UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

For the month of August 2015

Commission File Number 001-34667

SEADRILL LIMITED

P.O. Box HM 1593

Par-la-Ville Place, 4th Floor

14 Par-la-Ville Road

Hamilton HM 08 Bermuda

(441)295-6935

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F [X]       Form 40-F [  ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [  ].

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [  ].

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

INFORMATION CONTAINED IN THIS FORM 6-K REPORT

Attached hereto as Exhibit 99.1 is a copy of the earnings release of Seadrill Limited (the "Company"), dated August 27, 2015, announcing the Company's results for the second quarter ended June 30, 2015.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

EXHIBIT 99.1

August 27, 2015 - Seadrill Limited ("Seadrill" or "the Company"), a world leader in offshore deepwater drilling, announces its second quarter results for the period ended June 30, 2015.

Highlights

•	EBITDA1 of US$651 million

•	93% economic utilization2

•	Net income of $423 million and diluted earnings per share of $0.77

•	The West Tellus and West Carina drillships commenced operations with Petrobras in Brazil on three year contracts

•	Deferred the deliveries of two drillships currently under construction, the West Draco and West Dorado, until the end of the first quarter of 2017

•	Deferred the deliveries of eight jack-ups currently under construction into 2016 and 2017

•	Agreed to a revised leverage ratio with our banking group

•	The West Polaris drillship was sold to Seadrill Partners

•	The Seadrill Group3 achieved 94% economic utilization

•	Seadrill Group orderbacklog of approximately $14.0 billion

•	Seadrill Group cash savings of approximately $500 million expected during 2015

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

"We continued to deliver safe and efficient operations during the second quarter. We are realizing the benefits of the cost management program we initiated in 2014 and we are now targeting an increased level of cost savings for 2015."

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

⁴ Q2 2014 Underlying is defined as reported Q2 2014 results, adjusted for certain exclusions as discussed in the Appendix I. These numbers are reconciled to the US GAAP reported results for the same period in the Appendix.

⁵ Net debt represents interest bearing debt less cash and restricted cash balances.

"Seadrill has continued to be proactive in order to manage through the current downcycle. Contract renegotiations with our customers are progressing and we have reached agreements with two shipyards to manage our delivery schedule. We believe market conditions will remain challenging through 2016, and we will continue to focus on safety, efficient operations and cost management."

Financial information

Second quarter 2015

Revenues for the second quarter of 2015 were $1,147 million compared to $1,244 million in the first quarter of 2015.

Operating profit for the quarter was $384 million compared to $703 million in the preceding quarter. The decrease was primarily due to the gain on deconsolidation of SeaMex during the first quarter, and a loss on the sale of the West Polaris to Seadrill Partners during the second quarter.  Taken together, these items account for approximately $261 million, or 82%, of the sequential decline in operating profit.  Excluding these non-recurring items, operating profit declined 11% sequentially.  On a like for like basis, the decline in operating profit can be primarily attributed to the deconsolidation of SeaMex and increased idle time across the fleet.

The loss on disposal is related to the dropdown of the West Polaris to Seadrill Partners. Seadrill's accounting policy is not to recognize any contingent forms of consideration before they are realized. This has resulted in an initial loss on disposal despite an expectation of additional contingent consideration to be received in the future in excess of the loss.

Net financial and other items for the quarter showed a gain of $84 million compared to a loss of $197 million in the previous quarter.  The change in financial items was largely impacted by the sequential change in derivative financial instruments which accounted for $225 million of the quarter over quarter change in financial items.  The movement was also driven by Seadrill's share in results of associated companies, which includes the share of Seadrill Partners' net income. The increase is primarily related to favorable unrealized mark to market revaluations of derivatives within Seadrill Partners.

Income taxes for the second quarter were $45 million, a decrease of $13 million from the previous quarter.  The change was primarily due to a net tax benefit recognized during the quarter in respect of return-to-provision ("RTP") adjustments, offset by higher relative components of our estimated 2015 earnings.

Net income for the quarter was $423 million representing basic and diluted earnings per share of $0.77.

Balance sheet⁶

As of June 30, 2015, total assets were $25,144 million, a decrease of $529 million compared to the previous quarter.

Total current assets increased to $3,188 million from $2,981 million over the course of the quarter, primarily driven by an increase in amounts due from related parties and the transfer of deferred consideration relating to the sale of the tender rig business from non-current to current.  These increases were partially offset by a reduction in accounts receivable as a result of disposals.

Total non-current assets decreased to $21,956 million from $22,692 million primarily due to the disposal of the West Polaris.

Total current liabilities increased to $3,451 million from $3,329 million primarily due to an increase in the current portion of long term debt, partially offset by a decrease in short term debt due to related party.

Long-term external interest bearing debt decreased to $9,518 million from $10,537 million over the course of the quarter and total net interest bearing debt decreased to $10,337 million from $11,202 million as at March 31, 2015.  The decrease was primarily due to the transfer of the West Polaris loan to Seadrill Partners and debt repayments on the $950 million credit facility.

Total equity increased to $11,159 million as of June 30, 2015 from $10,710 million as of March 31, 2015, primarily driven by net income during the quarter.

⁶ For the purposes of comparability the Q1 2015 balance sheet has been recast to reflect the adoption of new accounting standards.  See Note 1 and 2 to the attached financial statements for further information.

Cash flow

As of June 30, 2015, cash and cash equivalents were $918 million, an increase of $15 million compared to the previous quarter.

Net cash provided by operating activities for the six month period ended June 30, 2015 was $899 million and net cash provided by investing activities for the same period was $100 million.  Net cash used in financing activities was $913 million.

As of June 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 2,679,670 shares outstanding under various share incentive programs for management and directors, of which approximately 1,118,002 are vested and exercisable.  The Company currently holds a TRS agreement with exposure to 4 million shares in Seadrill which matures on September 3, 2015, with a strike price of NOK 97.66 per share.

Operations

During the second 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 two tender rigs owned by SapuraKencana.

At the conclusion of the second quarter Seadrill had 16 floaters in operation and two idle units.  In the jack-up business, there were seventeen units in operation and two idle units.

Seadrill floaters (drillships and semi-submersible rigs) achieved an economic utilization rate of 92% in the second quarter compared to 93% in the first quarter.  Excluding the West Tellus, which had 40 days of downtime during the second quarter, economic utilization was 94%.

Average economic utilization was 97% for Seadrill jack-up rigs in the second quarter compared to 98% in the preceding quarter.

Economic utilization for the Seadrill Group floaters on a combined basis was 93% and 95% excluding the West Tellus and on the jack-up fleet was 97%.

The Seadrill Group's cost savings initiatives put into place at the beginning of 2014 continue to progress following a successful 2014 in which approximately $250 million of cash savings were realized.  During 2015, the Group expects to continue these efforts primarily by reducing or postponing spending in operating expense, G&A and capex and believes that cash savings of approximately $500 million can be realized.

Newbuilding Program

Seadrill currently has 15 rigs under construction comprised of four Drillships, three Semi-submersibles, and eight Jack-ups.

Total remaining yard instalments for these newbuilds are approximately $4.3 billion and $1.1 billion has been paid to the yards in pre-delivery instalments.

During the second quarter Seadrill successfully deferred a number of its newbuild deliveries:

The deliveries of two units currently under construction, the West Draco and West Dorado, have been deferred from the third and fourth quarter of 2015 to the end of the first quarter of 2017.

The expected 2015 deliveries of eight jack-ups currently under construction have been amended, deferring one unit to the end of December 2015, five units to 2016 and two units to 2017.

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

Commercial

During the second quarter of 2015, Seadrill entered into new contracts resulting in total net backlog increase of approximately $300 million.

Seadrill signed a provisional commitment for a new two year extension with Pemex for the semi-submersible unit West Pegasus. The base revenue potential for the new contract is $266 million. The dayrate will be market rate adjusted annually based on a basket of comparable rigs over the preceding period. In conjunction with the extension, the total revenue potential for the current contract was reduced by $45 million. The two year extension and the agreement to reduce the revenue potential of the existing contract are subject to final signature of Pemex management, which is expected by the fourth quarter 2015. The net effect of this agreement has resulted in an increase of $221 million in total revenue potential for the West Pegasus.

Additionally, Seadrill and SeaMex have agreed to reduce the dayrate on five jack-ups for a period of 365 days, resulting in a total backlog reduction of approximately $20 million. The agreement to reduce the revenue potential of the existing contract is contingent upon final confirmation of the two year extension of the West Pegasus by Pemex management. Units included in this agreement are the West Oberon, West Intrepid, West Defender, West Courageous and West Titania.

North Atlantic Drilling secured a contract extension for the semi-submersible rig West Phoenix with Total E&P UK Limited, commencing mid-March 2016 and securing work for the unit through the end of August 2016. The total revenue potential for the contract extension is approximately $62 million.  A portion of the $62 million will be paid during the currently anticipated idle period from the beginning of September 2015 to the middle of March 2016. The Company has the ability to market the rig for alternate work during this period.  As part of the agreement to extend the West Phoenix, the Company has agreed to a dayrate reduction on the current contract effective from June 1, 2015 until its expected conclusion at the end of August 2015, resulting in a reduction to the remaining revenue potential of approximately $16 million.

Seadrill secured a new 18 month extension with ENI for the jack-up unit West Ariel in Congo. The base revenue potential for the new contract is $85 million. In conjunction with the extension, the total revenue potential for the current contract was reduced by $32 million. The net effect of this agreement has resulted in an increase of $53 million in total revenue potential for the West Ariel.

Seadrill has also tentatively agreed with Husky to reduce the dayrate on the West Mira due to the late delivery of the unit.  We are still in discussion with the yard over the impact of this delay and will release the full details of the net effect once these negotiations are complete.

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 August 27, 2015 is $7.54 billion, comprised of $6.02 billion for the floater fleet and $1.52 billion for the Jack-up fleet.  The average contract duration is 26 months for floaters and 15 months for Jack-ups.

For the Seadrill Group, total order backlog is $14.0 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

Following the recovery in oil prices during the first quarter, commodity prices have again moved lower and are now approaching the lows witnessed at the beginning of 2015. The low commodity price environment, reductions in oil company spending plans and an increasing supply / demand imbalance for drilling units all continue to have a negative impact on utilization and pricing in all market segments.  As expected, dayrates for new fixture activity remains at, or below, cash flow breakeven levels for both the floater and jack-up markets.

Seadrill continues to believe that this challenging market will continue through 2016 and that visibility for 2017 and beyond is dependent upon commodity price stability, oil companies realizing the benefits of their capital spending rationalization programs and continued fleet attrition.

Ultra-Deepwater Floater Market

Pricing for the remainder of 2015 and 2016 is expected to continue to be driven by a high degree of excess capacity with 91 floaters already idle and 92 additional units ending their current contracts by the end of 2016.

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 81% marketed capacity utilization versus 71% for deep and mid water floaters. During the downcycle older units are more challenged to remain utilized due to the availability of better and more efficient equipment.

Based on the level of current activity seen in the floater market, we expect stacking and scrapping activity to continue through the second half of 2015 and well into 2016. Scrapping activity has continued in the second quarter with an incremental 14 floaters designated for retirement. A total of 40 floaters have been now been scrapped since the end of 2013, equivalent to 12% of the total fleet, and currently there are 28 cold stacked units. Lower than expected stacking costs and a commodity price recovery may delay scrapping decisions as rig owners retain some option value on older units. However, we continue to believe that the significant cost to perform periodic classing activity on these older assets will ultimately drive decisions to cold stack and scrap these less capable units.

Currently the orderbook stands at approximately 78 units, of which 29 are Sete new builds. Approximately 145 units, or 51% of the total marketed floater fleet are rolling off contracts between now and the end of 2017, many of which must undergo a 15 or 20 year classing. Current indications are that a significant number of newbuild orders will be delayed until an improved market justifies taking delivery of the unit. In light of the likely cold stacking, scrapping activity and newbuild delays there remains a high likelihood that there will be limited, or no, growth in the marketed fleet between now and 2018.

Despite the challenging near term market Seadrill believes that in the longer term deepwater production will be required to satisfy world hydrocarbon demand and that it has the ideal fleet positioning to benefit from these requirements.

Premium Jack-up Market

Tendering activity in the premium jack-up market has shown some improvement in the second quarter and shelf production continues to be a cost effective and stable source of production for oil companies, however capacity utilization and dayrates have remained under pressure.

The jack-up market is yet to see the level of stacking and scrapping required to balance supply with demand.  As this cycle progresses it is highly likely that we will see acceleration in scrapping activity in the jack-up market. Currently there are approximately 50 idle units out of a total marketed fleet of 480 that are older than 30 years.  Additionally there are 100 units that are rolling off contracts by the end of 2016, which are also older than 30 years. Together, these 150 rigs, or 30% of the total fleet, represent prime candidates for retirement.

Looking at the global marketed fleet, 47%, or 227 units are older than 30 years, while the newbuild orderbook is 123 units.  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 in the hands of more established companies.  The deployment of this incremental supply may be somewhat rationalized, however in the longer term additional units need to be retired to achieve the required supply demand balance.

Financial Update

•	Completed the leverage ratio waiver with the banking group.

•	Completed the sale of the West Polaris to Seadrill Partners.

•	Secured commitments for a $450 million secured credit facility to refinance six jack-ups: the West Mischief, West Resolute, West Freedom, West Vigilant, West Ariel and West Prospero.

The Seadrill Group has now successfully completed $2.15 billion in new funding year to date in 2015. Seadrill continues to benefit from a strong relationship with its core banking group, who are supportive of the Company's ability to operate in the challenging market environment.

For the remainder of 2015 the Company will be looking to finance the delivery of the West Mira and has a $350 million unsecured bond maturing in the third quarter. In light of the strong liquidity position it is expected that this bond will be repaid with excess cash and the Company expects to have adequate cash balances to fund all 2016 debt maturities and scheduled amortizations. Should an attractive offer materialize to refinance, it will be assessed accordingly based on the terms offered.

Third Quarter Guidance

EBITDA is expected to be approximately $160 million less than the second quarter driven by:

•	Idle time on an incremental four floaters in addition to the West Navigator and the West Taurus

◦	West Eminence

◦	West Eclipse

◦	West Venture

◦	West Phoenix (returning to service in March 2016)

•	Idle time on an incremental two jack-ups in addition to the West Triton and the West Resolute

◦	West Vigilant

◦

West Leda

•	Planned SPS surveys for the West Gemini and West Pegasus

•	A full quarter of deconsolidation of the West Polaris following the dropdown to Seadrill Partners

•	Renegotiations on existing contracts

Operationally, performance in the third quarter is strong to date with 31 days of non-planned downtime on the floater fleet and 16 days on the jack-up fleet.

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.

August 27, 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 Q2 2014 underlying with Q2 2014 (as reported)

* Q2 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 June 30, 2014 for the purposes of comparability. The adjustments made are:

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

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

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

Note: West Polaris was disposed of on June 19, 2015. Therefore, the exclusions are only made for the equivalent period in Q2 2014.

Seadrill Limited

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

for the three and six months ended June 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 COMPREHENSIVE INCOME

for the three and six months ended June 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 June 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 six months ended June 30, 2015 and 2014

(In $ millions)

 

 

Seadrill Limited

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended June 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 six months ended June 30, 2015 and 2014

(In $ millions)

See accompanying notes that are an integral part of these 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 June 30, 2015 we owned and operated 38 offshore drilling units and had 15 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 $51 million related to SFL Deepwater Ltd and $63 million related to SFL Hercules Ltd as at June 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 reporting periods beginning after December 15, 2017, and interim periods therein and early adoption is not permitted.  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.

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

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 received during the period, and a working capital adjustment receivable of $31 million, which is expected to be paid 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 June 30, 2015, the Company has recognized $2 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 'Gain/loss 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 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.

Total consideration in respect of the Disposal Group was $1,171 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 $185 million and direct settlement of Seadrill's debt facilities relating to the West Oberon amounting to $150 million.   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 and West Intrepid. 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 six months ended June 30, 2015, the Company recognized contingent consideration receivable amounting to $6 million and $10 million respectively (three and six months ended June 30, 2014: nil and nil, respectively). Contingent consideration recognized during the six months ended June 30, 2015 comprised of $8 million relating to the disposal of the West Vela in November 2014 and $2 million relating to the disposal of West Polaris in June 2015. During the three months ended June 30, 2015, the amount recognized consisted of $4 million related to the disposal of West Vela and $2 million relating to the disposal of West Polaris.

On March 21, 2014, we completed the sale of the entities that own and operate the West Auriga (the "Auriga business"), to Seadrill Capricorn Holdings LLC, a consolidated subsidiary of Seadrill Partners LLC and 49% owned by the Company. The entities continue to be related parties subsequent to the sale.

The agreed purchase price consisted of an enterprise value of $1.24billion, less debt assumed of $443 million. The total consideration of $797 million comprised cash of $697 million, and a discount note receivable of $100 million. The purchase price was subsequently adjusted by a working capital adjustment of $331 million. The total recognized gain on sale of the Auriga business was $440 million, which has been presented in our consolidated statement of operations, under "(Loss)/gain on disposals", included within operating income.

Note 5 – Taxation

Income taxes consist of the following:

The effective tax rate for the three and six months ended June 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 an overall loss at the consolidated level.

Income taxes for the three and six months ended June 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.

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:

Note 7 – Marketable securities

The historic cost of marketable securities is marked to market, with changes in fair value recognized in "Other comprehensive income" ("OCI").

Marketable securities held by the Company are equity securities considered to be available-for-sale securities. The following tables summarize the carrying values of the marketable securities in the balance sheet:

Marketable securities and changes in their carrying value are as follows:

Marketable securities in SapuraKencana and Seadrill Partners with an aggregate fair value of $631 million are in an unrealized loss position.  Aggregate unrealized losses of $563 million have been recognized within accumulated other comprehensive income.  These securities have all been in an unrealized loss position for less than 12 months.

Our ownership interest in Seadrill Partners' common units is 28.6% of total outstanding units as of June 30, 2015.

As of June 30, 2015 an accumulated unrealized loss of $497 million has been recognized in accumulated other comprehensive income. We have evaluated the near term prospects of the Seadrill Partners in relation to the severity and duration of the impairment.  Seadrill Partners continues to make significant distributions to its common unitholders.  Its drilling units are largely on long term contracts and so it has reduced exposure to short term movements in market conditions or dayrates.  Based on that evaluation and our ability and intent to hold the investment for a reasonable period of time sufficient for a forecasted recovery of fair value, we do not consider the investment to be other-than-temporarily impaired at June 30, 2015.

Our ownership interest in SapuraKencana's outstanding common shares is 8.18%.

As of June 30, 2015 an unrealized loss of $66 million had been recognized in accumulated other comprehensive income. We have evaluated the near term prospects of SapuraKencana in relation to the severity and duration of the impairment.  Based on that evaluation and our ability and intent to hold the investment for a reasonable period of time sufficient for a forecasted recovery of fair value, we do not consider the investment to be other-than-temporarily impaired at June 30, 2015.

Note 8 – Investment in associated companies

The Company has the following investments that are recorded using the equity method and cost method for the periods presented in these financial statements:

*The Seadrill Partners - Seadrill member interest and IDRs are accounted for as cost-method investments on the basis that they do not represent common stock interests and their fair value is not readily determinable. The investments are held at cost and not subsequently remeasured.

SeaMex Limited

During the year ended December 31, 2014, the Company entered into a joint venture agreement with an investment fund controlled by 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 were included within the joint venture. The transaction was completed on March 10, 2015, when Fintech subscribed for a 50% ownership interest in SeaMex, which was previously 100% owned by the Company, and the jack-up drilling rigs were acquired by SeaMex from Seadrill.

As a result of the transaction the Company no longer controls the entities that own and operate these jack-up drilling rigs, and accordingly the Company has deconsolidated these entities as of March 10, 2015, and has recognized its retained 50% investment in the joint venture at fair value. See Note 4 to the Financial Statements for further details.

Note 9 – Newbuildings

Note 10 – Drilling units

Depreciation expense on drilling units was $188 million and $383 million for the three and six months ended June 30, 2015, respectively and $164 million and $336 million for the three and six months ended June 30, 2014, respectively.

In June 2015, the West Polaris was disposed. For more details see Note 4 to the consolidated financial statements, included herein.

In March 2015, the West Oberon, West Intrepid, West Defender, West Courageous and West Titania jack-up drilling rigs were disposed.  For more details see Note 4 to the consolidated financial statements, included herein.

Note 11 – Goodwill

The goodwill balance and changes in the carrying amount of goodwill are as follows: