Seadrill Ltd

Note 1 –General information

Seadrill Limited (along with any one or more of its consolidated subsidiaries, or to all such entities, referred to as "Seadrill", "we", "us", "our", and "the Company") is incorporated in Bermuda. We are an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. Our primary business is the ownership and operation of drillships and semi-submersible rigs for operations in shallow to ultra-deepwater areas in both benign and harsh environments. We contract our drilling units to drill wells for our customers on a dayrate basis. Our customers include oil super-majors, state-owned national oil companies and independent oil and gas companies. In addition, we provide management services to certain affiliated entities.

Basis of presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Seadrill Limited have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, pursuant to such rules and regulations, they do not include all disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, the unaudited Condensed Consolidated Financial Statements includes all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of financial position, results of operations and cash flows for the interim periods.

Results of operations for interim periods are not necessarily indicative of results of operations for the respective full years, or any future period. The accompanying unaudited Condensed Consolidated Financial Statements and related notes should be read in conjunction with our 2024 10-K.

Certain reclassifications have been made to previously reported amounts to conform to the current period presentation. These reclassifications did not have a material effect on our unaudited Condensed Consolidated Financial Statements.

Significant accounting policies

Refer to Note 2 - "Accounting policies" of our Consolidated Financial Statements from our 2024 10-K for additional information related to our significant accounting policies.

Note 2 -Revenue from contracts with customers

The following table provides information about receivables and contract liabilities from our contracts with customers, as of the dates presented:

Changes in the contract liabilities balances during the three and nine months ended September 30, 2025 are as follows:

Revenues are attributed to geographical locations based on the country of operations for drilling activities, i.e., the country where the revenues are generated. The following table presents our revenues by geographic area:

(1) "Other" represents countries in which we operate that individually had revenues representing less than 10% of total operating revenues earned for any of the periods presented.

We had the following customers with revenues greater than 10% of total operating revenues in any of the periods presented:

Note 3 –Taxation

For the three and nine months ended September 30, 2025, income tax expense was $11 million and $55 million, respectively, compared to income tax expense of $7 million and $20 million for the three and nine months ended September 30, 2024, respectively.

The increase in tax expense for the three months ended September 30, 2025, relative to the three months ended September 30, 2024, primarily reflects changes in the Company's mix of pre-tax income and loss among tax jurisdictions.

The increase in tax expense for the nine months ended September 30, 2025, relative to the nine months ended September 30, 2024, primarily reflects changes in the Company's mix of pre-tax income and loss among tax jurisdictions and changes in valuation allowances established for Switzerland and Brazil.

On July 4, 2025, the U.S. enacted the One Big Beautiful Bill Act ("OBBBA"). The OBBBA includes many tax provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act and provisions allowing accelerated tax deduction for qualified property. The legislation does not have a material impact to our unaudited Condensed Consolidated Financial Statements.

Note 4 –Loss/Earnings per share

The computation of basic loss/earnings per share ("(LPS)/EPS") is based on the weighted average number of common shares of the Company, par value $0.01 per share (the "Shares"), outstanding during the period. Diluted (LPS)/EPS includes the effect of the assumed conversion of potentially dilutive instruments related to the effect of the unsecured senior convertible bond and share based compensation. Refer to Note 9 – "Debt" for further details on the unsecured senior convertible bond.

The components of the numerator for the calculation of basic and diluted (LPS)/EPS were as follows:

The components of the denominator for the calculation of basic and diluted (LPS)/EPS were as follows:

(1)Weighted average number of Shares outstanding in the three and nine months ended September 30, 2024 excludes shares repurchased during the period.

The basic and diluted (LPS)/EPS were as follows:

(1)For the three and nine months ended September 30, 2025, the effect of including all potentially dilutive instruments in the calculation resulted in decreased loss per share, which is anti-dilutive. As a result, the basic and diluted loss per share are equal.

Note 5 –Restricted cash

Restricted cash as of September 30, 2025 and December 31, 2024 was as follows:

Note 6 -Other current assets

As of September 30, 2025 and December 31, 2024, other current assets included the following:

Note 7 –Equity method investment

As of September 30, 2025 and December 31, 2024, the carrying value of our equity method investment was as follows:

Note 8 -Other current and non-current liabilities

Other current liabilities

As of September 30, 2025 and December 31, 2024, other current liabilities included the following:

Other non-current liabilities

As of September 30, 2025 and December 31, 2024, other non-current liabilities included the following:

Unfavorable drilling contracts

The following table summarizes the movement in unfavorable drilling contracts for the nine months ended September 30, 2025:

The amortization is recognized in the unaudited Condensed Consolidated Statement of Operations as "Depreciation and amortization". The weighted average remaining amortization for unfavorable contracts isnine months.

The table below shows the amounts relating to unfavorable contracts that is expected to be amortized over the following periods:

Note 9 –Debt

The table below sets out our debt agreements as of September 30, 2025 and December 31, 2024:

$575 million secured bond

In July 2023, Seadrill issued $500 million in aggregate principal amount of 8.375% Senior Secured Second Lien Notes due 2030 in an offering conducted pursuant to Rule 144A and Regulation S under the Securities Act. In August 2023, Seadrill issued an additional $75 million in aggregate principal amount of 8.375% Senior Secured Second Lien Notes due 2030 (the "Incremental Notes"), maturing on August 1, 2030 (together the "Notes"). The Incremental Notes were issued at 100.75% of par.

Revolving credit facility

On July 27, 2023, Seadrill Limited, along with its subsidiary, Seadrill Finance Limited ("Seadrill Finance"), established a Senior Secured Revolving Credit Facility (the "Revolving Credit Facility"). The commitments under the Revolving Credit Facility, which carries afive-year term, became available for drawdown on July 27, 2023. The Revolving Credit Facility permits borrowings of up to $225 million in revolving credit for working capital and other corporate purposes and includes an "accordion feature" allowing Seadrill to increase this limit by up to an additional $100 million, subject to agreement from the lenders. It also includes a provision for issuing letters of credit up to $50 million. The Revolving Credit Facility incurs interest at a rate equal to a specified margin plus the Secured Overnight Financing Rate ("SOFR"). Seadrill is required to pay a quarterly commitment fee on any unused portion of the revolving credit.

During the third quarter of 2025, the Company issued a NOK 403 million guarantee ($40 million as of September 30, 2025) under the Revolving Credit Facility related to SFL Hercules Ltd. claim, which reduced the available borrowings under the Revolving Credit Facility to $185 million.

For further details, please refer to Note 13–"Commitments and contingencies".

Unsecured senior convertible bond

The $50 million unsecured senior convertible bond (the "unsecured senior convertible bond"), issued on emergence from Chapter 11, has a maturity of August 2028 and bears interest, payable quarterly in cash, at the Term SOFR (as defined in the Note Purchase Agreement dated as of February 22, 2022, as amended (the "Note Purchase Agreement"), plus 6% on the aggregate principal amount of $50 million. The bond is convertible(in full and not in part) into Shares at a conversion rate of 52.6316 Shares per $1,000 principal amount of the bond, subject to certain adjustments set forth in the Note Purchase Agreement relating to the unsecured senior convertible bond. If not converted, a bullet repayment will become due on the maturity date.

Note 10 –Related party transactions

As of September 30, 2025, our major related party is the Sonadrill joint venture, over which we hold significant influence.

Related party revenues

Our related party revenues include the following:

(a) Seadrill provides management and administrative services and operational and technical support services to Sonadrill. These services are charged on a dayrate basis.

(b) Reimbursable revenues primarily relate to Sonadrill project work on the Libongos, Quenguela and West Gemini rigs.

(c) During 2025, we earned leasing revenues on the charter of the West Gemini to Sonadrill. During 2024, we also earned leasing revenues from the West Castor, West Telesto, and West Tucana, which were leased to Gulfdrill, up to their disposal in June 2024.

Related party balances

Sonadrill prepaid management fees as of September 30, 2025 and December 31, 2024 of $5 million and$7 million, respectively, to Seadrill. These balances were recorded in "Other current liabilities" within our unaudited Condensed Consolidated Balance Sheets.

Note 11 –Fair value of financial instruments

The carrying values and estimated fair values of certain of our financial instruments as of the dates specified were as follows:

Financial instruments categorized as level 1

The fair value of the $575 million secured bond is based on market traded value.

Financial instruments categorized as level 3

The fair value attributed to the unsecured senior convertible bond was bifurcated into two elements: the straight debt component was derived through a discounted cash flow approach, and the conversion option was derived through an option pricing model. The conversion option was recorded in equity at the point the bond was issued and, therefore, has not been included in the table above.

Our cash and cash equivalents, restricted cash, accounts receivable and accounts payable are by their nature short-term. As a result, the carrying values included in our unaudited Condensed Consolidated Balance Sheets approximate fair value.

Note 12 –Common shares

Share capital as of September 30, 2025 and December 31, 2024 was as follows:

Note 13 –Commitments and contingencies

We recognize loss contingencies in the unaudited Condensed Consolidated Financial Statements where it is probable that an outflow of economic benefits will be required to settle an obligation and the amount is reasonably estimable. An adverse outcome in a matter described below could have an adverse effect on Seadrill's operating results, cash flows and financial position. Accruals for contingencies and uncertain tax positions related to matters described below, if any, are recorded in "Accrued expenses" within "Other current liabilities" and "Uncertain tax positions" within "Other non-current liabilities", respectively, in the unaudited Condensed Consolidated Balance Sheets.

Legal Proceedings

SFL Hercules Ltd.

On March 5, 2023, Seadrill was served with a claim from SFL Hercules Ltd., filed in the Oslo District Court in Norway, relating to our redelivery of the rig West Hercules to SFL Corporation Ltd. ("SFL") in December 2022. On February 6, 2025, the Oslo District Court delivered a judgment in favor of SFL Hercules Ltd. ordering Seadrill to pay SFL approximately $37 million plus interest and legal costs of approximately $11 million. Seadrill intends to vigorously contest the judgment and filed an appeal on March 5, 2025. The appeal proceedings are scheduled to commence on April 7, 2026. The ultimate amount due, if any, cannot be predicted at this time.

As is customary in Norway, Seadrill issued a guarantee in the amount of NOK 574 million in August 2025 (approximately $57 million as of September 30, 2025) to the Norwegian Enforcement Authorities as security for the judgment. The issued guarantee consists of NOK 403 million ($40 million as of September 30, 2025) from our Revolving Credit Facility and NOK 171 million ($17 million as of September 30, 2025) from our bilateral facility.

Sonadrill fees claim

In March 2023, Seadrill was served with a claim from an individual (the "Claimant") filed in the High Court of Justice, Business and Property Courts of England and Wales, King's Bench Division, Commercial Court (the "High Court"). The Claimant alleged breach of contract and unjust enrichment damages of approximately $72 million related to an alleged failure by the Company to pay the Claimant a fee for services in arranging the Sonadrill joint venture dating back to 2018. The case concluded on March 18, 2025.

On July 11, 2025, the High Court rendered judgment in favor of the Claimant. In October 2025, the High Court ruled on the first tranche of damages for the period prior to October 2024, including interest and legal fees. The parties are continuing to make submissions to the High Court on the issue of the quantum of damages to be paid for the second tranche of damages incurred subsequent to October 2024; however, Seadrill presently estimates that its aggregate liability following the High Court's judgment, including all interest and legal fees, is unlikely to exceed $61 million, subject to finalization of calculations relating to second tranche interest. Seadrill has requested permission for an appeal to the Court of Appeal, but there can be no guarantee that will be granted. In October 2025, Seadrill paid the first tranche of damages of approximately $43 million.

Nigerian Cabotage Act litigation

In November 2015, the Nigerian Maritime Administration and Safety Agency ("NMASA") issued a detention in respect of the rig West Capella for failure to comply with requirements of the Coastal and Inland Shipping (Cabotage) Act 2003 (the "Cabotage Act"), specifically, failure to pay a Cabotage fee of 2% on contract revenue. While the named party is Seadrill Mobile Units Nigeria Ltd (previously an Aquadrill entity, acquired by Seadrill upon the merger of Seadrill and Aquadrill) ("SMUNL"), the matter relates tothree rigs: the West Capella, West Saturn and West Jupiter. SMUNL commenced proceedings in May 2016 against the Honourable Minister for Transportation, the Attorney General of the Federation and NMASA with respect to interpretation of the Cabotage Act. On June 14, 2019, the Federal High Court of Nigeria delivered a judgment (1) finding that: (a) Drilling operations fall within the definition of "Coastal Trade" or "Cabotage" under the Cabotage Act and (b) Drilling Rigs fall within the definition of "Vessels" under the Cabotage Act, and (2) directing SMUNL to deduct 2%, or approximately $69 million, of their contract value and remit the same to NMASA. On June 24, 2019, the Court of Appeals sitting in Lagos ("COA") issued a conflicting judgment in Transocean Support Services Nigeria & Ors v NIMASA & Anor, finding drilling rigs cannot be deemed vessels under the Cabotage Act pending appeal. SMUNL filed an appeal to the COA on July 22, 2019, and applied to the Federal High Court for an injunction pending appeal to prevent enforcement. Due to the volume of cases currently being handled by the COA, the Registry of the COA is yet to schedule the hearing date for the appeal. Although we intend to strongly pursue this appeal, we cannot predict the outcome of this case.

Sete Brazil claim

In or around 2010, Petroleo Brasileiro S.A. ("Petrobras") initiated a project in Brazil to construct a fleet of 28 offshore drilling rigs to support Petrobras (the "Sete Brazil Project"). A Brazilian company ("Sete Brazil") was formed in Brazil as a vehicle for the Sete Brazil Project. The Sete Brazil Project was unable to obtain financing and none of the 28 offshore drilling rigs was ever constructed. Sete Brazil was eventually declared bankrupt by the Brazilian courts in December 2024 although that bankruptcy is presently suspended.

On January 6, 2025, Seadrill Brazil received notices from Petrobras asserting "delay penalties" against Seadrill Brazil relating tothree drillships to be constructed under the Sete Brazil Project and operated in Brazil by Seadrill Brazil under contracts awarded in 2012. The aggregate amount of the delay penalties claimed by Petrobras as of the date of receipt of the notices was approximately $213 million, with the potential for further delay penalties, which could be significant, to be assessed ratably over the remaining term of the drilling contracts for thethree drillships. Petrobras indicated it may exercise set-off rights against certain amounts payable to Seadrill Brazil under its contracts with Petrobras for ourfive drillships (unrelated to the Sete Brazil Project) that are currently operating in Brazil, revenues related to which are included in our backlog as of September 30, 2025. No set-off right has been exercised to date. The contracts limit aggregate delay penalties to 10% of the total "estimated contract value", as defined in the contracts.

The Sete Brazil Project contracts also provide an alternative remedy to Petrobras of "compensatory damages" based upon termination of the contracts for which we would have joint and several liability if such damages were awarded to Petrobras. Petrobras could seek delay penalties or compensatory damages but could not seek both under the contracts. We were copied on correspondence between Petrobras and Sete Brazil (and certain of its related companies) in which Petrobras alleged that it is entitled to collect compensatory damages of approximately $825 million from these companies. Petrobras has not indicated to us that they intend to pursue these claims against us or set off these claims against our current drilling contracts. We dispute liability and do not believe any damages are due to Petrobras from us, Sete Brazil or any of its related companies in connection with the Sete Brazil Project as either delay penalties or compensatory damages.

Petrobras and Seadrill have agreed to participate in voluntary mediation, and Petrobras has committed to not exercise any set-off rights pending the outcome of the mediation. While Petrobras initially indicated that the mediation could commence in the third quarter of 2025, no date has been set and mediation is unlikely to begin before year-end. We cannot predict when the mediation will be completed, or what the outcome may be. Dialogue between the parties is ongoing. We are evaluating our legal options, which may include, among other things, seeking injunctive relief, seeking remedies against Petrobras under Seadrill’s prior U.S. Chapter 11 bankruptcy proceedings, and asserting counterclaims for substantial damages against Petrobras in Brazilian courts. This matter is in its early stages, and we are not able to predict its timing or outcome. In addition, the nature, timing, calculation and ultimate amount of the purported penalties are subject to principles of contract interpretation before Brazilian courts. Seadrill intends to vigorously defend its position and pursue available remedies.

Because we do not believe that it is probable that a loss with respect to the claims alleged by Petrobras has been incurred, and we cannot reasonably estimate the amount of any such loss, were it to be incurred, we have not accrued any amounts in respect thereof in our financial statements.

Brazil tax audit

Seadrill Serviços de Petróleo Ltda ("Seadrill Brazil") has a long-standing tax audit relating to years 2009 and 2010, which is being litigated through the Brazilian courts. The initial court ruled in favor of Seadrill Brazil, but the appellate court reversed the lower court decision in September 2023 and ruled in favor of the tax authorities, assessing a tax and interest thereon of approximately $79 million. We will vigorously defend our position and, in the first quarter of 2024, our appeal was admitted by the higher courts, but the ultimate timing and outcome of this litigation cannot be determined.

There are additional open cases relating to years 2012, 2016, and 2017, where a similar principle is being contested but they are not as far advanced through the courts, for an aggregate assessed amount, including tax and interest, of approximately $84 million.

In order to litigate the tax audit relating to years 2009 and 2010, Seadrill Brazil has entered into an agreement for an insurance bond of BRL 436 million ($82 million as of September 30, 2025).

Other matters

In addition to the foregoing, from time to time we are a named defendant or party in certain other lawsuits, claims or proceedings arising in the ordinary course of business or in connection with our acquisition and disposal activities. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty, and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we currently do not expect these other matters to have a material adverse effect on our financial position, operating results and cash flows.

Guarantees

We have issued performance guarantees for potential liabilities that may result from drilling activities under current or previously managed rig arrangements with Sonadrill. As of September 30, 2025, we have not recognized any liabilities for these guarantees as we do not consider it probable that the guarantees will be called. The guarantees provided on behalf of Sonadrill have been capped at $1.1 billion (December 31, 2024: $1.1 billion), in the aggregate, across thethree rigs we manage for the joint venture ontwo active andtwo historic contracts.