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November 24, 2015 - Seadrill Limited ("Seadrill" or "the Company"), a world leader in offshore deepwater drilling, announces its third quarter results for the period ended September 30, 2015.

Highlights

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Revenue of $985 million

•

EBITDA1 of US$546 million

•

92% economic utilization2

•

Excluding non-recurring items and non-cash mark to market movements on derivatives, Net Income3 of $136 million and earnings per share of $0.21

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Reported Net loss of $1.9 billion and diluted loss per share of $3.70, primarily due to $1.8 billion of non-cash impairment charges to investments and goodwill.  $1.1 billion relates to the write-down to fair value of investments in Seadrill Partners, the initial recognition of which resulted in a non-cash gain on deconsolidation of $2.3 billion in January 2014.

•

The Seadrill Group4 achieved 93% economic utilization

•

Seadrill Group orderbacklog of approximately $12.0 billion

* Underlying is defined as reported results, adjusted for certain non-recurring items and other exclusions as discussed in the Appendix 1. These numbers are reconciled to the US GAAP reported results for corresponding periods in the Appendix.

Commenting today, Per Wullf, CEO and President of Seadrill Management Ltd., said:

"We have had a strong operating quarter and we continue to make good progress on our cost savings program.  Our discussions with the shipyards continue to be constructive regarding deferrals.

We believe that market conditions are likely to remain challenging through 2016 and the coming quarters will provide insight into the 2017 environment.  It is important to recognize that we are in a cyclical business.  The longer this downturn lasts, the more robust the recovery will be when it happens.  Seadrill is in a position to capitalize on the upturn with the the most modern fleet and world class operations."

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¹ EBITDA is defined as 'Earnings Before Interest, Tax, Depreciation and Amortization'  and has been calculated by taking operating profit plus depreciation and amortization but excluding gains or losses on disposals and impairment charges against goodwill. Contingent consideration realized relates to Seadrill's ongoing residual interest in the West Vela and West Polaris customer contracts, and has been included within EBITDA.

² Economic utilization is calculated as total revenue, excluding bonuses, for the period as a proportion of the full operating dayrate multiplied by the number of days in the period.

³ Net income excluding non-recurring items and non cash mark to market investments on derivatives is reconciled to US GAAP net loss in Appendix 1.

⁴ Seadrill Group is defined as all companies currently consolidated into Seadrill Limited plus Seadrill Partners and SeaMex.

Impairments

The Company has recognized $1.8 billion of non-cash impairment charges during the period.

Under US GAAP the Company is required to determine whether a decline in the value of its marketable securities and equity method investments represents an 'other than temporary impairment'.  Due to the prolonged lower share prices of certain investments, we have recognized the following impairment charges:

Seadrill Partners:

In the first quarter of 2014, the Company deconsolidated Seadrill Partners ("SDLP") and recognized a non-cash gain of $2.3 billion.  Since October 2014, the Seadrill Partners' share price has fallen from $30 to $9.40 at September 30, 2015, which is determined to be 'other than temporary' in nature.  As such, we have recognized a non-cash impairment charge of $1.1 billion, which effectively represents a reversal of a portion of the non-cash gain on deconsolidation due to a change in market conditions.

SapuraKencana:

We have also recognized an 'other than temporary impairment' of the marketable securities held in Sapura Kencana, which has resulted in a non-cash impairment charge of $167 million.

As a result of the deteriorating environment and continued market uncertainty the Company has performed an impairment test on Goodwill which has resulted in a non-cash impairment charge of $563 million related to the floater business.  The Company no longer retains Goodwill on its balance sheet following this impairment.

Sequential Financial Results Overview

* Underlying is defined as reported results, adjusted for certain exclusions as discussed in the Appendix I. These numbers are reconciled to the US GAAP reported results for corresponding periods in the Appendix.

Revenues of $985 million for the third quarter 2015 were down compared to $1.1 billion in the second quarter of 2015 due to:

- A full quarter of operations on the West Tellus, West Carina and West Tucana

- Increased idle time on the West Eminence, West Eclipse, West Venture, West Vigilant and West Leda.

- The West Mischief being in between contracts.

- Dayrate reductions on the West Phoenix, West Pegasus and West Ariel.

- West Gemini 5 year survey

- No contribution from the West Polaris following sale to Seadrill Partners during the second quarter

The reductions to revenue were partially offset by higher contingent consideration received from Seadrill Partners units, the West Vela and West Polaris.  Under the terms of the purchase and sale agreements for these two units, Seadrill Limited is entitled to a portion of the dayrate received.

Reported net operating loss for the quarter was $291 million.  Excluding non-recurring items, underlying net operating income was $354 million after adjusting for $563 million of goodwill impairment and $82 million primarily related to the loss on disposal of the West Mira, compared to underlying net operating income of $429 million in the preceding quarter.  The reduction in underlying net operating income reflects the the lower revenue in the quarter, partially offset by improvements in operating efficiency and corporate overhead.

Excluding the investment impairment of $1.3 billion, net financial and other items for the quarter resulted in a loss of $301 million  compared to a gain of $84 million in the previous quarter.  The main changes relate to the revaluation of the derivative hedge book both at Seadrill and Seadrill Partners and a $40 million write down of the Archer loan receivable.

Income taxes for the third quarter were $34 million, a decrease of $11 million from the previous quarter primarily due to a deferred tax benefit related to changes in Nigerian tax law, partially offset by higher return-to-provision adjustments.

Reported net loss for the quarter was $1.9 billion representing basic and diluted loss per share of $3.70.  Excluding non-recurring items and non-cash mark to market movements on derivatives, underlying Net Income was $136 million and basic and diluted earnings per share was $0.21.

Balance sheet

As of September 30, 2015, total assets were $23.7 billion, a decrease of $1.5 billion compared to the previous quarter.

Total current assets decreased to $3.1 billion from $3.2 billion over the course of the quarter, primarily driven by a decrease in related party balances related to the SeaMex joint venture, a decrease in the value of marketable securities related to Seadrill Partners and SapuraKencana, offset by an increase in cash.

Total non-current assets decreased to $20.6 billion from $22.0 billion primarily due to the impairment of goodwill and investments and the cancellation of the West Mira which was removed from newbuildings.

Total current liabilities increased to $3.6 billion from $3.5 billion primarily due to an increase in trade accounts payable and the unrealized mark to market loss on derivatives.

Long-term external interest bearing debt decreased to $9.3 billion from $9.5 billion over the course of the quarter and total net interest bearing debt decreased to $10.2 billion from $10.6 billion as at June 30, 2015.  The decrease was primarily due to normal quarterly installments, partially offset by a drawdown on the $450 million jack-up facility.

Total equity decreased to $9.8 billion as of September 30, 2015 from $11.2 billion as of June 30, 2015, primarily driven by  the net loss in the period.

Cash flow

As of September 30, 2015, cash and cash equivalents were $1.2 billion, an increase of $263 million compared to the previous quarter.

Net cash provided by operating activities for the nine month period ended September 30, 2015 was $1.5 billion and net cash used in investing activities for the same period was $47 million.  Net cash used in financing activities was $1.1 billion.

Shares Outstanding

As of September 30, 2015 common shares outstanding in Seadrill Limited totaled 493,078,680 including our holding of 318,740 treasury shares.  Additionally, we had stock options for 2,571,941 shares outstanding under various share incentive programs for management and directors, of which approximately 1,026,500 are vested and exercisable.  The Company currently holds a TRS agreement with exposure to 4 million shares in Seadrill which matures on December 3, 2015, with a strike price of NOK 62.8 per share.

Operations

During the third quarter, Seadrill owned 19 floaters and 19 jack-up rigs in Northern Europe, US Gulf of Mexico, Mexico, South America, Canada, West Africa, Middle East, Southeast Asia and Australia.  Additionally Seadrill manages eleven Seadrill Partners rigs comprised of eight floaters and three tender rigs, and five jack-up rigs now owned by the SeaMex Joint Venture.  Seadrill also managed one tender rig owned by SapuraKencana.

The status of the Group's delivered rig fleet as at the end of the third quarter is as follows:

Cost Savings Program

The Seadrill Group's cost savings plan established at the beginning of 2014 continue to progress well, following approximately $250 million of cash savings realized in 2014.  During 2015, the Group expects to continue these efforts primarily by reducing or postponing spending in operating expense, G&A and capex and is now targeting cash savings for the year of approximately $600 million.

Approximately one third of the cash savings is sustainable and is comprised of headcount reductions, insurance savings, supplier discounts, travel costs and compensation adjustments.  Two thirds of the program is deferrals comprised of lower amounts allocated to operations preparation, capital expenditures and long term maintenance.  During 2016, we expect to achieve an additional $200 million in cash savings.

Newbuilding Program

Seadrill currently has 14 rigs under construction comprised of four Drillships, two Semi-submersibles, and eight Jack-ups.

Total remaining yard installments for these newbuilds are approximately $3.9 billion and $850 million has been paid to the yards in pre-delivery installments.

During the third quarter Seadrill successfully deferred or cancelled a number of its newbuild deliveries:

Seadrill exercised its right to cancel the contract for the construction of the West Mira, a sixth generation ultra-deepwater harsh environment semisubmersible drilling unit, due to the shipyard being unable to deliver the unit within the required timeframe under the contract.  Under the contract terms, Seadrill has the ability to recoup $170 million, plus accrued interest, in pre-delivery installments from the shipyard.  This amount is recognized as a claims receivable.

Sevan Drilling and Cosco agreed to exercise the first six-month option to extend the deferral agreement to April 15, 2016. Further, it has been agreed that Cosco will refund $26 million, or 5% of the contract price, plus associated interest to Sevan Drilling by December 1, 2015. The final delivery installment has been amended to $447 million, representing 85% of the $526 million contract price and can be further amended upon the expiration of the option period.  Other terms and conditions under the deferral agreement dated October 15, 2014, including termination rights, remain unchanged.

Discussions with shipyards are ongoing in regards to the delivery dates for the remaining units.

Commercial

The following commercial developments took place during the third quarter of 2015:

Seadrill was notified by Husky Oil Operations Limited of the cancellation of the 5 year drilling contract for the West Mira.  The total estimated base revenue potential was approximately $1 billion.  As stated in the Company's second quarter earnings report, due to the late delivery of the unit, the Company had tentatively agreed with Husky to reduce the dayrate on the West Mira. The construction contract was subsequently cancelled by Seadrill as the shipyard was unable to deliver the unit within the timeframe required under the contract.

Seadrill secured a new 3 year contract with Saudi Aramco for the jack-up unit West Callisto.  The total revenue potential for the new contract is approximately $136 million.

For more detailed information regarding daily rates and contract durations including escalation, currency adjustment or other minor changes to daily rates and duration profiles, see our quarterly fleet status report or news releases on our website www.seadrill.com.

Revenue Backlog

Seadrill's order backlog as of November 23, 2015 is $5.98 billion, comprised of $4.52 billion for the floater fleet and $1.46 billion for the Jack-up fleet.  The average contract duration is 21 months for floaters and 15 months for Jack-ups.

For the Seadrill Group, total order backlog is $12.00 billion

Commercial contract renegotiation discussions continue to advance with some customers and the Company continues to look toward finding commercial agreements that are beneficial to both parties in order to be better positioned for future contract awards.

Market Development

During the third quarter oil prices remained in the range of $50 and the challenging market for oilfield service companies continued. The impact of persistent low prices continues to be seen in oil companies' budgeting and spending activity with the year on year decline experienced in 2015 expected to continue in 2016.  After two significant year on year declines, there is some recovery in spending is expected in 2017, but forward visibility continues to be challenged and the timing and extent of the recovery remains uncertain.

Utilization and pricing across all market segments remains low and in many cases has drifted lower during the third quarter.  Seadrill continues to believe that this challenging market will continue through 2016.

Ultra-Deepwater Floater Market

Fixture activity in the floater market continues to be muted as oil companies focus their efforts on cutting costs and driving efficiencies through not only revised vendor pricing but also redesign and standardization of planned development programs.  In the long run, the ability to undertake developments at significantly lower hurdle rates than were thought just a few years ago will be positive for the industry as a whole.  In the current market, most successful tenders continue to see fixtures at or below cash breakeven levels.  For the most part, customer conversations remain focused on extending existing contracted assets or trade-offs between existing assets and newer assets rather than contracting new units for work.

It remains likely that the majority of units with contracts expiring in 2015 and 2016 will be unable to find reasonable follow on work.  It will be important to observe how rig owners react when faced with idle time on their units and face the choice to warm stack, cold stack or scrap units.

Over the past 14 months 44 units have been scrapped, representing more retirements than over the past 20 years combined.  Over the next 3 quarters, 27 of the 43 rigs rolling off contract are 5th generation or below units that will be challenged to find work for the foreseeable future as they are priced out of the market by more capable units. 15 or 20 year old assets require significant capital investments to remain part of the active fleet and very few rig owners will find economic justification to keep these old assets working.

Larger drilling companies with diversified fleets will find it easier to make sound economic decisions and cold stack idle rigs as each individual unit represents a smaller percentage of the overall fleet. Cold stacked units will generally require an improvement in dayrates sufficient to overcome reactivation costs before they are reintroduced into marketed supply.  Significant cold stacking activity would represent a positive development in the market, effectively reducing marketed supply and helping to stabilize utilization and pricing until a more fundamental recovery is in place.

Currently 205 rigs are working, representing 73% marketed utilization.  It is estimated that 180-200 rigs are needed in the floater fleet to maintain current decline curves.  On the assumption that no new contracts are signed the market is expected to reach this level by Q1 2016.

Currently the orderbook stands at approximately 70 units, of which 29 are Sete new builds.  A significant number of these newbuild orders have been delayed or cancelled and we expect this trend to continue.  Delayed or cancelled newbuilds will ultimately be added to the fleet, however until an improved market justifies taking deliveries, the vast majority will likely remain in the shipyards.  Between now and 2018 there is a high likelihood that there will be overall contraction in the floater fleet due to delivery delays and scrapping activity.

Despite the challenging near term market Seadrill believes that it is well positioned with a best in class fleet and strong operational performance to survive the current downturn as well as being able to take advantage of the recovery when the time is right.

Premium Jack-up Market

Tendering activity in the jack-up market continued in the third quarter, albeit at low dayrates.  The shorter term contract profile in this market lends itself to more turnover and the market has likely reached the base level of units required to maintain existing decline curves.

Globally, marketed utilization is 73%. For units built before 2006 utilization is 71% while for newer units utilization is 75%. While utilization is still far away from levels required for pricing power customers continue to demonstrate a preference for newer and more capable equipment that can provide safer and more efficient operations.

Currently there are approximately 66 idle units older than 30 years out of a total marketed fleet of 476.  Additionally there are 64 units that are rolling off contracts by the end of 2016, which are also older than 30 years. Together, these 130 rigs, or 27% of the total marketed fleet, represent prime candidates for retirement.

125 additions to the fleet are currently under construction; however a significant portion of these orders were placed by investors with little or no operating track record.  While a number of these speculators may exit projects, these units will eventually reach the market, possibly in the hands of more established companies.  The deployment of this incremental supply may be somewhat rationalized in the longer term as the more established players will likely only take delivery when economically viable.

Fourth Quarter Guidance

EBITDA is expected to be approximately $30 million less than the third quarter driven by:

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Increased idle time on the following units relative to the third quarter:

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West Venture

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West Phoenix

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West Vigilant

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West Leda

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West Telesto

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Planned SPS survey for the West Orion

Operationally, performance in the fourth quarter is strong to date with 98% utilization quarter to date.

Forward-Looking Statements

This news release includes forward looking statements. Such statements are generally not historical in nature, and specifically include statements about the Company's plans, strategies, business prospects, changes and trends in its business and the markets in which it operates.  These statements are made based upon management's current plans, expectations, assumptions and beliefs concerning future events impacting the Company and therefore involve a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, which speak only as of the date of this news release. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to offshore drilling market conditions including supply and demand, day rates, customer drilling programs and effects of new rigs on the market, contract awards and rig mobilizations, contract backlog, dry-docking and other costs of maintenance of the drilling rigs in the Company's fleet, the cost and timing of shipyard and other capital projects,  the performance of the drilling rigs in the Company's fleet, delay in payment or disputes with customers, our ability to successfully employ our drilling units, procure or have access to financing, ability to comply with loan covenants, liquidity and adequacy of cash flow from operations, fluctuations in the international price of oil, international financial market conditions changes in governmental regulations that affect the Company or the operations of the Company's fleet, increased competition in the offshore drilling industry, and general economic, political and business conditions globally.  Consequently, no forward-looking statement can be guaranteed.  When considering these forward-looking statements, you should keep in mind the risks described from time to time in the Company's filings with the SEC, including its Annual Report on Form 20-F.

The Company undertakes no obligation to update any forward looking statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, the Company cannot assess the impact of each such factors on its business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward looking statement.

November 24, 2015

The Board of Directors

Seadrill Limited

Hamilton, Bermuda

Questions should be directed to Seadrill Management Ltd represented by:

Media contacts:

Iain Cracknell

Director of Communications

Seadrill Management Ltd.

+44 (0) 2088 114700

Bell Pottinger+44 (0) 2037 722500

Appendix I

Reconciliation of certain underlying financial measures with the reported results

Q2 2015  and Q3 2014  net interest bearing debt has been recasted to be presented on a consistent basis.

Q3 2015 Underlying represents reported numbers adjusted for non-recurring items, for the purposes of comparability. The adjustments made are:

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Operating (loss)/income: exclusion of goodwill impairment and loss on disposals

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Net (loss)/income: exclusion of goodwill impairment, loss on disposals and impairment loss on investments.

Q3 2014 Underlying represents reported numbers adjusted for West Vela, West Polaris, West Titania, West Oberon, West Intrepid, West Courageous and West Defender that have been disposed of by the Company since September 30, 2014, for the purposes of comparability. The adjustments made are:

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Revenue: exclusion of contract revenue relating to rigs disposed of since September 30, 2014.

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EBITDA: exclusion of EBITDA relating to rigs disposed of since September 30, 2014.

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Net debt: exclusion of debt amount outstanding relating to rigs disposed of since September 30, 2014.

Q2 2015 Underlying represents reported numbers adjusted for West Polaris that was disposed of by the Company   on June 19, 2015 for the purposes of comparability. The adjustments made are:

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Revenue: exclusion of contract revenue relating to the West Polaris which was disposed of on June 19, 2015

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EBITDA: exclusion of EBITDA relating to the West Polaris and related loss on disposal, being a non-recurring item, for the purposes of comparability.

Seadrill Limited

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

for the three and nine months ended September 30, 2015 and 2014

(In $ millions)

* Includes transactions with related parties. Refer to Note 17.

See accompanying notes that are an integral part of these Consolidated Financial Statements.

Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

for the three and nine months ended September 30, 2015 and 2014

(In $ millions)

See accompanying notes that are an integral part of these Consolidated Financial Statements.

Seadrill Limited

UNAUDITED CONSOLIDATED BALANCE SHEETS

as of September 30, 2015 and December 31, 2014

(In $ millions)

See accompanying notes that are an integral part of these Consolidated Financial Statements.

Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the nine months ended September 30, 2015 and 2014

(In $ millions)

Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

for the nine months ended September 30, 2015 and 2014

(In $ millions)

See accompanying notes that are an integral part of these Consolidated Financial Statements.

Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

for the nine months ended September 30, 2015 and 2014

(In $ millions)

See accompanying notes that are an integral part of these Consolidated Financial Statements.

Seadrill Limited

NOTES TO UNAUDITED 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 of September 30, 2015 we owned and operated 38 offshore drilling units and had 14 units under construction. 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.

As used herein, and unless otherwise required by the context, the term "Seadrill" refers to Seadrill Limited and the terms "Company", "we", "Group", "our" and words of similar import refer to Seadrill and its consolidated companies. 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 unaudited interim consolidated financial statements are stated in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). The unaudited interim consolidated financial statements do not include all of the disclosures required in complete annual financial statements. These interim financial statements should be read in conjunction with our annual financial statements filed with the SEC on Form 20-F for the year ended December 31, 2014. The year-end condensed balance sheet data that was derived from our audited 2014 financial statements does not include all disclosures required by US GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement have been included. The amounts are presented in United States dollar ("US dollar") rounded to the nearest million, unless stated otherwise.

Significant accounting policies

The accounting policies adopted in the preparation of the unaudited interim financial statements are consistent with those followed in the preparation of our annual audited consolidated financial statements for the year ended December 31, 2014 except as discussed below or unless otherwise included in these unaudited interim financial statements as separate disclosures.

Related party offsetting

Historically the Company presented balances due to/from Ship Finance on a gross basis. From June 30, 2015 the Company has elected to present this on a net basis, due to the fact that the right of offset is established in the long-term loan agreements, and the balances are intended to be settled on a net basis, providing a more appropriate description of the Company's related party net debt position.  Accordingly the Company has re-presented $45 million related to SFL Deepwater Ltd, $5 million related to SFL Hercules Ltd, and  $14 million related to SFL Linus, as at December 31, 2014 from Amounts due from related parties (Current assets) and offset against Long-term debt due to related parties (Non-current liabilities). Similarly, the Company has presented $4 million related to SFL Deepwater Ltd and $16 million related to SFL Hercules Ltd as at September 30, 2015 from Amounts due from related parties (Current assets) and offset against Long-term debt due to related parties (Non-current liabilities). Refer to Note 16 - Variable interest entities.

 

Note 2 – Recent Accounting Pronouncements

Recently Adopted Accounting Standards

The company has adopted Accounting Standards Update ("ASU") 2015-03, Interest - Imputation of Interest, (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs as at June 30, 2015, which requires the debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and premiums. This ASU is effective for the first interim period beginning after December 15, 2015 and early adoption is permitted. The Company has chosen to early adopt this ASU in the second quarter of 2015. As a result, $42 million of debt issuance costs have been reclassified from Other current assets to a direct deduction from Current portion of long-term debt as at December 31, 2014 and $103 million of debt issuance costs have been reclassified from Other non-current assets to a direct deduction from Long-term debt as at the same date. Similarly, as at June 30, 2015, $37 million of debt issuance costs have been presented as a direct deduction from the current portion of long-term debt and $95 million of debt issuance costs have been presented as a direct deduction from long-term debt as at that date.

In April 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends the criteria for reporting discontinued operations to include only disposals representing a strategic shift in operations. The ASU also requires expanded disclosures regarding the assets, liabilities, income, and expenses of discontinued operations. Seadrill adopted this guidance in the period, which was effective for the discontinued operations occurring after January 1, 2015. The adoption of this guidance did not have a material impact on Company's consolidated financial statements and related disclosures.

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which required two accounting changes. First, the amendments in this Update changed the accounting for repurchase-to-maturity transactions to secured borrowing accounting. Second, for repurchase financing arrangements, the amendments required separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which would result in secured borrowing accounting for the repurchase agreement. The ASU also requires for certain transactions comprising (1) a transfer of a financial asset accounted for as a sale and (2) an agreement with the same transferee entered into in contemplation of the initial transfer that results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. Seadrill adopted this guidance in the period.  However, the adoption of this guidance does not have a material impact on Company's consolidated financial statements and related disclosures.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides new authoritative guidance on the methods of revenue recognition and related disclosure requirements.  In April 2015 the FASB proposed to defer the effective date of the guidance by one year.  Based on this proposal, public entities would need to apply the new guidance for annual and interim periods beginning after December 15, 2017,  and shall be applied, at the Company's option, retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  Early adoption is not permitted until periods beginning after December 15, 2016. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides new authoritative guidance with regards to management's responsibility to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The ASU will be effective for all entities in the first annual period ending after December 15, 2016 (December 31, 2016 for calendar year-end entities) and early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements and related disclosures.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which made targeted amendments to the current consolidation guidance that could affect all industries. The FASB issued this guidance to respond to stakeholders' concerns about the current accounting for consolidation of certain legal entities. Financial statement users asserted that in certain situations in which consolidation is ultimately required, deconsolidated financial statements are necessary to better analyze the reporting entity's economic and operational results. Previously, the FASB issued an indefinite deferral for certain entities to partially address those concerns. However, the amendments in this guidance rescind that deferral and address those concerns by making changes to the consolidation guidance. The ASU will be effective for public entities in the first annual period, and for interim periods therein, beginning after December 15, 2015 and early adoption is permitted. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.

In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which provides explicit guidance about a customer's accounting for fees paid in a cloud computing arrangement. This ASU will be effective for the first interim period beginning after December 15, 2015 and early adoption is permitted.  The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The guidance further requires that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date and present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The guidance will be effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years and early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements and related disclosures.

Note 3 – Segment information

Operating segments

The Company provides offshore drilling services to the oil and gas industry. Our business has been organized into segments based on differences in management structure and reporting, economic characteristics, customer base, asset class, and contract structure. We currently operate in the following segments:

Floaters: Services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts for this segment relate to semi-submersible rigs and drillships for harsh and benign environments in mid-, deep- and ultra-deep waters.

Jack-up rigs: Services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts for this segment relate to jack-up rigs for operations in harsh and benign environments.

Other: Primarily consists of rig management services.

Segment results are evaluated on the basis of operating profit, and the information given below is based on information used for internal management reporting. The accounting principles for the segments are the same as for our consolidated financial statements.

Total revenue

Depreciation and amortization

Operating income - Net Income

Drilling Units and Newbuildings - Total Assets

Capital expenditures – fixed assets

Note 4 - Gain / (Loss) on disposals

Cancellation of the West Mira

On September 14, 2015, the Company cancelled the construction contract for the West Mira with Hyundai Samho Heavy Industries Co Ltd. ("HSHI"), due to the Shipyard's inability to deliver the unit within the timeframe required under the contract. The carrying value of the newbuild at the date of cancellation was $315 million, which included $170 million of pre-delivery installments paid to the HSHI, with the remainder relating to purchased equipment, internally capitalized construction costs and capitalized interest. Under the contract terms, the Company has the right to recoup the $170 million in pre-delivery installments, plus accrued interest.

On October 12, 2015, HSHI launched arbitration proceedings under the contract.  HSHI have claimed that Seadrill's cancellation was a repudiatory breach and claim they were due various extensions of time.  The Company refutes this vigorously, and believes it has the contractual right to recover the $170 million in pre-delivery installments, plus accrued interest. The recovery is however now not expected until the conclusion of an arbitration process under English law, which is expected to take up to two years.

Based both on management's assessment of the facts and circumstances, and advice from external counsel, who have been engaged for the arbitration process, the Company believes the recovery of the installment, plus accrued interest, is probable, as defined by US GAAP.  As such, the Company has reclassified from "Newbuildings", a receivable of $170 million plus accrued interest of $29 million, which is presented in "Other non-current assets" on the balance sheet.  The Company will continue to assess the recoverability throughout the arbitration process.

The Company will redeploy equipment, totaling $48 million, within Seadrill's remaining fleet, and has not written off these amounts. The resulting net loss on disposal recognized was $78 million, which is included in "Loss on disposal" in the Statement of Operations.

Disposal of the West Polaris

On June 19, 2015, the Company sold the entities that owned and operated the West Polaris (the "Polaris business"), to Seadrill Operating LP ("Seadrill Operating"), a consolidated subsidiary of Seadrill Partners LLC and 42% owned by the Company. The entities continue to be related parties subsequent to the sale.

The purchase price consisted of an initial enterprise value of $540 million, less debt assumed of $336 million. The fair value of consideration recognized on disposal was $235 million, which comprised of $204 million of cash consideration , and a working capital adjustment of $31 million, which was received during Q3 2015.

Additional contingent consideration in the form of a seller's credit of $50 million is also potentially due from Seadrill Partners in 2021, which will carry interest at a rate of 6.5% per annum. The repayment of the seller's credit is contingent on the future re-contracted day rate.  During the 3 year period following the completion of the current customer contract, the final amount payable will be adjusted downwards to the extent the average re-contracted operating day rate (net of commissions), adjusted for utilization, over the period, is less than $450 thousand per day. If the rig is off contract during this period, the reduction is equal to $450 thousand per day.

In addition, the Company may be entitled to receive further contingent consideration from Seadrill Partners, consisting of (a) any day rates earned by Seadrill Partners in excess of $450 thousand per day, adjusted for daily utilization, tax and agency commission for the remainder of the ExxonMobil contract completing in March 2018 and (b) 50% of any day rate earned above $450 thousand per day, adjusted for daily utilization, tax and agency commission fee after the conclusion of the existing contract until 2025.

The Company's accounting policy is not to recognize contingent consideration before it is considered realizable and has therefore not recognized on disposal any amounts receivable relating to the elements of consideration which are contingent on future events.  From the disposal date of the West Polaris on June 19, 2015 to September 30, 2015, the Company has recognized  $17 million in contingent consideration, as it became realized, within "Contingent consideration realized" included within operating income.

The loss recognized at the time of disposal of the Polaris business was $75 million, after taking into account a goodwill allocation of $41 million. The loss has been presented in our consolidated statement of operations, under "(Loss)/gain on disposals" included within operating income.

Under the terms of various agreements between Seadrill and Seadrill Partners LLC, entered into in connection with the initial public offering of Seadrill Partners LLC, Seadrill will continue to provide management, technical and administrative services to the Polaris business.  See further discussion in Note 17  to the consolidated financial statements for details of these services and agreements.

The sale of the Polaris business does not qualify for reporting as a discontinued operation as the sale of the Polaris business is not considered to represent a strategic shift expected to have a major effect on the Company's operations and financial results.

SeaMex Limited

During the year ended December 31, 2014, the Company entered into a joint venture agreement with an investment fund controlled by Fintech Advisory Inc. ("Fintech"), for the purpose of owning and managing certain jack-up drilling units located in Mexico under contract with Pemex. The West Oberon, West Intrepid, West Defender, West Courageous and West Titania jack-up drilling rigs ("the jack-up drilling rigs") were included within the joint venture. The transaction was completed on March 10, 2015, when Fintech subscribed for a 50% ownership interest in the joint venture company, SeaMex Limited ("SeaMex"), which was previously 100% owned by the Company, and SeaMex simultaneously purchased the jack-up drilling rigs from Seadrill Limited.

As a result of the transaction the Company no longer controls the entities that own and operate these jack-up drilling units (the "Disposal Group"), and accordingly the Company has deconsolidated these entities as of March 10, 2015, and has recognized its remaining 50% investment in the joint venture at fair value.  The fair value of the retained 50% equity interest in the SeaMex joint venture was determined by reference to the price paid by Fintech to obtain a 50% equity interest in the disposal group from Seadrill.  Seadrill accounts for its 50% investment in the joint venture under the Equity Method.

Total consideration in respect of the Disposal Group was $1,077 million from SeaMex to Seadrill.  This was comprised of net cash of $586 million, a Seller's credit receivable of $250 million, short term related party receivable balances of $90 million and direct settlement of Seadrill's debt facilities relating to the West Oberon amounting to $150 million.   Subsequently, $162 million of related party balance was received when the West Titania was refinanced.  The Seller's credit bears interest at a rate of LIBOR plus a margin of 6.50% and matures in December 2019.  See Note 17 to the consolidated financial statements for further details on the related party balances.

Seadrill utilized the cash consideration to repay outstanding debt facilities in respect of the West Courageous, West Defender, West Intrepid and West Titania. See further details in Note 12 to the consolidated financial statements.

The total recognized gain on disposal was $186 million, after taking into account a goodwill allocation of $49 million, which has been presented in our consolidated statement of operations, under "(Loss)/gain on disposals" included within operating income.

The Company has not presented this disposal group as a discontinued operation in the statement of operations as it does not represent a strategic shift that has (or will have) a major effect on the Company's operations and financial results.

In connection with the JV agreement, SeaMex entered into a management support agreement with Seadrill Management, a wholly owned subsidiary of the Company, pursuant to which Seadrill Management provides SeaMex with certain management and administrative services. The services provided by Seadrill Management are charged at cost plus management fee of 8% of Seadrill's costs and expenses incurred in connection with providing these services. The agreement can be terminated by SeaMex by providing 120 days written notice.

Contingent consideration recognized

During the three and nine months ended September 30, 2015, the Company recognized contingent consideration receivable amounting to $19 million and $28 million respectively (three and nine months ended September 30, 2014: nil and nil, respectively). Contingent consideration recognized during the nine months ended September 30, 2015 comprised of $11 million relating to the disposal of the West Vela in November 2014 and $17 million relating to the disposal of West Polaris in June 2015. During the three months ended September 30, 2015, the amount recognized consisted of $4 million related to the disposal of West Vela and $15 million relating to the disposal of West Polaris.

Note 5 – Taxation

Income taxes consist of the following:

The effective tax rate for the three and nine months ended September 30, 2015 is higher compared to respective periods in 2014 primarily as a result of non-taxable gain on deconsolidation of Seadrill Partners in 2014, not repeated in 2015.

The Company, including its subsidiaries, is taxable in several jurisdictions based on its rig operations. A loss in one jurisdiction may not be offset against taxable income in another jurisdiction. Thus, the Company may pay tax within some jurisdictions even though it might have losses in others.

Income taxes for the three and nine months ended September 30, 2015 and 2014 differed from the amount computed by applying the statutory income tax rate of 0% as follows:

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 asset (liability) consists of the following:

Deferred Tax Assets:

Deferred Tax Liability:

Net deferred taxes are classified as follows:

Future taxable income justifies the inclusion of tax loss carry-forwards in the calculation of net deferred taxes.

Seadrill Limited

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Earnings per share

The computation of basic earnings per share ("EPS") is based on the weighted average number of shares outstanding during the period. Diluted EPS includes the effect of the assumed conversion of potentially dilutive instruments.

The components of the numerator for the calculation of basic and diluted EPS are as follows:

The components of the denominator for the calculation of basic and diluted EPS are as follows: