SEADRILL Ltd

Note 1 –General information

Seadrill Limited (along with any one or more of its consolidated subsidiaries, or 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 drilling 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 include 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 2025 10-K.

Significant accounting policies

Refer to Note 2 - "Accounting policies" of our Consolidated Financial Statements from our 2025 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, 2026 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, 2026, income tax expense was $19 million and $54 million, respectively, compared to income tax expense of $11 million and $55 million for the three and nine months ended September 30, 2025, respectively.

The increase for the three months ended September 30, 2026 and the decrease for the nine months ended September 30, 2026 in tax expense, relative to the comparative three and nine months ended September 30, 2025, 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 the unaudited Condensed Consolidated Financial Statements.

Note 4 –Loss per share

The computation of basic loss per share ("LPS") 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 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 were as follows:

The components of the denominator for the calculation of basic and diluted LPS were as follows:

(1) Weighted average number of Shares outstanding in the three and nine months ended September 30, 2026 considers the impact of shares repurchased during the period.

The basic and diluted LPS were as follows:

(1)For the three and nine months ended September 30, 2026 and 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, 2026 and December 31, 2025 was as follows:

Note 6 -Other current assets

As of September 30, 2026 and December 31, 2025, other current assets included the following:

Note 7 –Equity method investment

As of September 30, 2026 and December 31, 2025, 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, 2026 and December 31, 2025, other current liabilities included the following:

Other non-current liabilities

As of September 30, 2026 and December 31, 2025, other non-current liabilities included the following:

Note 9 -Debt

The table below sets out our debt agreements as of September 30, 2026 and December 31, 2025:

$700 million senior bond

On June 30, 2026, Seadrill Finance Limited ("Seadrill Finance") issued $700 million in aggregate principal amount of 6.750% Senior Notes due 2034 (the “2034 Notes”) in an offering conducted pursuant to Rule 144A and Regulation S under the Securities Act. The 2034 Notes will mature on July 15, 2034, and interest on the 2034 Notes is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2027. The 2034 Notes are fully and unconditionally guaranteed, jointly and severally, by the Company and certain subsidiaries of the Company that are guarantors under the Credit Agreement (as defined below), and in the future by certain subsidiaries of the Company that become borrowers or guarantors under the Credit Agreement or any other syndicated credit facility or capital markets debt in an aggregate principal amount in excess of a certain amount.

$575 million secured bond

In July 2023, Seadrill Finance 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 Finance issued an additional $75 million in aggregate principal amount of 8.375% Senior Secured Second Lien Notes due 2030 maturing on August 1, 2030 (together the "2030 Notes").

On June 30, 2026, in connection with the issuance of the 2034 Notes, Seadrill Finance satisfied and discharged the indenture governing the 2030 Notes (the "2030 Notes Indenture") in accordance with its terms. During the second quarter of 2026, in connection with the extinguishment of the 2030 Notes, the Company recognized a loss of $35 million classified within "Other financial and non-operating items" in the Condensed Consolidated Statement of Operations, consisting of the make-whole premium and unamortized issuance costs associated with the 2030 Notes.

Revolving credit facility

On July 27, 2023, Seadrill Limited, along with its subsidiary, Seadrill Finance, as borrower, entered into a Senior Secured Revolving Credit Agreement (as amended from time to time, the "Credit Agreement"), which established a Senior Secured Revolving Credit Facility (the "Revolving Credit Facility"). The commitments under the Revolving Credit Facility, which originally carried afive-year term, became available for drawdown on July 27, 2023. Prior to the Amendment (as defined below), the Revolving Credit Facility permitted borrowings of up to $225 million in revolving credit for working capital and other corporate purposes and included an "accordion feature" allowing Seadrill to increase this limit by up to an additional $100 million, subject to agreement from the incremental lenders. The Revolving Credit Facility is secured by liens on substantially all of the Company's rigs and related assets, other than non-core assets. Seadrill Limited, and certain of its subsidiaries that own collateral or are otherwise material, guarantee the obligations under the Credit Agreement.

On April 3, 2026, Seadrill Limited, along with its subsidiary, Seadrill Finance, entered into Amendment No. 1 to Senior Secured Revolving Credit Agreement to increase the letter of credit sub-limit from $50 million to $100 million.

On June 16, 2026, Seadrill Limited, along with its subsidiary, Seadrill Finance, entered into Amendment No. 2 to Senior Secured Revolving Credit Agreement (the “Amendment”). Upon its effectiveness, the Amendment, among other things, (i) increased the commitments for revolving borrowings from $225 million to $300 million, (ii) extended the stated maturity date of the Revolving Credit Facility from 2028 to 2031, (iii) removed certain immaterial subsidiaries and stacked vessels as guarantors and collateral, respectively, under the Credit Agreement, in accordance with the terms of the Amendment, (iv) modified the commitment fees payable under the Credit Agreement, (v) amended certain restrictive covenants to provide more operational and financial flexibility for Seadrill Limited and its subsidiaries and (vi) provided for the resignation of JPMorgan SE as predecessor administrative agent and for the appointment of JPMorgan Chase Bank, N.A. as successor administrative agent. The Amendment became effective on June 30, 2026, and the commitments thereunder became effective and available to be borrowed, subject to customary borrowing conditions.

The Revolving Credit Facility, at Seadrill Finance’s option, bears interest at a rate of either (i) the applicable Term Secured Overnight Financing Rate (“SOFR”) Rate (as defined in the Credit Agreement) or (ii) the Daily Simple SOFR (as defined in the Credit Agreement), in each case plus an applicable margin. For both the Term SOFR Rate and Daily Simple SOFR, the applicable margin ranges from 2.50% to 3.50% per annum based on Seadrill's credit ratings. As of September 30, 2026, the applicable margin was 2.50% per annum. The Revolving Credit Facility also incurs a commitment fee on undrawn amounts at a rate of 0.50% per annum. No funded borrowings have been made under the Revolving Credit Facility to date.

During the third quarter of 2025, the Company issued a NOK 403 million guarantee ($41 million as of September 30, 2026) under the Revolving Credit Facility related to the SFL Hercules Ltd. claim. As of September 30, 2026, outstanding letters of credit and bank guarantees under the Revolving Credit Facility totaled approximately $48 million, which reduced the Company’s available capacity under the Revolving Credit Facility to $252 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, 2026, 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 Sonangol Libongos, Sonangol Quenguela and West Gemini rigs.

(c) We earn leasing revenues on the charter of the West Gemini to Sonadrill.

Related party balances

As of September 30, 2026, Seadrill's related party receivable balance due from Sonadrill was$22 million, recorded in "Amounts due from related parties, net" within our unaudited Condensed Consolidated Balance Sheet as of September 30, 2026.

As of December 31, 2025, Sonadrill prepaid management fees of$3 million to Seadrill, which was recorded in "Other current liabilities" within our unaudited Condensed Consolidated Balance Sheet as of December 31, 2025.

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 values of the $700 million senior bond and $575 million secured bond are based on market traded values.

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, related party receivables 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, 2026 and December 31, 2025 was as follows:

(1)As of June 30, 2026, common shares issued of 62,541,443 included 511,078 of common shares repurchased, pending cancellation. These shares were considered retired for accounting purposes.

During the three months ended September 30, 2026, the Company repurchased an aggregate of 547,674 Shares with a weighted average Share price of $40.34, amounting to approximately $22 million. During the nine months ended September 30, 2026, the Company repurchased an aggregate of 1,058,752 Shares with a weighted average Share price of $39.53, amounting to approximately $42 million. During the three and nine months ended September 30, 2025, the Company did not repurchase Shares.

During the three and nine months ended September 30, 2026, the Company canceled 1,058,752 treasury Shares repurchased.

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.

In March 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. In February 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, based on foreign exchange rates at the time of the judgment. Seadrill appealed the judgment in March 2025. On October 13, 2026, the Borgarting Court of Appeal delivered its judgment, ordering Seadrill to pay SFL Hercules Ltd. approximately $35 million, plus accrued interest and legal costs of approximately $20 million, based on foreign exchange rates at the time of the judgment. During the third quarter of 2026, Seadrill has increased its contingency accrual by $41 million, which is recognized within "Other financial and non-operating items" in the unaudited Condensed Consolidated Statement of Operations. Seadrill continues to evaluate the judgment and has not yet made a decision whether it will file an appeal.

As is customary in Norway, Seadrill issued a guarantee in the amount of NOK 574 million in August 2025 (approximately $59 million as of September 30, 2026) to the Norwegian Enforcement Authorities as security for the judgment. The issued guarantee consists of NOK 403 million (approximately $41 million as of September 30, 2026) from our Revolving Credit Facility and NOK 171 million (approximately $18 million as of September 30, 2026) from our Bilateral Facility (as defined herein).

SFL Capital Spares

In 2022, Seadrill and SFL entered into a capital spares agreement, whereby Seadrill delivered capital spares to SFL for proceeds of approximately $8 million. In 2024, Seadrill filed a claim against SFL with the Oslo District Court relating to the proceeds, which had not been paid by SFL. On April 16, 2025, the Oslo District Court delivered a judgment in favor of SFL. Seadrill appealed the judgment, and on October 26, 2026, the Borgarting Court of Appeal delivered a judgment in favor of Seadrill, ordering SFL to pay Seadrill approximately $12 million, inclusive of interest and legal costs, which has not been recognized as of September 30, 2026.

Nigerian Cabotage Act litigation

In November 2015, the Nigerian Maritime Administration and Safety Agency ("NIMASA") 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 NIMASA with respect to interpretation of the Cabotage Act. In June 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 NIMASA. In June 2019, the Court of Appeals sitting in Lagos ("COA") issued a conflicting judgment in Transocean Support Services Nigeria & Ors v NIMASA & Anor, finding drilling units cannot be deemed vessels under the Cabotage Act pending appeal. SMUNL filed an appeal to the COA in July 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 units 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 units was ever fully constructed. Sete Brazil was eventually declared bankrupt by the Brazilian courts in December 2024 although that bankruptcy is presently suspended.

In January 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 certain of our 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, 2026. 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. Petrobras had indicated that mediation would commence in the third quarter of 2026, but the process continues to be delayed and we have not been provided with an update as to expected timeline. 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 dispute with Brazil’s tax authority relating to assessment of income tax, penalties, and interest for years 2009 and 2010 and is litigating the matter in Brazil’s courts. During the quarter ended September 30, 2026, Brazil’s Superior Court of Justice issued a decision adverse in part and favorable in part to Seadrill Brazil. Seadrill Brazil filed an internal appeal challenging the adverse portion of the decision, which remains pending before the First Panel of the Superior Court of Justice, and we continue to vigorously defend our position. The ultimate timing and outcome of this litigation cannot be determined. As of September 30, 2026, the income tax, remaining penalties, interest, and other amounts that could become payable if the assessments are ultimately sustained, together, totaled approximately $67 million. Payment of the assessed amounts is suspended pending final resolution of the judicial proceedings and was fully secured by an insurance bond as of September 30, 2026.

Additionally, Seadrill Brazil has brought administrative appeals against assessments of additional income tax, indirect taxes, penalties, and interest for years 2012, 2016, and 2017. During the quarter ended September 30, 2026, Brazil’s Administrative Council of Tax Appeals announced decisions substantially favorable to Seadrill Brazil regarding the 2012 assessments. The written decisions, formal notices and any further administrative reviews remain pending. The timing and outcome of these administrative appeals, and of any subsequent judicial review, cannot be reasonably determined. As of September 30, 2026, the assessed taxes, penalties, and interest for 2012, 2016, and 2017 totaled, in aggregate, approximately $53 million.

Other matters

Other tax audits and disputed assessments of income and other taxes, including applicable penalties and interest, remain outstanding as of September 30, 2026 and continue to be monitored and evaluated by the Company. These tax audit and assessment claims are attributable principally to Mexico and Norway. We continue to vigorously defend our tax positions and currently consider the ultimate resolution of tax audit and assessment claims will not have a material adverse effect on our financial position, operating results and cash flows.

We operate in various countries in the world. We recognize uncertain tax positions if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit by relevant tax authorities, including resolution of related appeals or litigation processes, if any. While we believe we have the required support for the positions taken on our tax returns, we cannot predict with certainty as to the ultimate outcome of any existing or future assessments.

Other material disputes or litigation

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 previous managed rig arrangements with Sonadrill. As of September 30, 2026, we have not recognized any liabilities for these guarantees as we do not consider it probable the guarantees will be called. The guarantees provided on behalf of Sonadrill have been capped at $1.1 billion, in the aggregate, across thethree rigs operating in the joint venture ontwo active andtwo historic contracts.