprehensive restructuring plan from April 30, 2017 to July 31, 2017.

These extensions provide additional time for it to further advance the ongoing negotiations with its banks, potential new money investors, and the advisers to the ad hoc committee of bondholders regarding the terms of a comprehensive restructuring plan, which may include the infusion of new capital. While no definitive terms have been reached, based on stakeholder and new money investor feedback, as well as its existing leverage, the company currently believe that a comprehensive restructuring plan will require a substantial impairment or conversion of its bonds, as well as impairment, losses or substantial dilution for other stakeholders. As a result, the company expect that shareholders are likely to receive minimal recovery for their existing shares.

The company expect the implementation of a comprehensive restructuring plan will likely involve schemes of arrangement in the United Kingdom or Bermuda or proceedings under Chapter 11 of the U.S. Bankruptcy Code, and Seadrill is preparing accordingly. The company's business operations remain unaffected by the restructuring efforts and the company expect to meet its ongoing customer and business counterparty obligations.

Contract award and extension for the West Elara and West Linus On April 11, 2017, NADL, its majority owned subsidiary, announced the contract awards and extension for the jack-ups West Elara and West Linus respectively with ConocoPhillips Skandinavia AS, or ConocoPhillips, for work in the Greater Ekofisk Area. The contracts are for a period of 10 years and the total additional backlog for the new contract awards is estimated at $1.4 billion, excluding performance bonuses. The contracts include market indexed dayrates and the estimated backlog is subject to change based on market conditions.

Sevan Developer On April 27, 2017, the final delivery deferral agreement for the Sevan Developer was deferred to May 31, 2017 to finalize negotiations. If an agreement cannot be reached, the remaining installment of $26.3 million will be refunded.

Archer's refinancing and guarantees On April 25, 2017, as part of its restructuring plans, Seadrill has signed and closed an agreement with Archer and its lenders to extinguish approximately $253 million in financial guarantees provided by it in exchange for a cash payment of approximately $25 million. The company remain in constructive discussions with Archer and its lenders to extinguish the remaining $25 million of financial guarantees in exchange for a cash payment representing 10% of their face value. As part of Archer’s restructuring plans Seadrill has also agreed to convert $146 million, including accrued interest and fees, in subordinated loans provided to Archer into a $45 million subordinated convertible loan. The subordinated convertible loan will bear interest of 5.5%, matures in December 2021 and have a conversion right into equity of Archer Limited in 2021 based on a strike price of US$2.083 per share (subject to appropriate adjustment mechanics), which is approximately 75% above the subscription price in Archer’s private placement on February 28, 2017.

Significant Developments for the Period from January 1, 2014 through and including December 31, 2016

Capital expenditures The company had total capital expenditures on its drilling units and newbuildings of approximately $0.2 billion , $1.0 billion and $3.2 billion in the years 2016 , 2015 and 2014 , respectively. This includes maintenance expenditures of $0.1 billion , $0.1 billion and $0.3 billion in the years ended 2016 , 2015 and 2014 , respectively. The company's capital expenditures related primarily to its newbuild drilling unit program, capital additions and equipment to its existing drilling units and payments for long-term maintenance of its fleet. The company financed this capital expenditure through cash generated from operations, secured and unsecured debt arrangements, and the sale of partial ownership interests in certain subsidiaries and investments. Please see “Item 4. Information on the Company—D. Property, Plant and Equipment” and “Item 5. Operating and Financial Review and Prospects” for further information on its fleet.

Sale of investments In addition, during the twelve months ended December 31, 2014, the company sold a portion of its investment in SapuraKencana and received proceeds of $297 million , net of transaction costs. As a result of the sale, a gain of $131 million was recognized, which is included in the consolidated statement of operations in “Gain on realization of marketable securities.” As a result of this transaction, its ownership interest in SapuraKencana’s outstanding common shares decreased to 8.18% .

On April 27, 2016, the company sold all of its investment in shares of SapuraKencana resulting in net cash proceeds of approximately $195 million .

Disposals In 2014, the company sold the entities that own and operate the West Auriga to Seadrill Capricorn Holdings LLC, which is owned 49% by the Company and 51% by Seadrill Partners, for $1.24 billion, of which Seadrill Partners’ 51% share was $632 million, along with the entities that own and operate the West Vela for $900 million, of which Seadrill Partners’ 51% share was $459 million. The company also sold an additional 28% interest in Seadrill Operating LP, a limited partnership controlled by Seadrill Partners, for $373 million to Seadrill Partners, which reduced its ownership interest in Seadrill Operating LP to 42%.

In 2015, the company sold the entities that own and operate the West Polaris to Seadrill Operating LP, a consolidated subsidiary of Seadrill Partners and an entity in which the company own a 42% limited partner interest. Please see Note 11 “Disposals of businesses and deconsolidation of subsidiaries” to its Consolidated Financial Statements included herein for more information .

Deconsolidations The company deconsolidated Seadrill Partners on January 2, 2014. As a result of the deconsolidation, the company derecognized the assets and liabilities of Seadrill Partners and recognized its ownership interests in Seadrill Partners and its subsidiaries at fair value. Please see Note 11 “Disposals of businesses and deconsolidation of subsidiaries” to its Consolidated Financial Statements included herein for further discussion on the deconsolidation of Seadrill Partners.

On March 10, 2015, Fintech subscribed for a 50% ownership interest in SeaMex, which was previously 100% owned by it. As a result of the transaction the company deconsolidated certain entities as at March 10, 2015 and recognized its remaining 50% investment in the joint venture at fair value. Please refer to Note 11 “Disposals of businesses and deconsolidation of subsidiaries” to its Consolidated Financial Statements included herein for more information .

Newbuilding Deferrals and Cancellations In July 2015, Samsung agreed to postpone the delivery of the West Dorado and the West Draco until the end of the first quarter of 2017. As of April 21, 2017 , the technical acceptance testing of the West Draco and the West Dorado have not yet been completed and the company continue in discussions with Samsung regarding further deferrals.

On January 15, 2016, the company entered into an agreement with DSME to defer the delivery of two ultra-deepwater drillships, the West Aquila and West Libra , until the second quarter 2018 and the first quarter of 2019, respectively.

On April 18, 2016, the company entered into agreements with Dalian to further defer the deliveries of all eight jack-up rigs under construction, which were previously due to be delivered in 2016 and 2017 as per the deferral agreement originally entered in August 2015, Dalian agreed to defer delivery of one jack-up rig until the end of December 2015, five jack-up rigs to 2016 and two jack-up rigs to 2017. On December 28, 2016, the delivery dates for the West Titan , West Proteus , West Rhea and West Tethys were deferred an additional 6 months. Following this latest deferral agreement, four units are now scheduled to be delivered in 2017, and four units in 2018.

On October 17, 2016, the company agreed with Cosco to exercise its third six-month option to defer the delivery of the Sevan Developer until April 15, 2017. Cosco has refunded to it $26.3 million, or 5% of the contract price, plus other associated costs during the fourth quarter of 2016. The final installment which is due at delivery has been amended to $499.7 million, representing 95% of the $526.0 million contract price.

On December 2, 2015, as further extended in June 2016, August 2016, October 2016, and January 2017, NADL entered into a standstill agreement with Jurong, effective until July 6, 2017, regarding the delivery of the West Rigel . During the period until, July 6, 2017, NADL will continue to market the unit for an acceptable drilling contract and the unit will remain at the Jurong yard in Singapore. Jurong and NADL can also consider other commercial opportunities for the unit during this period. In the event no employment is secured and no alternative transaction is completed before the period concludes, NADL and Jurong have agreed to form a joint asset holding company for joint ownership of the unit to be owned 23% by NADL and 77% by Jurong. NADL will continue to market the unit for the joint asset holding company. However, based on current market conditions, management deems the most probable outcome to be that the West Rigel will be contributed to the joint asset holding company. As a result, Seadrill has concluded that the West Rigel should be classified as “Held for Sale” as of December 31, 2016 and 2015. Please see Note 36 to its Consolidated Financial Statements included herein for further information.

Acquisitions In December 2014, the company exercised a purchase option for the West Polaris , an ultra-deepwater drillship, from Ship Finance. The West Polaris was acquired from it by Ship Finance in 2008 and subsequently bareboat chartered back to it with purchase options commencing in 2012. The purchase option price was $456 million and total consideration payable to Ship Finance was $111 million after debt, which was settled in January 2015.

Rosneft Framework Agreement On May 26, 2014, the company entered into an investment and co-operation agreement, or the Investment and Co-Operation Agreement with NADL and Rosneft to pursue onshore and offshore growth opportunities in the Russian market. In connection with the Investment and Co-Operation Agreement, the company entered into a framework agreement, or the Framework Agreement with NADL and Rosneft, pursuant to which, among other things, Rosneft agreed to sell, and NADL agreed to purchase, 100% of the share capital of Rosneft’s Russian land drilling subsidiary, RN Burenie LLC, together with its subsidiaries, in exchange for such number of newly issued common shares of NADL, based on an agreed share price of $9.25 per share, as payment of the agreed purchase price, subject to certain cash adjustments. The Framework Agreement provided for an original closing date of no earlier than November 10, 2014, which was first extended until May 31, 2015 and further extended until May 31, 2017.

The parties have agreed to use their reasonable endeavors to renegotiate, by no later than May 31, 2017, the terms of the transactions contemplated in the Framework Agreement, the characteristics of the transactions contemplated in the Framework Agreement and the terms of the related offshore drilling contracts. During this time, NADL is permitted to market its offshore drilling rigs subject to existing drilling contracts with Rosneft, enter into binding contracts with third parties in respect of those rigs, delay the mobilization of those rigs under the Rosneft contracts in order to comply with the terms of any contracts with third parties, delay the construction or delivery of any of those rigs, and extend the construction period or shipyard stay of any of those rigs.

In June 2015, the parties agreed to cancel any restrictions of business included in the terms of the Framework Agreement and replaced such restrictions with a requirement for it, subject to applicable law, to inform Rosneft of any material developments affecting NADL. The company can provide no assurance that the company will be able to reach an agreement with Rosneft by May 31, 2017. Even if an agreement is reached, the terms of such agreement may differ materially from the terms contemplated in the original Framework Agreement. Seadrill is currently in discussions with Rosneft regarding the potential extension of the Framework Agreement.

Other significant developments In May 2016 , the company entered into a privately negotiated exchange agreement with certain holders of its outstanding 5.625% (subsequently increased to 6.125% ) Senior Notes due 2017, or the 2017 Notes, pursuant to which the company agreed to issue a total of 8,184,340 new shares of its common stock, in exchange for $55.0 million principal amount of the 2017 Notes in accordance with Section 3(a)(9) of the U.S. Securities Act of 1933, as amended, or the Securities Act. Settlement occurred on May 20, 2016 .

In June 2016 , the company entered into a privately negotiated exchange agreement with certain holders of the 2017 Notes, pursuant to which the company agreed to issue a total of 7,500,000 new shares of its common stock, in exchange for $50.0 million principal amount of the 2017 Notes in accordance with Section 3(a)(9) of the Securities Act. Settlement occurred on June 13, 2016 .

Business Overview

Company

Seadrill is an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. The company's primary business is the ownership and operation of drillships, semi-submersible rigs and jack-up rigs for operations in shallow-, mid-, deep- and ultra-deepwater areas, and in benign and harsh environments. The company contract its drilling units primarily on a dayrate basis for periods between one and seven years to drill wells for its customers, typically oil super-majors and major integrated oil and gas companies, state-owned national oil companies and independent oil and gas companies.

Shares of its common stock have traded on the OSE, since November 22, 2005, under the symbol “SDRL” and its common stock commenced trading on the NYSE on April 15, 2010, also under the symbol “SDRL.” As of April 21, 2017 its nonaffiliated public float represented 76.4% of total shares outstanding, and its principal shareholder, Hemen held 23.6% . Hemen is indirectly held in Trusts established by Mr. John Fredriksen, its President and Chairman, for the benefit of his immediate family.

Fleet

The company believe that Seadrill has one of the most modern fleets in the offshore drilling industry. The company's rigs are set forth in the fleet table in “–D. Property, Plants and Equipment”. The company believe a modern fleet allows it to enjoy improved utilization and daily rates obtainable for its drilling units.

Floaters

Drillships : Drillships are self-propelled ships equipped for drilling offshore in water depths ranging from 1,000 to 12,000ft, and are positioned over the well through a computer-controlled thruster system similar to that used on semi-submersible rigs. Drillships are suitable for drilling in remote locations because of their mobility and large load-carrying capacity. Depending on country of operation, drillships operate with crews of 65 to 100 people.

Semi-submersible drilling rigs: Semi-submersibles are self-propelled drilling rigs (which include cylindrical designed units) consisting of an upper working and living quarters deck connected to a lower hull consisting of columns and pontoons. Such rigs operate in a “semi-submerged” floating position, in which the lower hull is below the waterline and the upper deck protrudes above the surface. The rig is situated over a wellhead location and remains stable for drilling in the semi-submerged floating position, due in part to its wave transparency characteristics at the water line.

Semi-submersible rigs can be either moored or dynamically positioned. Moored semi-submersible rigs are positioned over the wellhead location with anchors and typically operate in water depths ranging up to 1,500ft. Dynamically positioned semi-submersible rigs are positioned over the wellhead location by a computer-controlled thruster system and typically operate in water depths ranging from 1,000 to 12,000. Depending on country of operation, semi-submersible rigs generally operate with crews of 65 to 100 people.

Jack-Up Rigs

Jack-up rigs are mobile, self-elevating drilling platforms equipped with legs that are lowered to the seabed. A jack-up rig is mobilized to the drill site with a heavy lift vessel or a wet tow. At the drill site, the legs are lowered until they penetrate the sea bed and the hull is elevated to an approximate operational airgap of 50 to 100 feet depending on the expected environmental forces. After completion of the drilling operations, the hull is lowered to floating draft, the legs are raised and the rig can be relocated to another drill site. Jack-ups are generally suitable for water depths of 450 feet or less and operate with crews of 90 to 120 people.

Competitive Strengths

The company believe that its competitive strengths include:

One of the largest offshore drilling contractors

Since its inception in 2005, Seadrill has developed into one of the world’s largest international offshore drilling contractors, employing approximately 4,780 skilled employees. As at December 31, 2016 , the company owned and operated a fleet of 38 offshore drilling units, which consisted of 7 drillships, 12 semi-submersible rigs and 19 jack-up rigs. In addition, the company also have 13 rigs currently under construction (“newbuilds” or “newbuildings”), consisting of four drillships, one semi-submersible rig and eight jack-up rigs. While Seadrill is one of the largest offshore drilling companies, the company also have one of the youngest rig fleets in its industry, with an average fleet age of approximately 7.9 years .

In addition, the company hold investments in several other companies in its industry that own and/or operate offshore drilling units with similar characteristics to its own fleet of drilling units or deliver various oil services.

Commitment to safety and the environment

The company believe that the combination of quality drilling units and experienced and skilled employees allows it to provide its customers with safe and effective operations. Quality assets and operational expertise allow it to establish, develop and maintain a position as a preferred provider of offshore drilling services for its customers.

Technologically advanced and young fleet

The company's drilling units are among the most technologically advanced in the world. The majority of its rigs were built after 2007, which is among the lowest average fleet age in the industry. Although current offshore drilling demand is weak, new and modern units that offer superior technical capabilities, operational flexibility and reliability are preferred by customers and winning the majority of available opportunities. The company believe, based on its proven operational track record and fleet composition, that the company will be better placed to secure new drilling contracts than some of its competitors with older, less advanced rig fleets.

Strong and diverse customer relationships

Seadrill has strong relationships with its customers that the company believe are based on its operational track record and quality of its fleet. The company's customers are oil and gas exploration and production companies, including integrated oil companies, state-owned national oil companies and independent oil and gas companies. As of April 21, 2017 , its five largest customers in terms of revenue were certain subsidiaries of ExxonMobil, LLOG, Petrobras, Statoil and Total.

Business Strategy

During the current challenging period for the industry and in order to maintain its position as a leading offshore driller, its strategy includes being able to deliver in the following key areas:

Best Operations

Seadrill is a leading offshore deepwater drilling company and its key objective is to deliver the best operations possible - both in terms of utilization and health, safety and environment. To do this, the company leverage having one of the most modern fleets in the industry and its combination of experienced and skilled employees across the organization. Using its strong operational record, the company intend to maximize opportunities for new drilling contracts and sustain a competitive cost structure, which Seadrill has been pursuing through its multi-year savings program, while minimizing chances of contract terminations.

Right rigs

The company's business model includes both jack-ups and floaters and the company will continue to maintain its presence in both segments. Having the right rigs in these two segments allows it to offer a range of assets to suit its customer needs, to work in various geographies and water depths, and to position itself  for future growth in the industry.

Strongest relationships

Seadrill has established strong and long-term relationships with key players in the industry and the company will seek to deepen and strengthen these relationships as part of its strategy. This involves identifying additional value-adding services for its existing customers and developing long-term partnerships. By providing the best possible service to its customers, the company aim to help them unlock energy and be valued partners in their success.

Leading organization

Seadrill is proud of its Seadrill culture and the company recognize that its business is built on people. As part of its strategy, the company aim to recruit, retain, and develop the best people in the industry and to build an organization that adapts to business needs.

In addition to its long-term strategy, its immediate objective during the current industry downturn is to complete a comprehensive restructuring plan in order to provide a bridge to the industry recovery and realize the value of its high specification, modern fleet.

Restructuring Process

Over the past year Seadrill has been engaged in extensive discussions with its secured lenders and potential new money investors regarding the terms of a comprehensive restructuring. These discussions have also included an ad hoc committee of bondholders. While the ad hoc committee of bondholders is not presently restricted, they have indicated a willingness to become restricted again in the future if appropriate.

The objectives of its restructuring are to build a bridge to a recovery and achieve a sustainable capital structure. Seadrill has proposed to achieve this by extending bank maturities, reducing fixed amortization, amending financial covenants and raising new capital.

Feedback from certain stakeholders and potential new money providers also indicate that a comprehensive and consensual agreement will likely require a substantial impairment or conversion of its bonds, as well as impairment, losses or substantial dilution for other stakeholders. As a result, the company currently expect that shareholders are likely to receive minimal recovery for their existing shares.

In addition, the company expect to take additional steps to further delay newbuild deliveries until the dayrates justify taking delivery. The company do not expect to take delivery of any units in 2017. The company currently have $4.1 billion of newbuild yard installments due in 2017, 2018 and 2019 that the company will be working with shipyards to defer. Please see “Item 5. Operating and Financial Review—B. Liquidity and Capital Resources—Key financial covenants related to its borrowings” for further information.

As part of its restructuring process Seadrill has agreed amendments to its secured credit facilities. On April 28, 2016, the company entered into agreements with its banking group to amend the financial covenants on all of its secured credit facilities. The amendments also included a milestone to implement a comprehensive restructuring, which was originally April 30, 2017. On April 4, 2017, the company reached an agreement to further extend the covenant amendments and waivers to its secured credit facilities and extend the milestone to implement a comprehensive restructuring plan to July 31, 2017. These amendments also involved corresponding extensions of the maturities on certain secured credit facilities. These amendments provide a more stable platform from which to work with all parts of its capital structure to achieve a more comprehensive restructuring plan.

The company expect the implementation of a comprehensive restructuring plan will likely involve schemes of arrangement in the United Kingdom or Bermuda or proceedings under Chapter 11 of Title 11 of the United States Code. Seadrill is preparing accordingly and have retained financial advisers and legal counsel.

Market Overview

The company provide operations in oil and gas exploration and development in regions throughout the world and its customers include integrated oil and gas companies, state-owned national oil companies and independent oil and gas companies. Due to a significant decline in oil prices many of its customers are focused on conserving cash and have reduced capital expenditures for exploration and development projects. As a result, the offshore drilling market is encountering a significant reduction in demand.

The global fleet of drilling units

The global fleet of offshore drilling units consists of drillships, semi-submersible rigs, jack-up rigs and tender rigs. Currently, the existing worldwide drilling rig fleet totaled 855 units including 119 drillships, 164 semi-submersible rigs, 539 jack-up rigs and 33 tender rigs. In addition, at such date there were 32 drillships, 102 jack-up rigs, 15 semi-submersible rigs and 8 tender rigs on order and under construction.

The water depth capacities for various drilling rig types depend on rig specifications, capabilities and equipment outfitting. Jack-up rigs normally work in water depths up to 450ft while semi-submersible rigs and drillships can work in water depths up to 12,000ft and tender rigs work in water depths up to 410ft for tender barges and up to 6,000ft for semi-tenders. All offshore rigs are capable of working in benign environment but there are certain additional requirements for rigs to operate in harsh environments due to extreme marine and climatic conditions. The number of units outfitted for such operations are limited and the present number of rigs capable of operating in harsh environments total 153 units.

Floaters

The worldwide fleet of semi-submersible rigs and drillships currently totals 283 units. Of the total delivered fleet, 168 units are capable of ultra-deepwater operations above 7500 feet, 40 are classed for deepwater operations up to 7,500 feet and the remainder for operations up to 4500 feet. Overall, the average global fleet is 17 years old. The average age of ultra-deepwater units is 8 years, 27 years for units classed for deepwater operations up to 7,500 feet and 30 years for units classed for operations up to 4,500 feet.

Included in the global floater fleet are units classed for operations in harsh environments. The global harsh environment floater fleet is comprised of 74 units and is 20 years old on average.

Oil companies continue to prefer newer and more capable equipment, demonstrated by the utilization rates of different asset classes. Ultra-deepwater units are currently experiencing 50% capacity utilization versus 48% for deepwater and 43% for mid-water floaters. Utilization for harsh environment floaters is currently 53%. Older units are believed to be at a competitive disadvantage due to the customer preferences and the availability of more modern and efficient equipment.

Based on the level of current activity and the aging floater fleet, the company expect accelerated stacking and scrapping activity to continue. The company believe a total of 74 floaters have been scrapped since the end of 2013, equivalent to 21% of the total fleet, and currently there are 27 cold stacked units that are 30 years old or older, which are prime scrapping candidates. In the next 18 months 25 units that are 30 years old or older will be coming off contract with no follow-on work identified which represents additional scrapping candidates. A key rationale for scrapping is the 35 year classing expenditures that can cost upwards of $100 million. Many rig owners will choose to retire the unit rather than incur this cost without a visible recovery in demand on the horizon.

The current newbuilding orderbook stands at approximately 47 units, comprised of 32 drillships and 15 semi-submersibles. In 2017, 20 new rigs are scheduled for delivery, with an additional 18 scheduled for 2018 and 9 in 2019 and beyond. Due to the subdued level of contracting activity it is likely that a significant number of newbuild orders will be delayed or cancelled pending an improved market.

Jack-up rigs

The worldwide fleet of jack-up rigs currently totals 539 units. Of the total delivered fleet, 232 units are termed as high specification or capable of operations in water depth of 350 feet and greater and 307 units are termed as standard jack-ups and can work at water depths up to 350 feet. Overall, the global jack-up fleet is 22 years old on average. The average age of high specification units is 11 years and 31 years for standard units.

Included in the global jack-up fleet are units classed for operations in harsh environments. The global harsh environment jack-up fleet is comprised of 78 units and is 14 years old on average.

Oil companies continue to prefer newer and more capable equipment, demonstrated by the utilization rates of different asset classes. High specification jack-ups are currently experiencing 59% capacity utilization versus 51% for standard units. Harsh environment jack-ups are currently operating at 56% capacity utilization.

A total of 37 jack-ups have been scrapped since the end of 2013, equivalent to 6% of the total fleet, and currently there are 74 cold stacked units that are 30 years old or older, which are prime scrapping candidates. In the next 18 months 78 units that are 30 years old or older will be coming off contract with no follow on work identified which represent additional scrapping candidates, however scrapping activity in the jack-up segment is subdued relative to the floater segment due to the lower cost of stacking and classing these units.

The current newbuilding orderbook stands at approximately 102 units. In 2017, 39 units are scheduled for delivery, with an additional 47 scheduled for 2018 and 16 in 2019 and beyond. Due to the subdued level of contracting activity it is likely that a significant number of newbuild orders will be delayed or cancelled until an improved market justifies taking delivery.

The above overview of the various offshore drilling sectors is based on historical market developments and current market conditions. Future markets conditions and developments cannot be predicted and may materially differ from its current expectations.

Seasonality

In general, seasonal factors do not have a significant direct effect on its business. However, Seadrill has operations in certain parts of the world where weather conditions during parts of the year could adversely impact the operational utilization of the rigs and its ability to relocate rigs between drilling locations, and as such, limit contract opportunities in the short term. Such adverse weather could include the hurricane season and loop currents for its operations in the Gulf of Mexico, the winter season in offshore Norway, West of the Shetlands and Canada, and the monsoon season in Southeast Asia.

Customers

The company's customers are oil and gas exploration and production companies, including major integrated oil companies, independent oil and gas producers and government-owned oil and gas companies. In the year ended December 31, 2016 its largest customers were:

Total, which accounted for approximately 18% of its revenues; Petrobras, which accounted for approximately 17% of its revenues; LLOG, which accounted for approximately 13% of its revenues; ExxonMobil, which accounted for approximately 13% of its revenues; and Statoil, which accounted for approximately 10% of its revenues.

The company's contract backlog, as of April 21, 2017 , totaled approximately $3.6 billion . Of the total contract backlog, $1.6 billion is attributable to its semi-submersible rigs and drillships and $2.0 billion attributable to its jack-up units. The company expect approximately $2.9 billion of its contract backlog to be realized in the remainder of 2017. Contract backlog for its drilling fleet is calculated as the contract dayrate multiplied by the number of days remaining on the contract, assuming full utilization. Contract backlog excludes revenues for mobilization and demobilization, contract preparation, and customer reimbursables. The amount of actual revenues earned and the actual periods during which revenues are earned will be different from the backlog projections due to various factors. Downtime, caused by unscheduled repairs, maintenance, weather and other operating factors, may result in lower applicable dayrates than the full contractual operating dayrate.

In light of the current environment, Seadrill is encountering, and may in the future encounter, situations where counterparties request relief to contracted dayrates or seek early contract termination. In the event of early termination for the customer’s convenience, an early termination fee is typically payable to it, in accordance with the terms of the drilling agreement. While Seadrill is confident that its contract terms are enforceable, the company may be willing to engage in discussions to modify such contracts if there is a commercial agreement that is beneficial to both parties.

References

1. ^ https://fintel.io/doc/sec/1351413/000162828018004223/seadrilllimited20-f2017.htm