ANNUAL REPORT 2013 - Sevan Drilling/media/Files/S/SevanDrilling/reports-and...16 Financial statement...

ANNUAL REPORT2013

OVERVIEW2

Content OVERVIEW

03 Highlights 201304 Key Figures

OUR BUSINESS

06 Products and technology

ORGANISATION

08 Th e Board of Directors and Management team

OUR RESULTS

10 Board of Directors’ report 201316 Financial statement20 Notes to the fi nancial statements47 Financial statement Sevan Drilling ASA51 Notes to Sevan Drilling ASA62 Auditor’s report64 Responsibility statement65 Corporate governance72 Corporate social responsibility73 Remuneration and benefi ts

75 Contact information

OVERVIEW 3

Sevan Drilling had operating revenues in 2013 of USD 257.7 million (USD 173.4 million in 2012) and EBITDA of USD 57.5 million (USD 54.5 million in 2012).

Commercial uptime for Sevan Driller for the year was 84.6% (88.1% in 2012).

Commercial uptime for Sevan Brasil for the year was 95.0% (73.8% in 2012).

Sevan issued USD 178.9 million of new equity in the first quarter and amended loan terms of the two term loans that were outstanding.

In March 2013, LLOG contracted the Sevan Louisiana for a three year contract in the US Gulf of Mexico for commencement in 2014.

In June 2013, Seadrill increased their ownership interests in Sevan to 50.1 percent. On 22 August 2013, Seadrill completed a mandatory offer and increased their control to 50.11 percent.

In July 2013, Sevan agreed to terms of a new USD 1,750 million five year secured corporate bank facility at significantly improved terms. The purpose was to refinance existing bank debt and to finance the final instalments for the Sevan Louisiana and Sevan Developer. Seadrill guaranteed the facility, and provided a revolving credit facility and additional funding commitment to the lenders.

In September 2013, Sevan executed service agreements with Seadrill to provide marketing and management of the operations, construction, mobilization and operations preparation for the entire Sevan Fleet on market terms.

On 23 October 2013, Sevan Louisiana was delivered from Cosco.

On 15 November Scott McReaken succeeded Scott Kerr as Chief Executive Officer of Sevan Drilling ASA.

On 21 December, the Chief Financial Officer, Jon Wilmann, resigned. His responsibilities were assumed by Scott McReaken, Chief Executive Officer.

The Sevan Developer is continuing contruction as planned.

Highlights 2013

OVERVIEW4

Key fi gures

FIGURES IN USD MILLION 2013 2012

Operating revenue 257.7 173.4 Operating expenses -200.2 -119.0 EBITDA 57.5 54.4

Depreciation, amortisation and impairment -64.1 -43.1 Operating (loss) / profi t -6.6 11.3 Financial income / (expense) -84.5 -42.3 Foreign exchange gain / (loss) -4.6 0.0 Net fi nancial items -89.1 -42.3

(Loss) before tax -95.7 -31.0

Tax (expense) / income -60.9 19.3 Net (loss) -156.6 -11.7

EBITDA margin 22.3% 31.4%Operating margin -2.6% 6.5%

Earnings per share -0.28 -0.03

UNIT BUILT REGION CLIENT 2011 2012 2013 2014 2015 2016 2017 2018

Sevan Driller 2009 Brazil PetrobasSevan Brasil 2012 Brazil PetrobasSevan Louisiana 2013 Gulf of Mexico LLOGSevan Developer 2014 - -

Firm contract period Construction period

OUR BUSINESS 5

OUR BUSINESS6

PRODUCTS AND TECHNOLOGY

RIG DESIGNThe cylindrical hull shape enables the units to respond accu-rately regardless of wind, waves and currents, thus allowing for optimised operations. Weather conditions with bi-directional waves and currents challenges the free range of movement in traditional drilling operations. The Sevan design is not affected by bi-directional conditions. The Sevan design enables drilling operations with minimum power consumption regardless of weather conditions. The extended bilge keel design incorporated on Sevan Brasil, Sevan Louisiana, Sevan Developer and future designs, further improves the motion characteristics.

HIGH VARIABLE DECK LOAD CAPACITYWith the large displacement and stability reserves of the cylindrical hull, the variable deck load capacity is above 15,000 tons. Paired with generous tank capacities this significantly reduces the need for resupply and thus also the logistic cost.

SIMPLIFIED CONSTRUCTIONThe cylindrical hull is built by using traditional section building method based on prefabrication and pre-outfitting of large modules. Piping and cabling are optimised taking benefit

of the compact design. The main hull structure is fabricated using normal shipbuilding steel, and no special welding proce-dures are required.

STORAGEThe lower hull of the unit is used for storage of consumable fluids i.e. fuel oil, drilling fluids, dry bulk materials, ballast water in addition to utility systems. Oil storage from extended well tests / early production is an alternative storage solution.

UPPER LEVEL The upper section of the hull carries power generation, mud system, cementing system, riser, drilling tubulars, derrick, and temporary equipment such as equipment for well testing. PROTECTED MOON POOLThe drilling operation is executed through the moon pool, provides for a protected environment for launch, and recovery of the blowout preventer and riser. The completely enclosed moon pool also protects the riser and allows the vessel to safely operate even in ice-infested areas.

The cylindrically shaped Sevan units are a new concept to the offshore drilling industry compared with traditional semi-submersibles and drill ships. The concept is based on Sevan Marine’s unique, proven and patented cylindrical hull design utilised for floating production, storage and offloading (FPSO) vessels. The design provides for the following advantages compared to traditional drilling units:

OUR BUSINESS 7

STATION KEEPINGTh e Sevan units are equipped with dynamic positioning system in accordance with class 3 requirements (DP3). Th is system maintains accurate position through eight azimuth thrusters. For operations in shallow waters or in areas with ice, a conven-tional mooring system may be installed in combination with the dynamic positioning system.

DRILLING AND MARINE EQUIPMENTDrilling packages and other marine equipment are provided by leading suppliers. Th e equipment specifi cation is broadly the same for all of Sevan’s fl eet. Th is allows Sevan to simplify training requirements and optimise spare parts for the fl eet.

Sevan Louisiana and Sevan Developer are prepared for easy interface with equipment for carrying out Managed Pressure Drilling operations.

DESIGN DEVELOPMENTTh e current units are optimised for operations in deep water drilling markets such as Brazil, Gulf of Mexico, West Africa and South East Asia.

• Development Drilling Th e current concept has been further developed in a MarkII

version focused on development drilling. More deck space and space for drilling functions has been achieved by

moving more marine and auxiliary equipment down into the lower hull. For long term infi eld operations the unit may be equipped with permanent mooring system, reducing fuel consumption and emissions. Th e unit can also be optimised for harsh environment operations.

• Arctic Operations Th e compact, simple design with the protected moonpool is

ideally suited for operation in arctic areas with low tempera-tures and danger of sea ice. Th e simple hull structure is easily strengthened and shaped for drilling operations in ice infested waters. Th e fact that the unit does not need to change heading as the ice fl ow direction changes further favours the concept. For operation in ice the unit will be equipped with a mooring system in addition to the DP3 propulsion system. An arctic Sevan unit suitable for opera-tion in extreme low temperatures and ice infested water is currently under development.

Sevan has the right to utilise the Sevan design for drilling units in perpetuity, against a royalty payment to Sevan Marine ASA.

For the development of the off shore arctic regions purpose built units that are able to cope with the extreme low tempera-tures and the ice infested waters will be needed. Sevan with the arctic design under development, is well positioned for taking part in this market growth.

ORGANISATION8

KRISTIAN JOHANSEN Board member

Kristian Johansen is a Norwegian citizen and he is CFO of TGS NOPEC Geophysical ASA, a geophysical company listed on Oslo Børs. Mr. Johansen has experience from various positions in the construction, banking and oil industries. Mr. Johansen has served as a member of the board since January 2012. Mr. Johansen holds 17,000 shares in Sevan Drilling.

THE BOARD OF DIRECTORS AND MANAGEMENT TEAM

ERLING LIND Chairman

Erling Lind is a Norwegian citizen. Mr. Lind has a law degree from the University of Oslo. Mr. Lind is a partner at Wiersholm, an Oslo based leading law fi rm. Mr. Lind acts as external legal counsel to Seadrill. Mr. Lind is ranked amongst Norway’s most prominent lawyers in his fi elds of expertise. Mr. Lind has served as a member of the board since January 2012. Mr. Lind does not hold any shares in Sevan Drilling.

BENEDICTE SCHILBRED FASMER Board member

Benedicte Schilbred Fasmer is a Norwegian citizen and has a MSc in Economics and Business Administration from the Norwegian School of Economics. Ms. Schilbred Fasmer is currently head of Corporate Aff airs in Argentum Asset Management, previous experience includes being group executive for the Capital Markets Division Sparebanken Vest, fi nance director in Rieber & Søn ASA, and corporate banking in Citibank. Ms. Schilbred Fasmer has served as a member of the board since May 2012. Ms. Schilbred Fasmer has had several board positions; Ms. Schilbred Fasmer is currently Chairman of Oslo Børs VPS Holding and board member of Frydenbø Industri. Ms. Schilbred Fasmer does not hold any shares in Sevan Drilling.

ORGANISATION 9

PER WULLFBoard member

Per Wullf is a Danish citizen. Mr. Wullf is CEO of Seadrill. He has 28 years of experience from the drilling industry. Mr. Wullf ’s extensive experience includes 11 years of international off shore operations and 17 years onshore. Mr. Wullf has served as a member of the board since January 2012. Mr. Wullf does not hold any shares in Sevan Drilling.

BIRGITTE RINGSTAD VARTDAL Board member

Birgitte Ringstad Vartdal is a Norwegian citizen. Ms. Vartdal is currently CFO of Golden Ocean Management AS. Ms. Vartdal has held several positions within fi nance, risk management and investments in the Torvald Klaveness Group, as well as in Norsk Hydro Energy. Ms. Vartdal holds the degree of Siv.Ing. (MSc) in Physics and Mathematics from the Norwegian University of Science and Technology (NTNU) and an MSc in Financial Mathematics from Heriot-Watt University, Scotland. Ms. Vartdal does not hold any shares in Sevan Drilling.

SCOTT MCREAKEN CEO

Scott McReaken was appointed CEO in November 2013 leaving Seadrill, where Mr. McReaken has worked since July 2012 as Director Finance for the Americas Region. Mr. McReaken is a US Citizen. Prior to Seadrill, Mr. McReaken held various management positions in Vantage Drilling and Pride International in Houston, Texas and Luanda, Angola. Before working in the contract drilling industry, Mr. McReaken provided audit, assurance and advisory services, as an internal auditor and at Arthur Andersen. Mr. McReaken holds a Bachelor of Business Administration degree in accounting from Th e University of Texas at Austin, and is a Certifi ed Public Accountant and Certifi ed Internal Auditor. Mr. McReaken currently holds the Secretary-Treasurer position in the International Association of Drilling Contractors (IADC). Mr. McReaken does not hold any shares in Sevan Drilling.

OUR RESULTS10

BOARD OF DIRECTORS’ REPORT 2013

KEY EVENTS IN 2013Sevan had operating revenues in 2013 of USD 257.7 million (USD 173.4 million in 2012) and EBITDA of USD 57.5 million (USD 54.5 million in 2012).

Commercial uptime for Sevan Driller in 2013 was 84.6% compared to 88.1% in 2012. Operations of Sevan Driller in 2013 were impacted by downtime in the first quarter for hull inspection, related maintenance and replacing seals in the blowout preventer. Downtime in the second quarter was caused by a small flow of mud from a well which resulted in the replacement of the main shaft bearing. Minor downtime in the fourth quarter occurred in order to repair the crown mounted compensator and upgrade the acoustic system.

Commercial uptime for Sevan Brasil in 2013 was 95.0% compared to 73.8% in 2012. Operations of Sevan Brasil in 2013 experienced some smaller incidents, including repair of the drilling switch board in the first quarter, repairs to the drawworks and crown mounted compensator in the third and fourth quarter.

Sevan issued USD 178.9 million of new equity in the first quarter and amended loan terms of the two term loans that were outstanding.

In March 2013, LLOG contracted the Sevan Louisiana for a three year contract in the US Gulf of Mexico for commence-ment in 2014.

In June 2013, Seadrill increased their ownership interests in Sevan to 50.1 percent. On 22 August 2013, Seadrill completed a mandatory offer and increased their interests to 50.11 percent.

In July 2013, Sevan agreed to terms of a new USD 1,750 million five year secured corporate bank facility at signifi-cantly improved terms. The purpose was to refinance existing bank debt and to finance the final instalments for the Sevan Louisiana and Sevan Developer. Seadrill guaranteed the facility, and provided a USD 100 million revolving credit facility and additional USD 120 million funding commitment to the lenders. The facility is managed by ING Bank N.V.

In September 2013, Sevan executed service agreements with Seadrill to provide marketing and management of operations, construction, mobilization and operations preparation for the entire Sevan fleet.

On October 23, 2013, Sevan took delivery of the company’s third rig, Sevan Louisiana from Cosco.

On 15 November Scott McReaken succeeded Scott Kerr as Chief Executive Officer of Sevan Drilling ASA.

On 21 December, the Chief Financial Officer, Jon Wilmann, resigned. His responsibilities were assumed by Scott McReaken, Chief Executive Officer.

ACTIVITIESThe Sevan Drilling Group Sevan is a Norwegian public limited liability company. The head office is located in Oslo, Norway. Sevan has offices in Arendal, Norway, Rio de Janeiro, Brazil, Houston, USA, and Singapore that are operated by Seadrill through the management agreements. Sevan has operating subsidiaries in these countries, as well as Bermuda and the United Kingdom, and is considering alternatives to further streamline the legal operating structures.

OperationsSevan is an international offshore drilling contractor special-ising in the ultra deepwater segment. The Group’s vision is to take advantage of its unique cylindrical design to capture a share of the global ultra deepwater market.

Sevan is a fully integrated drilling contractor, and owns three of the world’s most advanced ultra deepwater drilling units, Sevan Driller, Sevan Brasil, and Sevan Louisiana. Sevan Driller and Sevan Brasil each have a six-year charter contract with Petrobras in Brazil. Sevan Louisiana has a three year contract with LLOG Bluewater Holdings LLC in the US Gulf of Mexico.

Sevan has also one additional rig under construction, Sevan Developer (formerly Sevan Rig 4).

The Sevan Driller commenced operations in June 2010. Its contract with Petrobras is for 6 years and expires in 2016. The rig receives a day rate of USD 420,000 based on current exchange rates and index levels. The charter contract contains a bonus potential of up to 10 percent of the base day rate, linked to the operational performance on a monthly basis. Part of the day rate is subject to annual escalation based on certain price indexes from the date of contract signature.

As of 31 December 2013, Sevan has estimated the remaining value of the charter contracts with Petrobras for Sevan Driller to approximately USD 366 million, excluding the bonus potential.

Sevan Brasil commenced operations in July 2012 under a six-year drilling contract with Petrobras. The rig receives a day rate of USD 399,000 based on current exchange rates and index

OUR RESULTS 11

levels. The charter contract also contains a bonus potential of up to 10 percent of the base day rate, linked to the operational performance on a monthly basis. Part of the day rate is subject to annual escalation based on certain price indexes from the date of contract signature.

As of 31 December 2013, Sevan has estimated the remaining value of the charter contract with Petrobras for Sevan Brasil to approximately USD 664 million, excluding the bonus potential.

Sevan Louisiana was delivered from Cosco on 23 October 2013. Sevan Louisiana arrived in the US Gulf of Mexico in April 2014, and will commence operations in early May 2014.

The Sevan Louisiana receives a dayrate of USD 505,000 per day under the contract with LLOG. As of 31 December 2013, Sevan has estimated the value of the contract with LLOG to approximately USD 586 million including the USD 33 million mobilization fee.

Sevan Developer is being marketed by Seadrill. Construction continues to progress according to plan. Cosco has, however, notified Sevan that delivery will be delayed, and is now likely to be in the third quarter 2014. Delays result from delivery of equipment to Cosco from sub-contractors.

Sevan has entered into an all-in turn-key construction contracts with Cosco in respect of Sevan Developer, with a total contract value of USD 526 million. A total of USD 55 million has been paid by Cosco to Sevan for project management and pre-operational activities. Furthermore, a USD 6 million in license fee paid to Sevan Marine has been reimbursed by Cosco.

For Sevan Developer, the milestone obligations have progressed according to contract terms with Cosco. The remaining 80 percent of the all-in turn-key contract price is due upon delivery.

The party to the construction contract is Sevan Drilling Rig VI Pte Ltd. No other substantive Group company is liable under the contract. This provides the Sevan with the opportunity to, effectively, decline taking delivery of Sevan Developer by way of not providing funding to Sevan Drilling Rig VI Pte Ltd to pay the remaining instalment.

The Sevan will, in such an event, lose an amount equal to the funds invested in the construction of Sevan Developer. As of 31 December 2013, this is estimated at USD 131 million. The amount will increase with pre-operational costs and other costs in 2014. While the preferred option is to take delivery,

the alternative will be considered if no satisfactory contract of employment is secured for the unit.

Impact of Seadrill Management Service AgreementsSevan entered management service agreements with Seadrill in the third quarter of 2013, for the operations, marketing, mobilization and construction of the Sevan fleet. As a result, Sevan is realizing various benefits from having access to the Seadrill infrastructure and management.

The Company has improved compliance, integrity in the management system, and has access to a larger labor resource pool. Specific cost saving benefits have materialized and will be further materialized through the improved financing costs and terms of the new debt facility, improved pricing for insur-ance, access to vendor master service agreements, reliance on internal resources in maintenance and engineering, and changes in the philosophy for project management, deliveries with integrated acceptance testing, and other operating efficiencies.

THE FINANCIAL STATEMENTSPursuant to Section 3-3a of the Norwegian Accounting Act, the Board confirms that the financial statements have been prepared under the assumption that Sevan is a going concern and that this assumption was realistic at the date of the accounts.

The consolidated financial statements have been prepared in accordance with the Norwegian Accounting Act and International Financial Reporting Standards (IFRS) as adopted by EU and interpretations adopted by the International Accounting Standards Board (IASB). The accounts for the parent company have been prepared in accordance with the Norwegian Accounting Act.

Sevan’s financial position has improved following the equity issue and debt restructuring at the start of 2013, and the refinancing completed in the third quarter. Sevan made a USD 15 million drawdown under the revolving credit facility provided by Seadrill on 31 March 2014 and expects to further utilize the facility in 2014. Sevan believes that this facility will be sufficient to cover liquidity needs going forward if Sevan decides not to take delivery of Sevan Developer. While the preferred option for Sevan is to take delivery, the alternative will be considered if no satisfactory contract of employment is secured for the unit.

Income statement Consolidated operating revenue for 2013 was USD 257.7 million compared to USD 173.4 million in 2012. EBITDA

OUR RESULTS12

(operating profit less depreciation) in 2013 was USD 57.5 million compared to USD 54.4 million in 2012. Net finan-cial items were minus USD 89.1 million compared to minus USD 42.3 million in 2012. Loss before tax was minus USD 95.7 million in 2013 compared to minus USD 31.0 million in 2012. The Company recognized a net loss in 2013 of minus USD 156.6 million compared to a net loss of minus USD 11.7 million in 2012.

EBITDA was negatively influenced by repair and maintenance activity related to downtime events and repairs to equipment. Additionally, unplanned costs to end well programs, rental of contract required equipment, and increased overhead further reduced EBTIDA. Sevan also experienced significant one-time charges related to refinancing, impairment of a deferred tax asset where future benefit no longer exists, and charges for severance, integration and write off of intangible assets.

Cash flow and liquidity Cash generated from operations was USD 23.4 million in 2013 compared to USD 52.1 million in 2012. The difference between cash generated from operations and the operating loss is USD 30.0 million. The difference is mainly related to finance costs, depreciation and changes in working capital.

The net cash flow from operating activities in 2013 was minus USD 21.5 million compared to USD 6.1 million in 2012. The net cash flow from investing activities in 2013 was minus USD 575.3 million compared to minus 105.0 million in 2012.

The net cash flow from financing activities amounted USD 648.6 million compared to minus USD 12.8 million in 2012.

Cash and cash equivalents was USD 128.7 (as of 31 December 2013) compared to USD 76.8 million at 31 December 2012. See note 8 for further information.

Balance sheetAt 31 December 2013 total consolidated assets amounted to USD 2,164.2 million, compared to USD 1,719.7 million in 2012, of which USD 1,916.6 million was the capitalised value of the drilling units.

The book value of the equity was USD 683.7 million, compared to USD 662.5 million in 2012. As of 31 December 2013, total liabilities were USD 1,480.5 million, compared to USD 1,057.3 million as of 31 December 2012.

Capital and financingSevan issued USD 178.9 million of new equity in the first quarter of 2013 and amended the terms of the two term loans

that were then outstanding. In July, Sevan agreed terms for the refinancing of its bank debt by concluding a bank facility of USD 1,750 million. On 8 October 2013, Sevan made a drawdown of USD 1,400 million under its new term loan. The drawn amount was used to repay the loans secured against Sevan Driller and Sevan Brasil, to pay the final instalment to Cosco for Sevan Louisiana and mobilization, and general corporate purposes. The remaining USD 350 million of the facility is available for the final instalment to Cosco for Sevan Developer.

Seadrill has guaranteed the USD 1,750 million bank facility in exchange for a guarantee commission of one percent. Sevan also entered into a revolving credit facility in the amount of USD 100 million with Seadrill. As of 31 December 2013, Sevan has not drawn on the facility, and the first draw of USD 15 million was on 31 March 2014.

Seadrill has furthermore made a commitment to the Company’s lenders in an amount of up to USD 120 million (by way of an increase in the revolving credit facility and/or the underwriting of an equity issue) to cover a possible liquidity shortfall if Sevan takes delivery of Sevan Developer.

RISK FACTORSSevan’s activities expose the company to a variety of risks. These include financial risks, operational risks, equipment risks, project delivery and cost, plus volatility in demand for services. The Group has a risk management program covering these factors (among others) and seeks to minimise overall exposure to risk and the impact of external factors on performance.

Market and operational risk factorsThe world fleet of semi-submersible rigs and drillships currently totals 319 units. In addition, there are 100 units under construction, 27 semisubmersible rigs and 73 drillships. Of the total fleet, 152 units were built before 1998. These units are mainly moored units and have an average age of 33 years. For the existing 167 rigs built after 1998, the majority have been outfitted with thrusters allowing for dynamic positioning. 28 of the 167 units are capable of operations in water depths up to 7,500ft and 139 of the 167 units are capable of operations in ultra-deep waters (waters deeper than 7,500ft). In addition, there are 73 drillships and 27 semi-submersible rigs rigs under construction. The market has experienced a noticeable weakening going into 2014, as a consequence of a reduction in demand combined with increasing supply of new units. While the short term outlook for the ultra deepwater market is challenging, the Company remains of the opinion that the long term prospects for the Company’s services remain positive.

OUR RESULTS 13

The long-term demand from oil companies for drilling services in ultra deepwater conditions is expected to remain strong both in order to explore new areas and to analyse and develop recent discoveries.

Contracts in the offshore sector require high standards of performance and safety, entailing considerable risks and responsibilities. These include technical, operational, commer-cial, environmental and political risks. Changes in the legisla-tive and fiscal framework, including tax rules, governing the activities of the oil companies, could have material impact on exploration, production and development activity or affect Sevan’s operations directly.

In connection with the construction of drilling units, Sevan has used its best efforts to prepare proper specifications, including the supply and installation of equipment. Despite these efforts, there can be no assurances that delays and cost overruns will not occur and such events, if occurring, could have an adverse impact on the Group’s financial position.

Financial risk factors and risk managementSee the consolidated financial statements for more information, especially note 3.

The Group is exposed to a variety of financial risks, such as, currency risk, interest rate risk, credit risk, liquidity risk, and funding. Sevan’s risk management program includes focusing on the unpredictability of financial markets and seeks to minimise potential adverse effects of such risks on its financial performance. The Group has the ability to manage its currency and interest exposures through certain derivative financial instruments in accordance with market practice and seeks to maintain flexibility by keeping committed credit lines available.

Currency risk The Group’s assets are nominated in US Dollar and most of the Group’s revenues are also nominated in US Dollar. Part of the revenue from both Sevan Driller and Sevan Brasil contracts with Petrobras is nominated in Brazilian Reais. This corresponds to the Group’s costs in Reais and represent a natural hedge.

Sevan may use forward contracts to manage the foreign exchange risk arising from future commercial transactions and recognised assets and liabilities.

Price riskChanges to the price level of goods and services acquired may affect Sevan, thereafter price developments are carefully monitored. Sevan seeks to handle the risk through contract

clauses with its customers. Furthermore, opex cost inflation is mitigated through annual dayrate adjustments with Petrobras in Brazil for Sevan Driller and Sevan Brasil.

Interest rate risk All of the Group’s debt is subject to interest rates which fluc-tuate with the market. The Group is therefore exposed to risks due to changes in interest rates. Sevan continuously considers whether part of the interest rate exposure should be hedged.

Credit risk The market for our services is the offshore oil and gas industry, and the customers consist primarily of major integrated oil companies, independent oil and gas producers and govern-ment-owned oil companies. We perform ongoing credit evalu-ations of our customers and generally do not require collateral in our business agreements. Our current counterparties are Petrobras for Sevan Driller and Sevan Brasil, and LLOG for Sevan Louisiana.

In the opinion of management, our counterparties are credit-worthy, and we do not expect any significant loss to result from their non-performance.

Liquidity risk It is the Group’s objective to maintain flexibility of financing, by providing sufficient withdrawal facilities when managing liquidity. This may include maintaining sufficient cash and marketable securities, the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions.

The Group has an acceptable cash position. However, the liquidity is sensitive to operational uptime on the units performing contracts. Sevan is in discussion with Cosco on when to take delivery of the Sevan Developer. If delivery occurs in the third quarter, Sevan will need to determine additional financing alternative to meet the current estimated shortfalls. All options are being considered, including debt, equity or a combination of both, together with the alternative of not taking delivery of the unit. While the preferred option is to take delivery, the alternative will be considered if no satifac-tory contract of employment is secured for the unit. Without the delivery, Sevan believes the current capital structure is adequate to support operations.

Funding The Group will require additional capital to finance the final instalment due on delivery and the mobilization costs of the Sevan Developer. Sevan will, on the back of an acceptable charter contract, target to finance the remaining payments with

OUR RESULTS14

debt, equity or a combination of debt and equity. In addition to the revolving credit facility, Seadrill has made additional funding commitment to its lenders in an amount of up to USD 120 million. Obtaining such financing may be subject to market risks and other risks that may influence the availability, structure and terms of such financing.

Sevan may also require additional capital in the future due to unforeseen operational issues, unforeseen liabilities or potential acquisitions, joint ventures or other business oppor-tunities that may be presented to it. There can be no assurance that the Group will be able to obtain such financing in a timely manner or on acceptable terms.

ORGANISATIONHealth, safety and environmentOperating sound health, safety and environment (HSE) principles is a critical success factor for Sevan.

See the Corporate Social Responsibility disclosure for more details on page 72.

Employment and labour practicesThe number of employees increased from 463 to 520 at the end of 2013. On 01 January 2014, employment of the offshore and onshore operational personnel became the responsibility of Seadrill. The management agreement requires Seadrill to provide competent and appropriate crew to maintain operations, client and regulatory compliance. Management has further implemented a workforce reduction plan that will be complete in the second quarter 2014, which will further reduce the over-head as Sevan integrates into Seadrill’s management structure.

Currently, the Group has not implemented any specific measures in order to meet the objectives of the Discrimination Act and of the Anti-discrimination and Accessibility Act. The need for specific measures in this respect is continuously considered by the Board and Management.

See the Corporate Social Responsibility disclosure for more details on page 72.

CORPORATE GOVERNANCEThe Board seeks to provide effective governance of business and affairs to ensure long-term benefit to Sevan shareholders, and puts emphasis on transparency and equal treatment of its shareholders. The Group emphasises the importance of main-taining and further developing its corporate governance policy and supports the principles set out in the Norwegian Code of Practice for Corporate Governance. A description of Sevan’s compliance with the above recommended corporate govern-ance principles is presented on pages 65-71.

ANNUAL RESULTS AND YEAR END APPROPRIATIONSThe Board proposes the following appropriation of the annual loss of USD 28,753,187 in the parent company Sevan Drilling ASA: Loss transferred to other equity: USD 28,753,187.

EVENTS AFTER THE BALANCE SHEET DATESevan Driller achieved a technical uptime of 93.8% percent in the first quarter of 2013, while Sevan Brasil had a technical uptime of 89.9% percent in the first quarter of 2013.

Sevan Louisiana arrived in the US Gulf of Mexico in April 2014 and will commence operations in early May.

On 31 March 2014, Sevan completed a USD 15 million draw-down on the revolving credit facility with Seadrill.

OUTLOOKIn 2014, Sevan will have three units generating revenues. All three will be operating on long term contracts for Petrobras in Brazil (Sevan Driller and Sevan Brasil) and for LLOG (Sevan Louisiana).

In the second quarter 2014, Sevan is completing a reorganization of its rig owning subsidiaries by transferring ownership of Sevan Driller and Sevan Brasil from subsidiaries incorporated in Singapore to new subsidiaries incorporated in Bermuda. Sevan Louisiana is transferring to a Hungarian subsidiary. All of the rigs flag states will be Panama as part of this process.

Construction on the Sevan Developer at Cosco continues to progress according to plan. Sevan continues to discuss the timeline for delivery with Cosco. Currently, Cosco has

OUR RESULTS 15

indicated that they are likely to deliver the rig in the third quarter 2014. Th e delay is a result of delays in delivery of subcontractor equipment to Cosco.

Sevan will continue to integrate and benefi t from synergies with Seadrill. Seadrill has assumed full responsibility for the operation and marketing of Sevan Driller, Sevan Brasil, and Sevan Louisiana, and the construction and marketing of Sevan Developer. Sevan continues to provide support to Seadrill marketing eff orts for technical expertise and support specifi c to the Sevan design to Seadrill.

Sevan expects to realise signifi cant improvements in opera-tional effi ciency, safety and cost control in 2014 as a conse-quence of this relationship with Seadrill and benefi ting from

the Seadrill infrastructure and resources. Specifi cally, Sevan now has access to pricing agreements with Seadrill’s vendors, and Seadrill’s maintenance and engineering support and construction and yard experience. Sevan has adopted the Seadrill management system and changing the operating and construction procedures. Th ese changes will provide greater integrity, cost control, and safety and regulatory compliance.

ANNUAL GENERAL MEETING Th e date of the Annual General Meeting is scheduled for 19 June 2014.

Oslo, 29 April 2014Th e Board of Directors of Sevan Drilling ASA

Erling Lind Chairman

Per Wulff Board member

Kristian JohansenBoard member

Birgitte Ringstad VartdalBoard member

Benedicte Schilbred FasmerBoard member

Scott McReakenManaging Director

Scott McReaken

OUR RESULTS16

CONSOLIDATED INCOME STATEMENT

COMPREHENSIVE INCOME

FIGURES IN USD MILLION NOTE 2013 2012

Operating revenue 5 257.7 173.4

Operating expense -87.9 -49.7Depreciation, amortisation and impairment 6 -64.1 -43.1Employee benefit expense 13 -87.8 -54.0Other operating expense 24 -23.3 -14.6Foreign exchange gain/(loss) related to operation 23 -1.2 -0.7Total operating expense -264.3 -162.1

Operating (loss)/profit -6.6 11.3

Financial income 14 0.2 0.6Financial expense 14 -84.7 -42.9Foreign exchange gain/(loss) related to financing 23 -4.6 -Net financial items -89.1 -42.3

Loss before tax -95.7 -31.0

Tax (expense)/income 15 -60.9 19.3Net loss -156.6 -11.7

Attributable to:Equity holders of the Company -156.6 -11.7

Earnings per share for profit/(loss) attributable to the equity holders of the Company during the year (USD per share):

- Basic 16 -0.28 -0.03 - Diluted 16 -0.28 -0.03


Net loss -156.6 -11.7Foreign currency translation -2.0 -0.2Comprehensive income -158.6 -11.9

Attributable to:Equity holders of the Company -158.6 -11.9

OUR RESULTS 17








Scott McReaken

CONSOLIDATED BALANCE SHEET


ASSETSNon-current assetsDrilling rigs 6 1,916.6 1,500.4Other fi xed assets 6 19.2 12.5Intangible assets 0.0 1.6Deferred income tax assets 12 0.0 51.5Other non-current assets 26 40.4 20.4Total non-current assets 1,976.2 1,586.4

Current assetsInventories 25 26.9 22.5Trade and other receivables 27 32.4 34.0Cash and cash equivalents 8 128.7 76.8Total current assets 188.0 133.3Total assets 2,164.2 1,719.7

EQUITYCapital and reserves attributable to equity holders of the CompanyShare capital 9 108.6 61.9Share premium 9 666.0 533.9Other equity -90.9 66.7Total equity 683.7 662.5

LIABILITIESNon-current liabilitiesInterest-bearing debt 11 1,196.1 717.9Derivative fi nancial instruments, long term 11 0.0 27.4Other non-current liabilities 11 0.1 45.7Total non-current liabilities 1,196.2 791.0

Current liabilitiesTrade payables 10 74.5 74.2Current portion of interest-bearing debt 11 173.1 140.8Other current liabilities 10 36.7 51.3Total current liabilities 284.3 266.3Total liabilities 1,480.5 1,057.3Total equity and liabilities 2,164.2 1,719.8

OUR RESULTS18

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

OTHER EQUITY

EQUITY SETTLED

FOREIGN CURRENCY

FIGURES IN USD MILLION NOTESHARE

CAPITALSHARE

PREMIUMGENERAL RESERVE

EMPLOYEE BENEFITS RESERVE

TRANSLATION

RESERVERETAINED

EARNINGSTOTAL

EQUITY

January 1, 2013 9 61.9 533.9 280.0 1.4 -0.8 -213.9 662.5

Net loss -156.6 -156.6Foreign currency translation -2.0 -2.0Comprehensive income for the year 0.0 0.0 0.0 0.0 -2.0 -156.6 -158.6Capital increase 9 46.7 138.0 184.7Transaction cost equity raise 9 -5.9 -5.9Fair value of share options 1.0 1.0December 31, 2013 9 108.6 666.0 280.0 2.4 -2.8 -370.5 683.7

January 1, 2012 9 61.9 814.5 0.0 0.0 -0.6 -202.2 673.6Net loss -11.7 -11.7Foreign currency translation -0.2 -0.2Comprehensive income for the year 0.0 0.0 0.0 0.0 -0.2 -11.7 -11.9Transferred from paid in equity to other equity -280.6 280.6 0.0Fair value of share options 1.4 1.4Other foreign currency items -0.6 -0.6December 31, 2012 9 61.9 533.9 280.0 1.4 -0.8 -213.9 662.5

OUR RESULTS 19

CONSOLIDATED CASH FLOW STATEMENT


Cash flows from operation activitiesCash from operations 18 23.4 52.1Interest paid -44.9 -46.0Net cash (used in)/generated from operating activities -21.5 6.1

Cash flows from investment activitiesPurchases of property, plant and equipment (PPE) -558.1 -105.0Interest rate swap settlement -17.2 0.0Net cash used in investing activities -575.3 -105.0

Cash flows from financing activitiesNet proceeds from capital increase 178.9 0.0Proceeds from interest-bearing debt 1,400.0 43.8Deferred transaction fees on interest-bearing debt -30.8 0.0Repayment of interest-bearing debt -899.5 -56.6Net cash generated from/(used in) financing activities 648.6 -12.8

Net cash flow for the period 51.9 -111.7

Cash balance at beginning of period 76.8 188.5Cash balance included in contribution in kind 0.0 0.0Cash balance at end of period* 8 128.7 76.8

* 2013 cash balance contains restricted cash of USD 1.9 million for employees’ tax deduction fund. 2012 cash balance contains restricted cash of USD 71.0 million for debt service repayments and USD 0.5 million for employees’ tax deduction fund.

The accompanying notes are an integral part of these consolidated financial statements.

OUR RESULTS20

NOTE 1: CORPORATE INFORMATIONSevan Drilling ASA (the “Group”) is an international offshore drilling contractor specialising in the ultra deepwater segment. The company owns rigs of the cylindrical Sevan design.

The Group is a public limited liability company incorporated and domiciled in Norway. The address of its registered office is Tordenskioldsgate 6, 0160 Oslo.

These consolidated financial statements were approved by the Board on 29 April 2014.

Overview of the Group structure as of 31 December 2013:

SUBSIDIARIESREGISTERED

OFFICE INTEREST

HELDFUNCTIONAL

CURRENCY

Sevan Drilling Rig II AS Norway 100 % USDSevan Drilling AS Norway 100 % USDSevan Drilling Rig V AS Norway 100 % USDSevan Drilling Rig VI AS Norway 100 % USDSevan Drilling Rig VII AS Norway 100 % USDSevan Drilling Rig VIII AS Norway 100 % USDSevan Drilling Pte Ltd Singapore 100 % USDSevan Drilling Rig II Pte Ltd Singapore 100 % USDSevan Drilling Rig IV Pte Ltd Singapore 100 % USDSevan Drilling Rig V Pte Ltd Singapore 100 % USDSevan Drilling Rig VI Pte Ltd Singapore 100 % USDSevan Drilling Rig VII Pte Ltd Singapore 100 % USDSevan Drilling Rig VIII Pte Ltd Singapore 100 % USDSevan Drilling Rig IX Pte Ltd Singapore 100 % USDSevan Drilling Limited UK 100 % USDSevan Marine Servicos de Perfuracao Ltda Brazil 99.99 % BRLSevan Investimentos do Brasil Ltda Brazil 100 % BRL

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all financial years presented. The presentation currency of the Group is USD which corresponds to the functional currency of the majority of the entities in the Group. All figures are in USD million unless otherwise stated.

2.1 BASIS OF PREPARATIONThe consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union (EU) that are effective for the year ended 31 December 2013.

The consolidated financial statements have been prepared on a going concern basis under the historical cost convention as modified by the revaluation of financial assets and some financial liabilities (including derivative instruments) at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group’s accounting policies. Areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

OUR RESULTS 21

2.1.1 CHANGES IN ACCOUNTING POLICY AND DISCLOSURESa) New and amended standards adopted by the GroupIn the current year, the Group has applied a number of new and revised IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2013. Their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrange-ments. These new and revised standards include:

• Amendments to IFRS 7 Disclosures – offsetting financial assets and financial liabilities• IFRS 10, IFRS 11, IFRS 12, IAS 27 and IAS 28 Consolidation, Joint arrangements, Associates and Disclosures• IFRS 13 Fair value measurement• Amendments to IAS 1 Presentation of financial statements• Amendments to IAS 16 Property, plant and equipment• Amendments to IAS 19 Employee Benefits

b) New standards and interpretations not yet adoptedThe following new standards and amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2014, and have not been applied in preparing these consolidated financial statements:

• IFRS 9 Financial instruments3

• Amendments to IFRS 9 and IFRS 7 Mandatory effective date of IFRS 9 and transition disclosures2

• Amendments to IFRS 10, IFRS 12, and IAS 27 Investment entities1

• Amendments to IAS 19 Defined benefit plans: employee contributions4

• Amendments to IAS 32 Offsetting financial assets and financial liabilities1

• Amendments to IAS 36 Impairment of assets1

• Amendments to IAS 39 Financial instruments: recognition and measurement1

1 Effective for annual periods beginning on or after 1 January 20142 Effective for annual periods beginning on or after 1 January 20153 Effective date delayed indefinitely4 Effective for annual periods beginning on or after 1 July 2014

The directors of the Company do not anticipate that the application of these standards and amendments will have a significant impact on the Group’s consolidated financial statements in the period of initial application.

2.2 CONSOLIDATIONSubsidiariesSubsidiaries comprise all entities over which the Group has the power to govern the financial and operating policies, is exposed, or has rights, to variable returns from its involvement with the investee, and has the ability to use its power to affect its returns. Subsidiaries are fully consolidated from the date on which control is transferred to the Group, and are de-consolidated from the date that control ceases.

The Group uses the acquisition method to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred assumed at the date of exchange. Acquisition-related costs are expenses as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of the acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the income statement immediately.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group.

2.3 SEGMENT REPORTINGSince 31 December 2011, reporting has been divided into three segments. The reporting is based on a split between operating rigs, rigs under construction, and all other (onshore). Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Board.

OUR RESULTS22

2.4 FOREIGN CURRENCY TRANSLATIONFunctional and presentation currencyItems included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which each entity operates (‘the functional currency’). The consolidated financial statements are presented in USD.

Transactions and balancesForeign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from settlement of such transactions (realised items) and from translation at exchange rates prevailing at balance sheet date of monetary assets and liabilities denominated in foreign currencies (unrealised items) are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges. This will be the case only from the point in time when hedge accounting is implemented.

Foreign exchange gains and losses that relate to interest-bearing debt and cash and cash equivalents are presented (net) as a separate line item in the income statement within net financial items. Foreign exchange gains and losses that relate to operations are presented (net) as a separate line item in the income statement within operating expenses.

Group companiesThe results and financial position of all Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency, are translated into the presentation currency as follows:

Assets and liabilities are translated at exchange rates prevailing at balance sheet date.

Income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at exchange rates prevailing at the dates of the transactions).

Upon consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income if relevant. When a foreign operation is sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale. Any goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.5 PROPERTY, PLANT AND EQUIPMENTFixed assets are stated at historical cost less accumulated depreciation. The Group has not used, and has no plans of utilising the revaluation option in IAS 16. Depreciation is calculated using the straight-line method.

Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Costs related to periodic overhauls of drilling rigs are capitalised under Sevan capital assets and amortised over the anticipated period between overhauls, which is generally five years. Related costs are primarily yard costs and the cost of employees directly involved in the work. Amortisation costs for periodic overhauls are included in depreciation, amortisation and impairment expense. Costs for other repair and maintenance activities are included in operating expenses and are expensed as incurred.

General and specific borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use.

Each major component of the Drilling rigs is depreciated separately when the units are available for intended use. A major component is defined as a part with a cost that is significant in relation to the total cost of the asset. An estimation of useful lives indicates an average depreciation period of 20-30 years.

Other fixed assets consist of capital spare parts for the rigs and furniture, fixtures and equipment that are depreciated using the straight-line method over their estimated useful lives ranging from three to ten years.

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement.

2.6 CONSTRUCTION IN PROGRESSConstruction contracts are capitalised as construction in progress based on instalments paid to the yard and other suppliers.

Insurance and net financial expenses during the construction period are capitalised as construction in progress. Cost of labour directly attributable to the construction of the Sevan units is also capitalised.

Costs of training, manning and other pre-operational activities are expensed as incurred.

OUR RESULTS 23

2.7 INTANGIBLE ASSETSComputer softwareAcquired computer software is capitalised on the basis of the cost incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives, ranging from three to five years. Costs associated with developing or maintaining computer software programs are expensed as incurred.

Research and DevelopmentCosts associated with research are expensed as incurred. Development costs are expensed when the criteria for recognition are not met.

2.8 IMPAIRMENT OF NON-FINANCIAL ASSETSAssets that have an indefinite useful life are not subject to amortisation but are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels at which separate cash flows are identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

2.9 FINANCIAL ASSETS AND DERIVATIVESThe Group classifies its financial assets and derivatives as fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial instruments were acquired: Management determines the classification of its financial instruments at initial recognition.

Loans and receivables are measured at fair value at transaction date and subsequently re-measured at amortised cost. Loans and receivables are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market. Financial instruments are classified as current, except for those with maturities greater than 12 months after the balance sheet date, in which case they are classified as non-current.

Derivative financial instruments are initially recognised at fair value at the date a derivative contract is entered into and are subsequently re-measured at fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates derivatives as hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).

Hedge accounting has not been applied in the periods presented.

2.10 SHARE-BASED PAYMENTSThe Group previously had an equity-settled, share-based compensation plan, under which the entity received services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options was recognised as an expense. The total amount expensed was determined by reference to the fair value of the options granted:

• including any market performance conditions (for example, an entity’s share price);• excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets

and remaining an employee of the entity over a specified time period); and• including the impact of any non-vesting conditions (for example, the requirement for employees to save).

Non-market performance and service conditions were included in assumptions about the number of options that were expected to vest. The total expense was recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. Ninety days after Seadrill’s acquisition of a controlling interest in the Group, all outstanding options became vested, and no new options were granted.

At the end of each reporting period, the group revised its estimates of the number of options that were expected to vest based on the non-market vesting conditions. It recognised the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

When the options are exercised, the Group issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

The grant by the Group of options over its equity instruments to the employees of subsidiary undertakings in the group is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts.

The social security contributions payable in connection with the grant of the share options is considered an integral part of the grant itself, and the charge will be treated as a cash-settled transaction.

2.11 INVENTORIESInventories consist of diesel and spare parts on the rigs which do not meet the definition of property, plant and equipment. Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Cost is determined using the average cost method.

OUR RESULTS24

2.12 TRADE RECEIVABLESTrade receivables are amounts due from customers for services performed in the ordinary course of business and are classified as current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The impairment charge is recognised in the income statement as ‘other operating expense’.

2.13 CASH AND CASH EQUIVALENTSIn the consolidated statement of cash flow, cash and cash equivalents can include cash in hand, bank deposits, and other short-term highly liquid investments with a maturity of less than three months.

2.14 SHARE CAPITALOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company acquires the equity share capital (treasury shares), the consideration paid, including any directly attributable costs (net of income taxes) is deducted from equity attributable to the Group’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable transaction cost and income tax, is included in equity attributable to the Group’s equity holders.

2.15 INTEREST-BEARING DEBTInterest-bearing debt is initially recognised at fair value, net of transaction cost incurred. Interest-bearing debt is subsequently stated at amortised cost; any difference between the proceeds (net of transaction cost) and the redemption value is recognised in the income statement over the period of the interest-bearing debt using the effective interest method. Interest-bearing debt is classified as a current liability unless the Group has an unconditional right to defer settlement for more than 12 months after the balance sheet date. 2.16 CURRENT AND DEFERRED INCOME TAXThe tax expense for the period comprises current tax and the change in deferred tax. Tax expense is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit and loss. Deferred income tax is determined using tax rates (and legislation) that have been enacted or substantially enacted by balance sheet date and are expected to apply when the deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. The tax base included in the calculation of deferred income tax is calculated in local currency and translated into USD at foreign exchange rates prevailing at the balance sheet date thus creating volatility. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

2.17 PROVISIONSA provision is recognised in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and the amount has been reliably estimated.

Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likeli-hood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured as the present value of the expected expenditures required to settle the obligation using a pre-tax discount rate that accounts for time value of money and risks specific to the obligation. The increase in the provision due to passage of time is recog-nised as interest expense.

2.18 TRADE PAYABLESTrade Payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method and are classified as current liabilities.

OUR RESULTS 25

2.19 REVENUE RECOGNITIONRevenue comprises the fair value of the consideration receivable for the sale of services and charter in the ordinary course of the Group’s activities. Revenue is shown, net of value-added tax, estimated returns, rebates and discounts and after eliminated sales within the Group.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue is recognised as follows:Charter revenues are recognised on a straight-line basis over the contract period during which the services are rendered, and at the rates established in the underlying contracts. Under some contracts, the Company is entitled to additional payments for meeting or exceeding certain performance targets. Such additional payments are recognised when any uncertainties are resolved or upon completion of the drilling program.

Penalties imposed as compensation to client for delivery of a unit later than contractually agreed shall be accrued for on a separate account in the balance sheet at the date the charter contract commences. If any part of the penalties is recoverable from vendors due to directly correlated delays caused by them, the penalty recoverable from the vendor shall offset the accrual of penalties payable to the client. The net accrued amount is amortised over the fixed term of the charter contract as a reduction of income.

Mobilisation expenses are offset by mobilisation revenues and recognised using the straight line method over the full fixed term of the underlying charter contract.

Interest income is recognised on a time-proportion basis using the effective interest method.

2.20 OPERATING EXPENSESRig operating expenses are costs associated with operating a drilling rig that is either in operation or stacked, and include the remuneration of offshore crews and related costs, rig supplies, insurance costs, expenses for repairs and maintenance as well as costs related to onshore personnel in various locations where we operate the rigs and are expensed as incurred.

2.21 LEASESLeases in which more than an insignificant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

When assets owned by the Group are leased to clients under an operating lease, the asset is included in the balance sheet based on the nature of the asset.

NOTE 3: FINANCIAL RISK MANAGEMENT3.1 FINANCIAL RISK FACTORSThe Group’s activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

Risk management for the Group is carried out by Treasury. Treasury identifies, evaluates and hedges financial risks in close co-operation with the operating units within the Group. The Board approves the principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and investment of excess liquidity. The Group has entered into several economical hedges, but does not apply hedge accounting.

3.1.1 MARKET RISKForeign currency riskThe Group operates internationally and is exposed to foreign currency risk arising from various currency exposures, primarily with respect to the NOK, USD, GBP and BRL. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not an entity’s functional currency. The Group aims to achieve a natural hedge between cash inflows and cash outflows by matching the currency of operating costs with the currency of revenue as well as the currency of financial assets with the currency of financial liabilities, and thus has minimal exposure of foreign currency risk on its trade receivables and payables. The entity’s debt is denominated in USD and thus has no exposure to foreign currency risk.

The consequence of a change in exchange rates +/- 5% on profit or loss and equity for USD / NOK is USD 0.1 million, for USD / GBP is USD 0.1 million and for USD / BRL is USD 0.1 million.

OUR RESULTS26

The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5% change in foreign currency rates. 5% is the sensitivity rate used when reporting foreign currency risk internally to the Board and represents Management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the functional currency of the lender or the borrower. A positive number indicates an increase in profit or equity where the USD strengthens 5% against the relevant currency. For a 5% weakening of the USD against the relevant currency, there would be a comparable impact on the profit or equity, and the balances would be negative.

Interest Rate RiskThe Group’s interest rate risk arises from debt, which is subject to floating interest rates.

A change in interest rate of +/- 1% would affect the Group interest cost with +/- USD 14.0 million (2012: 4.6 million).

This sensitivity analysis has been determined based on an assumption that the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 100 basis point increase or decrease is used when reporting interest rate risk internally to the Board of Directors and represents management’s assessment of the reasonably possible change in interest rates.

The Group’s sensitivity to interest rates has increased during the current year mainly due to the increase in variable rate debt instruments and the cancellation of the interest rate swaps.

3.1.2 CREDIT RISKCredit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers. The Group has no significant concentration of credit risk towards single financial institutions and has policies that limit the amount of credit exposure to any single financial institution. Credit exposures to customers are mainly concentrated around the charter contracts. All sales in 2012 and 2013 were to a single customer, Petrobras. The Group has never had any history of collection problems or significant disputes with this customer; thus no provision for doubtful accounts has been recognised in the periods presented.

3.1.3 LIQUIDITY RISKPrudent liquidity risk management implies maintaining sufficient cash and marketable securities, including the availability of funding through an adequate amount of committed credit facilities. The Group aims to maintain flexibility in its liquidity by keeping committed credit lines available. Reference is made to note 11 for a schedule of undrawn facilities.

The Group has implemented routines to continuously update its cash flow forecast when changes to main assumptions relating to repayment schedules, interest rates changes etc. to be able to foresee the necessary actions taken to rectify any potential adverse effects on its future liquidity position. Reference is made to Note 11 for a maturity analysis of the Group’s financial liabilities.

The new debt facility has no covenants at the Sevan Group level, and allows for greater flexibility in the use of cash and, specifically, does not require restricted cash balances. These financing terms were not previously available to the company until Seadrill took control and provided the parent company guarantees.

The Company has USD 350 million remaining undrawn of its USD 1,750 million bank facility, and an undrawn revolving credit facility of USD 100 million with Seadrill. Seadrill has also provided a letter to the lenders that they will assist Sevan in raising additional capital up to USD 120 million. With the Seadrill guarantee, we are forecasting sufficient capital through the mobilisation of the Sevan Louisiana and construction and subsequent mobilisation of the Sevan Developer for 2014.

OUR RESULTS 27

NOTE 4: ACCOUNTING ESTIMATES AND JUDGMENTSEstimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are assumed to be reasonable under current circumstances.

The Group makes estimates and assumptions concerning the future. These estimates and assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed below.

Impairment of assetsThe Group has tested whether the drilling rigs have suffered any impairment, in accordance with the accounting policy stated in Note 2.8. At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets may be impaired. The net asset value of the Group exceeded its market capitalisation as at 31 December 2013, which the Group identified as an indicator of impairment for the current period. Additionally, Seadrill identified the Sevan contracts as unfavourable in their purchase price allocation. As a result, the operating rigs, which were identified as cash-generating units, were tested for impairment at the reporting date. Management concluded that the carrying amount of the rigs did not exceed their value-in-use; there-fore, no impairment loss was recognised. Furthermore, the unfavourable contracts recorded by Seadrill represent the difference between the current contract amounts and the current market rates for similar contracts as at the date of acquisition; the current contract amounts are still profitable for Sevan and support the existing value-in-use calculation.

The key assumptions applied for the purpose of impairment testing of rigs in operation include the discount rate and the expected future cash flows. To discount the future cash flows, management used the pre-tax weighted average cost of capital (WACC) of 7.2%. Estimated future cash flows are based on the Company’s five-year forecast and utilise several assumptions, including forecasted operational expense, utilisation and day rates. Day rates are based on current contract amounts for the remaining contract term and current market rates for forecasts beyond the contracted periods. Management has assumed no growth above current market rates for the remainder of the rig lives beyond the five-year forecast. Based on sensitivity analyses performed, Management believes that reasonable movements in the key assumptions would not result in an impairment loss to be recognised. Neither an increase in the WACC of 100 basis points nor a reduction of 20% of future cash flows would result in impairment of either rig.

Income taxes The Group is subject to income taxes in various jurisdictions. Judgment is required in determining the provision for income taxes. During the ordinary course of business, transactions and calculations occur for which the ultimate tax effect is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

The accounting for deferred income tax assets relies upon management’s judgment of the Group’s ability to generate future positive taxable income in each respective jurisdiction.

Management has treated taxes in Brazil as a tax expense. These taxes primarily consist of ISS, PIS, and Cofins taxes, which are largely based on gross revenue.

Residual value and useful lifeThe Group uses estimates when assessing a Sevan capital asset’s useful life and residual value to determine the depreciation plan for each unit in operation. The actual lives and residual values of these assets can vary depending on a variety of factors.

OUR RESULTS28

NOTE 5: SEGMENT INFORMATIONThe segment results as at 31 December 2013

FIGURES IN USD MILLION OPERATIONCONSTRUCTION IN

PROGRESS (CIP)OTHER/NOT ALLOCATED GROUP

Revenue 257.0 0.0 0.8 257.7Operating (loss)/profit / Segment result 43.1 -4.1 -45.6 -6.6Net financial items -98.8 -8.3 18.0 -89.1Loss before tax -55.7 -12.4 -27.6 -95.7Tax expense -8.0 0.0 -52.9 -60.9Net loss as at 31 December 2013 -63.7 -12.4 -80.5 -156.6

Other segment items included in the income statement are as follows;

Depreciation of property, plant and equipment -59.8 0.0 -4.3 -64.1

All revenue is from one customer regarding Sevan Driller and Sevan Brasil in Brazil. There is no inter-segment revenue.

The total segment assets and liabilities and drilling rigs amounts as at 31 December 2013 are as follows:



Total assets 1,609.0 656.8 -101.6 2,164.2Total liabilities 1,157.8 451.6 -128.9 1,480.5Drilling rigs 1,277.2 639.4 0.0 1,916.6

All segment assets and liabilities are allocated.

The segment results as at 31 December 2012



Revenue 172.4 0.0 1.0 173.4Operating (loss)/profit / Segment result 18.5 -0.3 -6.9 11.3Net financial items -62.6 -6.8 27.1 -42.3(Loss)/profit before tax -44.1 -7.1 20.2 -31.0Tax income 1.3 0.0 18.0 19.3Net (loss)/profit as at 31 December 2012 -42.8 -7.1 38.2 -11.7

Other segment items included in the income statement are as follows;

Depreciation of property, plant and equipment -42.5 0.0 -0.6 -43.1

All revenue is from one customer regarding Sevan Driller and Sevan Brasil in Brazil. There is no inter-segment revenue.

OUR RESULTS 29

The total segment assets and liabilities and drilling rigs amounts as at 31 December 2012 are as follows:



Assets 1,618.7 169.1 -68.1 1,719.7Liabilities 1,167.2 5.5 -115.4 1,057.3Drilling rigs 1,327.5 172.9 0.0 1,500.4

All segment assets and liabilities are allocated.

Based on the company structure, activity and internal reporting the segment reporting is devided in three different segments.1. Operation. This segment includes our rigs in operation.2. Contruction in progress. This segment includes our rigs which are under construction. 3. Other/not allocated. This segment includes all administrative items and items not included in operation or construction in progress.

NOTE 6: PROPERTY, PLANT AND EQUIPMENT

FIGURES IN USD MILLIONCONSTRUCTION IN

PROGRESS (CIP)

UNIT IN OPERATION

(UIO)DRILLING

RIGS

OTHER FIXED

ASSETS

TOTALFIXED

ASSETS

Year ended December 31, 2013Book value January 1 172.9 1,327.5 1,500.4 12.5 1,512.9Additions 466.4 8.4 474.8 12.2 487.0Impairment 0.0 0.0 0.0 0.0 0.0Depreciation 0.0 -58.6 -58.6 -5.5 -64.1Book value December 31 639.3 1,277.3 1,916.6 19.2 1,935.8

At December 31, 2013Cost 647.8 1,401.4 2,049.2 27.4 2,076.6Accumulated impairment -8.5 0.0 -8.5 0.0 -8.5Accumulated depreciation 0.0 -124.1 -124.1 -8.2 -132.3Book value December 31 639.3 1,277.3 1,916.6 19.2 1,935.8

Year ended December 31, 2012Book value January 1 661.2 658.1 1,319.3 8.7 1,327.9Additions 31.5 191.2 222.7 5.2 227.9Transfer to UIO -519.9 519.9 0.0 0.0 0.0Impairment 0.0 0.0 0.0 0.0 0.0Depreciation 0.0 -41.7 -41.7 -1.4 -43.1Book value December 31 172.9 1,327.5 1,500.4 12.5 1,512.9

At December 31, 2012Cost 701.3 873.1 1,574.4 15.2 1,589.6Transfer to UIO -519.9 519.9 0.0 0.0 0.0Accumulated impairment -8.5 0.0 -8.5 0.0 -8.5Accumulated depreciation 0.0 -65.5 -65.5 -2.7 -68.2Book value December 31 172.9 1,327.5 1,500.4 12.5 1,512.9

An interest rate of 5% is used for capitalisation. Capitalised borrowing cost in 2013 was USD 6.4 million (2012 USD 28.5 million).

Security arrangements relating to drilling rigs are described in Note 19 and commitments relating to capital expenditure are described in Note 20.

See Note 4 for rig impairment assessment.

OUR RESULTS30

NOTE 7A: FINANCIAL INSTRUMENTS BY CATEGORYThe classification of financial instruments as loans and receivables or assets and liabilities at fair value through profit or loss is shown below. The Group’s financial instruments held as at 31 December 2013 consist of cash, trade receivables, trade payables, and bank borrowings measured at amortised cost with variable interest rates. Management believes that carrying value approximates fair value for all the Group’s financial instruments. Management believes all financial instruments held at 31 December 2013 are classified as Level 3 in the fair value hierarchy. The interest rate swaps held at 31 December 2012 were classified as Level 2. The different levels are defined as:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilitiesLevel 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)

31 December 2013

FIGURES IN USD MILLIONLOANS AND

RECEIVABLES

ASSETS AT FAIRVALUE THROUGH

PROFIT AND LOSS TOTAL

Financial assetsTrade and other receivables 25.3 0.0 25.3Cash and cash equivalents 128.7 0.0 128.7Total financial assets 154.0 0.0 154.0

31 December 2012

FIGURES IN USD MILLIONLOANS AND

RECEIVABLES

ASSETS AT FAIRVALUE THROUGH


Financial assetsTrade and other receivables 22.5 0.0 22.5Cash and cash equivalents 76.8 0.0 76.8Total financial assets 99.3 0.0 99.3

31 December 2013

FIGURES IN USD MILLIONOTHER FINANCIAL

LIABILITIES

LIABILITIES AT FAIRVALUE THROUGH THE


Financial liabilities Interest-bearing debt 1,369.2 0.0 1,369.2Trade payables 74.5 0.0 74.5Total financial liabilities 1,443.7 0.0 1,443.7

31 December 2012

FIGURES IN USD MILLIONOTHER FINANCIAL

LIABILITIES

LIABILITIES AT FAIRVALUE THROUGH THE


Financial liabilities Interest-bearing debt 858.7 0.0 858.7Trade payables 74.2 0.0 74.2Non-current trade payables 43.0 0.0 43.0Interest rate swaps 0.0 27.4 27.4Total financial liabilities 975.9 27.4 1,003.3

OUR RESULTS 31

Interest and currency swaps 2013

INTEREST RATE SWAPS FAIR VALUE

Nil

CURRENCY SWAPS FAIR VALUE

Nil

Interest and currency swaps 2012

INTEREST RATE SWAPS FAIR VALUE

MUSD 108.7 fixed at 2.21% -4.8MUSD 100.8 fixed at 2.15% -4.3MUSD 71.9 fixed at 0.9453% -0.8MUSD 193.8 fixed at 2.975% -17.5

CURRENCY SWAPS FAIR VALUE

Nil

NOTE 7B: CREDIT QUALITY OF FINANCIAL ASSETS The credit quality of financial assets that were neither past due nor impaired was assessed by reference to external credit ratings (where available) and by analysis of historical information about counterparty default rates:

Trade receivables - Counterparty with external credit rating


BBB- 0.0 0.0BBB 14.7 12.5Total 14.7 12.5

Trade receivables - Counterparty without external credit rating


Group 1 0.0 0.0Group 2 0.0 0.0Group 3 0.0 0.0Total 0.0 0.0Total trade receivables 14.7 12.5

Group 1 - New customers (less than 6 months)Group 2 - Existing customers (more than 6 months) with no defaults in the pastGroup 3 - Existing customers (more than 6 months) with some defaults in the past

OUR RESULTS32

Cash at bank and short-term bank deposits


AA+ 0.0 0.0AA 0.0 0.0A+ 34.0 12.6A 2.8 32.6A- 88.6 1.5BBB 3.3 30.1No rating available 0.0 0.0Total cash and cash equivalents 128.7 76.8

NOTE 8: CASH AND CASH EQUIVALENTS


Cash at bank and in hand 126.8 5.3Restricted employees' tax deduction fund 1.9 0.5Restricted short-term bank deposits 0.0 71.0Total cash and cash equivalents 128.7 76.8

MUSD 1.9 restricted employees’ tax deduction fund relates to customary income taxes withheld from employees.

NOTE 9: SHARE CAPITAL AND SHARE PREMIUM The total authorised number of ordinary shares was 594.625 million (2012: 336.625 million) with a par value of NOK 1 per share. All issued shares were fully paid in at balance sheet date.

NUMBER OF SHARES SHARE CAPITAL SHARE PREMIUM TOTAL

January 1, 2013 336,625,000 61.9 533.9 595.8Proceeds from shares issued 257,998,436 46.7 132.1 178.8December 31, 2013 594,623,436 108.6 666.0 774.6

NUMBER OF SHARES SHARE CAPITAL SHARE PREMIUM TOTAL

January 1, 2012 336,625,000 61.9 814.5 876.4Proceeds from shares issued 0 0.0 0.0 0.0Transferred from paid in equity to other equity 0 0.0 -280.6 -280.6December 31, 2012 336,625,000 61.9 533.9 595.8

OUR RESULTS 33

The 20 largest shareholder accounts as at January 7, 2014

SHAREHOLDER ACCOUNTS NO. OF SHARES %-SHARE

**DNB NOR MARKETS, AKS 216,062,583 36.34**SKANDINAVISKA ENSKILDA BANKEN AB Oslofilialen 81,678,500 13.74J.P. MORGAN CHASE BANK N.A. London NORDEA TREATY ACCOUNT 41,508,130 6.98GOLDMAN SACHS & CO - EQUITY 28,751,219 4.84ODIN OFFSHORE 16,988,480 2.86WENAASGRUPPEN AS 15,220,003 2.56SKAGEN VEKST 13,252,171 2.23THE BANK OF NEW YORK MELLON BNY MELLON 11,232,354 1.89SKANDINAVISKA ENSKILDA BANKEN AB A/C CLIENTS ACCOUNT 10,879,135 1.83JP MORGAN CLEARING CORP. 10,850,368 1.82VERDIPAPIRFONDET DNB NORGE (IV) 9,450,903 1.59FID. FUNDS-EUR. SM. 6,082,400 1.02US BK EVERMORE GLO VAL 5,923,127 1.00OP-EUROPE EQUITY FUN 5,617,100 0.94THE BANK OF NEW YORK MELLON BNY MELLON 4,678,549 0.79DNB LIVSFORSIKRING ASA 3,893,851 0.65CITIBANK, N.A. 3,100,465 0.52VERDIPAPIRFONDET DNB 3,000,000 0.50SKANDINAVISKE ENSKILDA BANKEN AB A/C SEC FIN 2,795,599 0.47UBS AG, LONDON BRANCH 2,159,028 0.36Total, 20 largest shareholder accounts 493,123,965 82.93Total no. of shares 594,623,436Foreign ownership (Citizenship/Country of registration) 167,474,640 28.16

** Seadrill controls 50.11% of the interest in Sevan through forward share contracts held with banks identified.

NOTE 10: CURRENT LIABILITIES EXCLUDING CURRENT PORTION OF INTEREST BEARING DEBT


Trade payables 25.4 45.7Accrued expenses relating to trade payables 49.2 28.5Total trade payables 74.5 74.2Income and Gross revenue tax payable 2.6 5.2Other taxes payable (advance tax, employer contribution, VAT, etc.) 2.5 0.9Other payables 31.6 45.1Total other current liabilities 36.7 51.3Total current liabilities 111.3 125.5

OUR RESULTS34

NOTE 11: INTEREST-BEARING DEBTS


Non-current liabilitiesBank borrowings 1,196.1 717.9Derivative financial instruments 0.0 27.4Other non-current liabilities 0.1 45.7Total non-current liabilities 1,196.2 790.1

On 08 October, the company drew USD 1,400 million of a new USD 1,750 million bank facility to refinance the Sevan Driller USD 480 million and Sevan Driller 525 million facility, pay the final instalment to COSCO for delivery of the Sevan Louisiana and mobilization, and general corporate purposes.

The debt restructure resulted in the release of previously unamortised transaction costs on the Sevan Driller and Sevan Brasil loans. Paired with the amortisation of these transaction costs in 2013 prior to the restructure, total finance expense in 2013 related to transaction costs on the old term loans was USD 45.3 million. The new debt had transaction costs of USD 30.8 million which are being amortised over the loan term. USD 1.7 million of the new deferred transaction costs had been recognised as expense in the fourth quarter of 2013.

Total borrowings


Bank LoansNon-Current 1,196.1 717.9 Sevan Driller USD 480M Loan - 283.9 Sevan Brasil USD 525M Loan - 434.0 Sevan USD 1,750M Loan 1,196.1 - Current 173.1 140.8 Sevan Driller USD 480M Loan - 76.2 Sevan Brasil USD 525M Loan - 64.6 Sevan USD 1,750M Loan 173.1 - Total 1,369.2 858.7

Total borrowings include secured liabilities (bank and collateralised borrowings) of USD 1,369.2 million (2012: USD 858.7 million) - see Note 19 for additional discussion of collateral arrangement.

Sevan - USD 1,750 million loan.As at December 2013, the weighted effective interest rate is 3.09%.Basic term is divided between Libor+2.50% for GIEK tranche and Libor+2.90% for Commercial tranche.

The carrying amounts and fair value of the non-current borrowings are as follows:

CARRYING AMOUNT FAIR VALUE

2013 2012 2013 2012

Bank borrowings 1,196.1 717.9 1,196.1 717.9 Total 1,196.1 717.9 1,196.1 717.9

OUR RESULTS 35

The group has the following undrawn borrowing facilities:


Floating rate– Expiring within one year 350.0 0.0– Expiring beyond one year 100.0 0.0

Fixed rate– Expiring within one year 0.0 0.0– Expiring beyond one year 0.0 0.0Total un-drawn debt facilities 450.0 0.0

The USD 100 million undrawn facility expiring beyond one year is a revolving credit facility with Seadrill. This revolving credit facility has a commitment fee at market rates. Seadrill has also made a commitment to the lenders of an additional USD 120 million of funding.

Payment schedule 2013

FIGURES IN USD MILLION 0 - 3 MONTH 3 - 12 MONTH 1 - 3 YEARS LATER

Borrowings (including interest) 91.6 162.1 715.2 1,043.0Trade payable 25.4 0.0 0.0 0.0Other payables 49.2 0.0 0.0 0.0Total 166.2 162.1 715.2 1,043.0

The table above details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curves at the end of the reporting period.

Payment schedule 2012

FIGURES IN USD MILLION 0 - 3 MONTH 3 - 12 MONTH 1 - 3 YEARS LATER

Borrowings (including interest) 86.0 117.8 948.1 588.1Trade payable 45.7 0.0 0.0 0.0Other payables 29.3 1.0 0.0 0.0Swaps 2.4 6.7 12.7 4.4Total 163.4 125.5 960.8 592.5

The debt repayments under the old debt prior to the refinancing were not based on a fixed schedule and were variable based on the rigs’ performance; note the new $1.75b facility has a fixed repayment schedule.

OUR RESULTS36

NOTE 12: DEFERRED INCOME TAXDeferred income tax assets and liabilities are offset when a legally enforceable right to offset current tax assets against current tax liabilities exists.

Offsetting amounts were as follows:

Deferred tax assets


Deferred tax asset to be recovered after more than 12 months 0.0 48.3Deferred tax asset to be recovered within 12 months 0.0 3.2Total deferred tax assets 0.0 51.5

Gross movement on the deferred income tax account was as follows:


Book value January 1, 51.5 26.8Currency translation adjustment 1.4 0.0Income statement charge relating to deferred tax assets -52.9 24.7Book value December 31, 0.0 51.5

Specification of deferred tax assets/deferred tax liabilities:


Unrealized currency gain/(loss) 0.0 3.2Losses carry forward 0.0 48.3Total deferred tax assets 0.0 51.5

Group entities incorporated in Singapore have been accepted under the local tax exemption regime. As a consequence, no deferred tax asset resulting from losses carried forward from entities incorporated in Singapore were recognised in the financial statements.

At the reporting date, the Group has total Norwegian tax losses carried forward of NOK 1,507.1 million (USD 265.6 million) (2012: NOK 1,026.8 million - USD 183.9 million) with no expiration date and a tax value of NOK 406.9 million (USD 71.7 million) (2012: NOK 287.5 million - USD 51.5 million) for which no deferred tax asset is recognised in the balance sheet. The Group’s total deferred income tax asset was written off in Q3 2013 as a consequence of Sevan not expecting to have a taxable profit in Norway in the foreseeable future to which it can apply these tax losses.

NOTE 13: EMPLOYEE BENEFIT EXPENSE


Wages and salaries 58.5 37.7Bonuses 5.1 1.6Employer's contribution tax 20.1 10.8Pension costs 0.9 0.6Share based payment - option cost 1.1 1.4Other employee benefit expense 2.1 1.9Employee benefit expense 87.8 54.0

Average no. of man-years 538 453

No loans were granted to the CEO, the Chairman of the Board, or to any other related party.

OUR RESULTS 37

Remuneration of Senior Management and Board of Directors

2013

NUMBERS IN USD THOUSAND SALARIESRETIREMENT

BENEFITS OTHER

BENEFITS**

SHARE OPTIONSGRANTED

(THOUSAND)START DATE

ENDDATE

Scott McReaken CEO 86.2 2.0 5.2 0.0 15 Nov 2013Scott Kerr CEO 943.6 21.6 1,290.2 1,600 15 Nov 2013Jon Willmann CFO 951.7 22.6 761.0 1,100 31 Dec 2013Bjørn Egil Gustavsen VP Projects 444.0 2.6 41.9 500 31 Oct 2013Gilberto Cardarelli VP Brazil 547.4 9.3 424.0 333 01 Feb 2013 31 Dec 2013Paul Grimen VP Operations 378.0 0.0 1,008.0 500 30 Sep 2013Pascal Busch VP QHSE 428.4 0.0 0.0 500Eileen Aspehaug VP HR 258.5 19.9 10.0 500Åsmund Erlandsen COO 125.0 0.0 500.0 250 1 Jul 2013 30 Sep 2013Erling Lind * Chairman 85.1 0.0 0.0 0.0Kitty Hall Board member 63.3 0.0 0.0 0.0 23 Jul 2013Benedicte Schilbred Fasmer Board member 61.1 0.0 0.0 0.0Birgitte Ringstad Vartdal Board member 21.3 0.0 0.0 0.0 23 Jul 2013Per Wulff Board member 61.1 0.0 0.0 0.0Kristian Johansen Board member 61.1 0.0 0.0 0.0Total remuneration paid 4,515.8 78.0 4,040.3

* Invoiced from Advokatfirmaet Wiersholm AS** Other Benefits includes severance payments in 2013

Remuneration of Senior Management and Board of Directors

2012

NUMBERS IN USD THOUSAND SALARIESRETIREMENT

BENEFITS OTHER

BENEFITS**

SHARE OPTIONSGRANTED

(THOUSAND)START DATE

ENDDATE

Scott Kerr CEO 908.6 22.7 50.4 1,600Jon Willmann CFO 717.4 22.5 52.7 1,100Bjørn Egil Gustavsen VP Projects 583.8 36.9 43.0 500Heitor Gioppo VP Brazil 872.6 17.6 10.5 0.0 Jul 2012Paul Grimen VP Operations 408.0 0.0 13.4 500Pascal Busch VP QHSE 346.8 0.0 9.7 500Eileen Aspehaug VP HR 166.8 17.0 46.8 500Erling Lind * Chairman 62.4 0.0 0.0 0.0 09 Jan 2012Anne Breive Board member 36.3 0.0 0.0 0.0 15 May 2012Kitty Hall Board member 65.5 0.0 0.0 0.0Benedicte Schilbred Fasmer Board member 29.2 0.0 0.0 0.0 15 May 2012Per Wulff Board member 53.7 0.0 0.0 0.0Kristian Johansen Board member 53.7 0.0 0.0 0.0 09 Jan 2012Total remuneration paid 4,304.8 116.7 226.5

* Invoiced from Advokatfirmaet Wiersholm AS

The group have an immaterial defined benefit pension plan for one emplyee in 2012, established in 2011. The net retirement benefit obligation in the balance sheet is USD 110.2 thousand.

In 2013 Kristian Johansen has been the leader of the audit committee with Benedicte Schilbred Fasmer as a member of the audit committee. Share options are granted to directors and to selected employees. The exercise price of the granted options is equal to the market price of the shares on the date of the grant. The options shall vest with one third each year. Vesting of the options is conditional upon the Employee, on each of the vesting dates, remaining employed by the company. The options may, once vested, be exercised at any time up to and including the date falling three years after the relevant vesting dates. The group has no legal or constructive obligation to repurchase or settle the options in cash. Due to change of control in 2013, all options are vested as at 27 September 2013.

OUR RESULTS38

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

2013 2012

AVERAGE EXERCISE PRICE PER SHARE

OPTIONOPTIONS

(THOUSANDS)


OPTIONOPTIONS

(THOUSANDS)

At 1 January NOK 5.75 9,403.3 NOK 0.00 0.0Granted NOK 5.75 1,376.7 NOK 5.75 9,903.3Forfeited NOK 0.00 -1,041.7 NOK 0.00 -500.0Exercised NOK 0.00 0.0 NOK 0.00 0.0Expired NOK 0.00 0.0 NOK 0.00 0.0At 31 December NOK 5.75 9,738.3 NOK 5.75 9,403.3

Out of the 9,738,326 outstanding options (2012: 9,403,334 options), 9,738,326 options (2012: 3,153,344) were exercisable. No options were exercised in 2013 or 2012, and the options were excluded from the earnings per share calculation as they are antidilutive.

The weighted average fair value of options granted during the period determined using the Black-Scholes valuation model was NOK 1.51 per option (2012: NOK 1.73). The significant inputs into the model were weighted average share price of NOK 5.75 (2012: NOK 5.75) at the grant date, exercise price shown above, volatility of 39.4 % (2012: 42.5%), dividend yield of 0% (2012: 0%), an expected option life of 2.8 years (2012: 3 years) and an annual risk-free interest rate of 1.38% (2012: 1.37%). The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices. See above for the total expense recognised in the income statement for share options granted to directors and employees.

NOTE 14: FINANCIAL INCOME AND FINANCIAL EXPENSECurrency gains and losses relating to operational activities were classified as a separate line item as an operational expense in the Income Statement and are not included in the tables below. Currency gains and losses relating to financing activities were presented as separate line item as a financial income/(expense) in the Income Statement and are specified in Note 23.

Financial income:


Interest income 0.2 0.6Total financial income 0.2 0.6

Financial expense:


Interest expense 39.1 27.2Amortization of finance fees 47.2 7.1Swaps -10.1 3.6Guarantee fees to Sevan Marine ASA 3.2 4.0Commitment and guarantee fees to Seadrill 4.6 0.0Other finance (income)/expense 0.7 1.0Total financial expense 84.7 42.9

OUR RESULTS 39

NOTE 15: INCOME TAX EXPENSE


Current tax -8.0 -5.3Change deferred tax -52.9 24.7Net tax income/(expense) -60.9 19.3


Gross revenue tax -8.0 -5.2Withholding tax 0.0 -0.1Current tax -8.0 -5.3


Loss before tax -95.6 -31.0Tax calculated at domestic tax rates applicable to profits in holding company (Norway 28%) 26.8 -8.7Profit not subject to payable tax in shipping regime 0.0 41.4Currency translation adjustment -5.3 -13.8Expenses not deductible 0.0 0.4Write-down of deferred tax asset -51.5 0.0Additional unrecognised deferred tax asset -21.2 0.0Impact of change in statory tax rate -1.7 0.0Effect of other tax jurisdictions -8.0 0.0Tax (expense)/income -60.9 19.3

NOTE 16: EARNINGS PER SHARE

2013 2012

Profit attributable to equity holders of the Company (USD thousands) -156,562 -11,676Weighted average number of ordinary shares on issue (USD thousands) 563,725 336,625Basic and diluted earnings per share (USD per share) -0.28 -0.03

Basic earnings per shareBasic earnings per share were calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares on issue during the year. Options are not in the money at 31 December 2013 and are not included in calculating diluted earnings per share.

NOTE 17: DIVIDEND PER SHARENo dividend was paid in 2013 or 2012. No dividend is to be proposed at the Annual General Meeting on 19 June 2014.

OUR RESULTS40

NOTE 18: CASH GENERATED FROM OPERATIONS


Loss before tax -95.7 -31.0

Adjustments for non-cash items in loss before tax:– Depreciation, amortisation and impairment 64.1 43.1 – Net finance items 89.1 42.3 – Other non-cash items -8.9 -31.9

Changes in working capital:– Inventory -4.4 -8.9– Trade and other receivables 1.6 -7.0– Trade payables 0.3 17.4 – Other current liabilities -14.6 33.3

Other items:– Taxes paid -8.0 -5.2

Cash generated from operations 23.4 52.1

NOTE 19: SECURITIES FOR DEBTThe Group has contingent liabilities in respect of bank and other guarantees as well as other matters arisen in the ordinary course of business.

AT BALANCE SHEET DATE, THE GROUP IS PARTY TO THE FOLLOWING SECURITY ARRANGEMENTS: Security arrangements relating to financing:The USD 1,750,000,000 credit facility is secured, on a cross-collateralized basis, by a first priority mortgage over all the Collateral Drilling Rigs “Sevan Driller”, “Sevan Brasil”, “Sevan Louisiana”, “Sevan Developer”; a guarantee from the Guarantor “Seadrill Limited” and each of the Borrowers “Sevan Drilling Pte Ltd”, “Sevan Drilling Rig II Pte Ltd”, “Sevan Drilling Rig V Pte Ltd”, “Sevan Drilling Rig VI Pte Ltd” and the Intra-Group Charterers “Sevan Drilling Limited”, “Sevan Drilling Rig II AS”, “Sevan Drilling North America LLC”; a pledge over the shares of issued by each of the Borrowers and Intra-Group Charterers; first priority security interest over each of the Borrower’s and Intra-Group Charterer’s rights with respect to all earnings and proceeds of insurance; and a first priority security interests in the bank accounts opened and maintained in the name of each Borrower and/or Intra-Group Charterers in which all hires, freights, income, insurance proceeds and other sums payable in respect of the Collateral Drilling Rigs are credited.

NOTE 20: COMMITMENTS


Drilling Rig II 0.0 26.5Drilling Rig III 7.5 420.8Drilling Rig IV 424.3 499.7Total capital commitments 431.8 947.0

OUR RESULTS 41

Payment schedule for Sevan Louisiana and Sevan Developer - 2013

MILESTONESEVAN

LOUISIANA STATUSSEVAN

DEVELOPER STATUS

1 26.3 Paid in 2011 26.3 Paid in 20112a 78.9 Paid in 2011 26.3 Paid in 20122b 0 52.6 Paid in 20123 426.8 Paid in 2013 at delivery 420.8 To be paid in 2014 at delivery

7.5 Paid in 2013 after replacement of Thruster 6.8

Paid in 2013 for late payment interest and VO

7.5 To be paid in 2014 after commissioning of Cameron equipment 3.5

To be paid in 2014 at delivery for interest and VO

Total commitments 7.5 424.3

Payment schedule for Sevan Louisiana and Sevan Developer - 2012

MILESTONESEVAN

LOUISIANA STATUSSEVAN

DEVELOPER STATUS

1 26.3 Paid in 2011 26.3 Paid in 20112a 78.9 Paid in 2011 26.3 To be paid in 2014 at delivery2b 0 52.6 To be paid in 2014 at delivery3 420.8 To be paid in 2013 at delivery 420.8 To be paid in 2014 at deliveryTotal commitments 420.8 499.7

NOTE 21: RELATED PARTY TRANSACTIONSBalances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.

Seadrill Limited (“Seadrill”), obtained a majority interest of Sevan effective at the start of the third quarter, with an ownership of 50.11%. The Group has since been consolidated into Seadrill Limited’s accounts, which can be found at www.seadrill.com.

Seadrill has guaranteed the new term loan referred to in Note 11. The Group has also entered into a revolving credit facility (RCF) in the amount of USD 100 million with Seadrill. No drawdown had been made under the RCF as at 31 December 2013. Seadrill charged the Company guarantee fees and commitment fees at rates comparable to average commercial rates. These fees amounted to USD 4.6 million in 2013, which had not been paid as at the reporting date. These amounts are included in Financial expense and Trade payables.

Seadrill has furthermore made a commitment to the Group’s lenders to provide additional funding of USD 120 million (by way of an increase in the RCF and/or an underwriting of an equity issue) to cover any possible liquidity shortfall.

Seadrill also provides certain management support and administrative services to the Group and charged fees for these services of USD 2.2 million in 2013, which had not been paid as at the reporting date. These amounts are included in Operating expenses and Trade payables.

OUR RESULTS42

NOTE 22: OPERATING LEASESAt balance sheet date, the Group has entered into lease- and rental-obligations:

Lease- and rental obligations


No later than 1 year 2.8 1.0Between 1-5 years 1.9 2.0Later than 5 years 0.0 0.0Total lease and rental-obligations 4.7 3.0

Future lease payments receivable under charter contracts:


No later than 1 year 365.1 232.6Between 1-5 years 927.8 737.2Later than 5 years 60.1 60.1Total minimum future charter revenues 1,353.0 1,029.9

Order back-log for charter revenue:

UNIT CLIENTFIXED TERM

(YEARS)OPTION PERIODS

(YEARS) COMMENCEMENT

Sevan Driller I (Sevan Driller) Petrobras S.A. 6 N/A 12 June 2010Sevan Driller II (Sevan Brasil) Petrobras S.A. 6 N/A 24 July 2012Sevan Driller III (Sevan Louisiana) LLOG 3 N/A 2014

NOTE 23: FOREIGN EXCHANGE GAIN/(LOSS) RELATED TO FINANCING AND OPERATIONSForeign exchange gain/(loss) related to operation


Unrealized gain/(loss) -0.8 -0.5Realized gain/(loss) -0.4 -0.2Total foreign exchange gain/(loss) related to operation -1.2 -0.7

Foreign exchange gain/(loss) related to financing


Unrealized gain/(loss) -4.1 -0.7Realized gain/(loss) -0.5 0.7Total foreign exchange gain/(loss) related to financing -4.6 0.0

Total foreign exchange gain/(loss) relates mainly to cash and cash equivalents nominated in other currencies than USD.

OUR RESULTS 43

NOTE 24: OTHER OPERATING EXPENSESOther operating expense


Office cost (IT, rental etc) 4.6 5.0Consultancy (audit, tax and legal) 11.5 5.5Marketing 2.7 1.5Other 4.5 2.6Total other operating expense 23.3 14.6

Specification of auditor’s fee (excl. VAT)


Statutory audit 0.5 0.5Other assurance services 0.2 0.0Tax consulting 0.1 0.0Other assistance from auditor 0.3 0.3Total audit fees 1.1 0.8

NOTE 25: INVENTORIES


Diesel Stock on-board 2.3 2.7Spares on-board Sevan Driller 12.8 10.6Consumables Sevan Brasil 0.0 0.0Spares Sevan Brasil 11.8 9.2Provision for stock obsoleteness 0.0 0.0Inventories - net 26.9 22.5

NOTE 26: OTHER NON-CURRENT ASSETS


Net late delivery penalties 4.2 6.0Net mobilization expense 35.1 14.1Others 1.1 0.3Total other non-current assets 40.4 20.4

Net late delivery penalties include penalties incurred for the late delivery of the service element of the charter contract for Sevan Driller and Sevan Brasil. Net late delivery penalties will amortise over the fixed contract period as a reduction in operating revenue.

OUR RESULTS44

NOTE 27: TRADE AND OTHER RECEIVABLES


Trade receivables 14.7 12.5Provision for impairment of receivables 0.0 0.0Trade receivables – net 14.7 12.5Prepayments 7.1 11.5Other receivables 10.6 10.0Derivative and financial instruments, current 0.0 0.0Trade and other receivables 32.4 34.0

The Group did not make any losses on receivables during 2013 and 2012. The Group did not make any provisions relating to receivables during 2013 and 2012.

Fair value of trade and other receivables were as follows:


Trade receivables 14.7 12.5Prepayments 7.1 11.5Other receivables 10.6 10.0Derivative and financial instruments, current 0.0 0.0Total trade and other receivables 32.4 34.0

Trade receivables that are less than three month past due are generally not considered for impairment.

Ageing of trade receivables was as follows:


Before due date 14.5 12.4Up to 3 months after due date 0.2 0.1Total trade receivables - net 14.7 12.5

Carrying amounts of trade receivables were denominated in the following currencies:


USD 10.0 7.9BRL 4.7 4.7Total trade receivables - net 14.7 12.5

OUR RESULTS 45

NOTE 28: EVENTS AFTER BALANCE SHEET DATESevan has evaluated its subsequent events from the balance sheet date through the date the financial statements became available to be issued. On 31 March 2013, Sevan Drilling completed a USD 15 million drawdown on the Seadrill revolving credit facility.

OUR RESULTS46

OUR RESULTS 47

STATEMENT OF INCOMESEVAN DRILLING ASA

NOTE 2013 2012

Operating income and operating expenses

Revenue 58,486,824 0

Operating expenses -56,508,720 0Employee benefi t expenses 6, 7 -8,690,432 1,612,310Depreciation and amortisation expense 5 -555,730 -485,571Other operating expenses -18,785,449 -8,316,549Operating foreign currency gain/(loss) 14 -200,809 -72,717Total operating expenses -84,741,140 -7,262,527

Operating loss -26,254,316 -7,262,527

Financial income and expensesInterest income 114,469 1,018,664Intercompany interest income 10 16,564,027 24,368,825Interest expense -70,680 -83,717Other fi nancial income/(expense) 443,484 -198Financial foreign currency gain/(loss) 14 -3,256,741 -1,647,485Net fi nancial income and expenses 13,794,559 23,656,089

(Loss) / profi t before tax -12,459,757 16,393,562

Tax expense / (income) 4 -16,293,430 5,952,986

Operating result after tax -28,753,187 22,346,548

Brought forwardTo other equity -28,753,187 22,346,548Net brought forward -28,753,187 22,346,548

OUR RESULTS48

STATEMENT OF FINANCIAL POSITIONS SEVAN DRILLING ASA

NOTE 2013 2012

ASSETSNon-current assets

Intangible fixed assetsDeferred tax asset 4 0 3,154,052Total intangible assets 0 3,154,052

Tangible fixed assetsEquipment and other movables 5 3,946,167 1,060,637Other non-current assets 584,829 0Total tangible fixed assets 4,530,996 1,060,637

Financial assetsInvestments in subsidiaries 11 322,586,497 243,566,972Loans to group companies 10 463,379,573 530,358,444Total financial assets 785,966,070 773,925,416

Total non-current 790,497,066 778,140,104

Current assetsReceivablesAccounts receivables 8 35,705 402,109Accounts receivables from group companies 10 27,296,899 2,078,039Other receivables 8 4,533,521 1,251,531Total receivables 31,866,125 3,731,679

Cash and bank deposits 9 74,049,297 3,263,556

Total current assets 105,915,422 6,995,235

Total assets 896,412,488 785,135,339

OUR RESULTS 49

STATEMENT OF FINANCIAL POSITIONS SEVAN DRILLING ASA

NOTE 2013 2012

Equity and liabilities

Restricted equityShare capital 2, 3, 12 108,624,189 61,854,554Share premium 2 665,904,128 533,818,154Total restricted equity 774,528,317 595,672,708

Retained earningsOther equity 2 84,508,190 144,483,596Total retained earnings 84,508,190 144,483,596

Total equity 859,036,507 740,156,304

LiabilitiesPension obligation 6 100,753 0Loans from group companies 10 408,173 0Total long term liabilities 508,926 0

Current liabilitiesTrade creditors 8 6,447,675 2,385,744Accounts payable to group companies 10 20,999,976 42,233,311Tax payable 4 34,639 0Public duties payable 8 2,802,678 298,438Other short term liabilities 8 6,582,086 61,542Total short term liabilities 36,867,054 44,979,035

Total liabilities 37,375,980 44,979,035

Total equity and liabilities 896,412,488 785,135,339








Scott McReaken

OUR RESULTS50

STATEMENT OF CASH FLOWSSEVAN DRILLING ASA

NOTE 2013 2012

Cash flows (used by) / generated from operating activitiesProfit/loss before tax -12,459,757 16,393,561Tax paid during the period 0 0Depreciation and write downs 555,730 485,571Other non-cash -9,535,726 0Currency effects 3,457,550 217,654Change in trade and other receivables -3,454,306 -138,428Change in trade creditors 3,719,014 1,254,968Change in other accruals -33,329,371 -4,190,370Net cash flow (used by) / generated from operating activities -51,046,866 14,022,956

Cash flows used in investing activitiesPurchases of tangible assets -3,460,717 -195,548Investment in subsidiaries 0 -24,643,795Net cash flow used in investing activities -3,460,717 -24,839,343

Cash flow generated from / (used by) financing activitiesChange in intercompany balances -53,951,410 -38,297,105Increase of equity (share issue) 184,740,060 0Transaction costs on share issue -5,872,387 0Net cash flow generated from / (used by) financing activities 124,916,263 -38,297,105

Net cash flows for the period 70,408,680 -49,113,492

Cash and cash equivalents at the beginning of the year 3,263,556 52,289,359Cash brought in via merger of group companies 514,315 0Currency effect bank deposits -137,254 87,689

Cash and cash equivalents at the end of the year 74,049,297 3,263,556

Cash and bank deposits actual 74,049,297 3,263,556Difference 0 0

OUR RESULTS 51

NOTE 1: ACCOUNTING POLICIESSevan Drilling’s financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles.

The functional currency for the company is USD as this is the currency by which the Company is financed. The functional currency in the subsidiaries are USD and any potential future dividends will be nominated in USD.

All numbers are in USD 1 unless otherwise stated.

The Company merged Sevan Drilling Management AS, Sevan Drilling Invest AS, and Sevan Drilling Rig IX AS into Sevan Drilling ASA in the current year. The merger was carried out using the continuity method for both accounting and tax as the merged companies were 100% owned subsidiaries.

REVENUE RECOGNITIONRevenue and operating expenses are related to long term contract arrangements with Cosco in China, whereby Sevan Drilling ASA (and formerly Sevan Drilling Management AS) provide Cosco with services related to project management, site supervision, and engineering consulting, as well as providing pre-ops spare parts to the rigs under construction. Revenue is recognised according to the percentage of completion method. The degree of completion is calculated as expenses incurred as a percentage of estimated total expense. Expenses are recognized as the goods and services are provided. Total expenses are reviewed on a regular basis. If the projects are expected to result in losses, the total estimated loss is recognised immediately. This revenue and operating expense is eliminated at the Sevan Drilling ASA Group level, as the costs are part of the rig value acquired by the Singapore rig owning entities.

MAIN PRINCIPLE FOR EVALUATION AND CLASSIFICATION OF ASSETS AND LIABILITIESCurrent assets and current liabilities include items with a due date within one year after the transaction date, as well as items relating to the operating cycle. Other items have been classified as non-current assets and non-current liabilities.

Current assets are measured at the lower of purchase cost and fair value. Short-term liabilities are recognized in the balance sheet at nominal value at the establishment date.

Fixed assets are measured at purchase cost. The fixed assets are written down to net realizable value if a value reduction occurs that is expected to be permanent. Borrowings are recognized in the balance sheet at amortized value on the establishment date, equal to nominal value deducted for transaction costs. Other non-current liabilities are recognized at nominal value.

RECEIVABLESTrade receivables and other receivables are recognized in the balance sheet at nominal value after deduction of provision for bad debt.Bad debt is provided for on the basis of an individual assessment of each receivable.

FIXED ASSETSFixed assets are recognized in the balance sheet and depreciated over the asset’s expected useful life on a straight-line basis. Maintenance of an asset is expensed under operating expenses as incurred. Additions or improvements are added to the asset’s cost price and depreci-ated together with the asset. When the recoverable amount of the asset is exceeded by the carrying amount of the asset an impairment charge is recognized, and the asset is written down to recoverable amount. Recoverable amount is the highest of net sales value and value in use. Value in use is the net present value of future cash flows, which are expected to be generated from the asset.

Leased assets are reflected in the balances sheet as assets if the leasing contract is considered a financial lease.

RESEARCH AND DEVELOPMENTCost associated with research activities are expensed as incurred. Qualifying expense associated with development activities are capitalized and depreciated over their expected useful life.

CASH AND BANK DEPOSITSCash and bank deposits include cash, bank deposits and other means of payment with an original due date of three months or less from the date of purchase.

NOTES TO SEVAN DRILLING ASA

OUR RESULTS52

CURRENCYCash and bank deposits, current assets, and short-term liabilities nominated in other than functional currencies are converted using exchange rates that prevail on the balance sheet date.

TAXESDeferred income tax liability/deferred tax asset is provided using the liability method on temporary difference at the balance sheet date between the tax basis of assets and liabilities and their carrying amounts for financial reporting purpose. Tax-reducing temporary differences and losses carried forward are offset against tax-increasing temporary differences that are reversed in the same time intervals. Taxes consist of taxes payable (taxes on current year taxable income), and change in net deferred taxes.

LEASESLeases in which more than an insignificant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

SHARES IN SUBSIDIARIESInvestments in subsidiaries are measured under the cost method.

GROUPThe company will be consolidated into the Sevan Drilling Group accounts, with business address in Oslo.

CASH FLOW STATEMENTThe cash flow statement is prepared in accordance with the indirect method.

NOTE 2: EQUITY

UNITSHARE-

CAPITALSHARE

PREMIUM

EQUITY SETTLED EMPLOYEE

BENEFIT RESERVEOTHEREQUITY TOTAL

Equity January 1, 2013 61,854,554 533,818,154 420,798 144,062,798 740,156,304Capital increase 46,769,635 137,970,425 0 0 184,740,060Transaction cost equity raise 0 -5,872,387 0 0 -5,872,387Changes due to merger of group companies 0 -12,064 359,167 -32,066,824 -31,719,721Value of options, cost directly to equity 0 0 485,438 0 485,438Net result for the year 0 0 0 -28,753,187 -28,753,187Equity December 31, 2013 108,624,189 665,904,128 1,265,403 83,242,787 859,036,507

NOTE 3: SHARE CAPITAL AND SHAREHOLDER INFORMATION

Share capital

NUMBER NOMINAL VALUE (NOK) REGISTERED

Ordinary shares 594,623,436 1.00 594,623,436Total 594,623,436 594,623,436

OUR RESULTS 53

List of 20 major shareholders at January 7, 2014

SHAREHOLDER ACCOUNTS NO. OF SHARES VOTING SHARE

**DNB NOR MARKETS, AKS 216,062,583 36.34**SKANDINAVISKA ENSKILDA BANKEN AB Oslofilialen 81,678,500 13.74J.P. MORGAN CHASE BANK N.A. London NORDEA TREATY ACCOUNT 41,508,130 6.98GOLDMAN SACHS & CO - EQUITY 28,751,219 4.84ODIN OFFSHORE 16,988,480 2.86WENAASGRUPPEN AS 15,220,003 2.56SKAGEN VEKST 13,252,171 2.23THE BANK OF NEW YORK MELLON BNY MELLON 11,232,354 1.89SKANDINAVISKA ENSKILDA BANKEN AB A/C CLIENTS ACCOUNT 10,879,135 1.83JP MORGAN CLEARING CORP. 10,850,368 1.82VERDIPAPIRFONDET DNB NORGE (IV) 9,450,903 1.59FID. FUNDS-EUR. SM. 6,082,400 1.02US BK EVERMORE GLO VAL 5,923,127 1.00OP-EUROPE EQUITY FUN 5,617,100 0.94THE BANK OF NEW YORK MELLON BNY MELLON 4,678,549 0.79DNB LIVSFORSIKRING ASA 3,893,851 0.65CITIBANK, N.A. 3,100,465 0.52VERDIPAPIRFONDET DNB 3,000,000 0.50SKANDINAVISKE ENSKILDA BANKEN AB A/C SEC FIN 2,795,599 0.47UBS AG, LONDON BRANCH 2,159,028 0.36Total, 20 largest shareholder accounts 493,123,965 82.93

Total no. of shares 594,623,436Foreign ownership (Citizenship/Country of registration) 167,474,640 28.16

** Seadrill controls 50.11% of the interest in Sevan through forward share contracts held with banks identified.

Shares and options owned or controlled by the Board of Directors

NO. OF OPTIONS NO. OF SHARES

Scott McReaken, CEO from 15 November 2013 - - Scott Kerr, CEO until 15 November 2013 1,600 748,300Jon Helge Wilmann, CFO 1,100 311,988Erling Lind, Chairman - - Benedicte Schilbred Fasmer, member of board - - Birgitte Ringstad Vartdal, member of board - - Kristian Johansen, member of board - 17,000Per Wullf, member of board - -

OUR RESULTS54

NOTE 4: TAXESThe Company merged Sevan Drilling Management AS, Sevan Drilling Invest AS, and Sevan Drilling Rig IX AS into Sevan Drilling ASA in the current year. The merger was carried out using the continuity method for both accounting and tax as the merged companies were 100% owned subsidiaries.

Tax expense

2013 2012

Profit before tax -12,459,757 16,393,561Permanent differences 6,817,984 438,791Permanent currency differences 15,973,525 -37,667,704Changes in temporary differences -45,845,337 36,545,560

Tax basis -35,513,586 15,710,207

Loss to be brought forward 35,513,586 0

Basis for taxes payable 0 15,710,207

Taxes payable 0 4,398,858Change in deferred tax assets 16,293,430 -10,232,757

Tax expense/(income) 16,293,430 -5,833,899

Temporary differences

2013 2012

Unrealised forex 35,022,733 -10,306,646Construction contracts 3,703,216 2,820,895Pension liabilities -100,753 -100,753Piranema -350,825 15,539

Net temporary differences 38,274,371 -7,570,965

Losses carry forward -86,133,441 -50,619,856

Basis for deferred tax asset -47,859,070 -58,190,821

Deferred tax asset 27% (28%) 12,921,949 16,293,430

Deferred tax asset in balance sheet 0 16,293,430

Total deferred income tax asset was written off in Q3 2013 as a consequence of not expecting to have a taxable profit in Norway in the foreseeable future to which it can apply these tax losses.

Tax expense reconciliation

2013 2012

Profit before tax -12,459,757 16,393,561Expected tax charge -3,488,732 4,590,197Tax charge in the profit and loss accounts 16,293,430 -5,833,899

Difference -19,782,162 -1,243,702

Tax on permanent differences -1,909,035 -1,243,702Effect of changed tax rate from 28% to 27% -478,591 028% of permanent currency differences -4,472,587 0Unrecognised temporary differences -12,921,949 0Explained difference -19,782,162 -1,243,702

OUR RESULTS 55

NOTE 5: FIXED ASSETS

IT EQUIPMENT OFFICE EQUIPMENT TOTAL FIXED ASSETS

Cost as of January 1, 2013 1,168,596 449,506 1,618,102Additions 3,460,717 0 3,460,717Disposals -293,935 -128,775 -422,711Cost as of December 31, 2013 4,335,378 320,731 4,656,109

Accumulated depreciation January 1, 2013 512,180 45,283 557,463Depreciation 335,556 220,174 555,730Disposals -274,476 -128,775 -403,251Accumulated depreciation as of December 31, 2013 573,260 136,682 709,942

Net book value as of December 31, 2013 3,762,118 184,049 3,946,167

Economic life 3 year 5 yearDepreciation plan Straight line Straight line

Annual rental of non-financial assets

ANNUAL RENT

Office 526,878Machines, furnitures, fixtures 161,544Other 133,042

NOTE 6: EMPLOYEE BENEFIT EXPENSE

Employee benefit expense

2013 2012

Salaries and vacation pay 3,522,885 2,616,892Employer's share of social security 1,622,122 382,934Pension costs 459,939 2,051,132Other salary related costs 3,085,486 -6,663,269Total employee benefit expense 8,690,432 -1,612,310

At December 31, 2013, there are 35 employees in Sevan Drilling ASA.

Included in Salary and vacation pay is 334,039 in bonuses for 2013. The bonus is related to Group recognition of the bonus program.

In 2012 the bonuses was 288,625.

The pension schemes meet the requirements of the law on compulsory occupational pension. There is an immaterial defined benefit pension plan for one employee in 2012, established in 2011 in Sevan Drilling Management AS and added to Sevan Drilling ASA’s accounts as a result of the merger. The net retirement benefit obligation in the balance sheet is USD 100 thousand.

No loans or guarantees have been granted to the CEO, the Chairman of the Board, or to any other related party.

OUR RESULTS56

Remuneration of Senior Management and the Board of Directors

2013

NAME TITLE SALARIESRETIREMENT

BENEFITSOTHER

BENEFITSSHARE OPTION

GRANTED

Scott McReaken CEO from 15 Nov 2013 86,203 2,025 5,210 -Scott Kerr CEO until 15 Nov 2013 943,611 21,574 1,290,164 1600Jon Wilmann CFO until 31 Dec 2013 951,679 22,611 760,968 1100Erling Lind Chairman of the Board 85,101 - - -Benedicte Fasmer Board member 61,122 - - -Kitty Hall Board member 63,276 - - -Kristian Kuvaas Johansen Board member 61,122 - - -Per Winther Wullf Board member 61,122 - - -Birgitte Ringstad Vartdal Board member 21,326 - - -

The Board members are not included in the collective retirement benefit plans.

2012

NAME TITLE SALARIESRETIREMENT

BENEFITSOTHER

BENEFITSSHARE OPTION

GRANTED

Scott Kerr CEO 908,600 22,700 50,400 1600Jon Wilmann CFO 717,400 22,500 52,700 1100Erling Lind Chairman of the Board 62,400 - - - Benedicte Fasmer Board member 36,300 - - - Kitty Hall Board member 65,500 - - - Kristian Kuvaas Johansen Board member 53,700 - - - Per Winther Wullf Board member 53,700 - - -

The Board members are not included in the collective retirement benefit plans. Kitty Hall resigned from the Board, and was replaced by Birgitte Ringstad Vartdal on 23 July 2013.

Auditor fees

2013 2012

Statutory audit 295,394 376,885Other assurance services 186,439 42,072Tax consulting 46,141 80,907Other assistance from auditor 266,674 105,198Total audit fees 794,648 605,062

OUR RESULTS 57

NOTE 7: SHARE-BASED PAYMENTSShare options are granted to directors and to selected employees. The exercise price of the granted options is equal to the market price of the shares on the date of the grant. The options shall vest with one third each year. Vesting of the options is conditional upon the Employee, on each of the vesting dates, remaining employed by the company. The options may, once vested, be exercised at any time up to and including the date falling three years after the relevant vesting dates. The group has no legal or constructive obligation to repurchase or settle the options in cash. Due to change of control in 2013, all options are vested as at 27 September 2013.

Movements in the number of share options outstanding and their related weighted average exercise prices

2013 2012


OPTIONOPTIONS

(THOUSANDS)


OPTIONOPTIONS

(THOUSANDS)

At 1 January NOK 5.75 9,403.3 NOK 0.00 0.0Granted NOK 5.75 1,376.7 NOK 5.75 9,903.3Forfeited NOK 0.00 -1,041.7 NOK 0.00 -500.0Exercised NOK 0.00 0.0 NOK 0.00 0.0Expired NOK 0.00 0.0 NOK 0.00 0.0At 31 December NOK 5.75 9,738.3 NOK 5.75 9,403.3

Out of the 9,738,326 outstanding options (2012: 9,403,334 options), 9,738,326 options (2012: 3,153,344) were exercisable. No options were exercised in 2013 or 2012, and the options were excluded from the earnings per share calculation as they are antidilutive.

The weighted average fair value of options granted during the period determined using the Black-Scholes valuation model was NOK 1.51 per option (2012: NOK 1.73). The significant inputs into the model were weighted average share price of NOK 5.75 (2012: NOK 5.75) at the grant date, exercise price shown above, volatility of 39.4 % (2012: 42.5%), dividend yield of 0% (2012: 0%), an expected option life of 2.8 years (2012: 3 years) and an annual risk-free interest rate of 1.38% (2012: 1.37%). The volatility measured at the standard deviation of continuously compounded share returns is based on statistical analysis of daily share prices. See above for the total expense recognised in the income statement for share options granted to directors and employees.

NOTE 8: RECEIVABLES AND LIABILITIESThe company has no receivables or liabilities with a due date later than five years as at 31 December 2013 and 2012.

NOTE 9: CASH AND BANK DEPOSITS

2013 2012

Taxes withheld from employees deposited in a restricted bank account 1,772,674 174,028Cash and other bank deposits 72,276,623 3,089,528Total cash and bank deposits 74,049,297 3,263,556

OUR RESULTS58

NOTE 10: INTERCOMPANY TRANSACTIONSRemuneration to executives is disclosed in note 6

Statement of financial positions

2013 2012

Long-term receivables from Group companies 463,379,573 530,558,444Accounts receivables from Group companies 27,296,899 2,078,039Total receivables from Group companies 490,676,472 532,636,483

2013 2012

Long-term payables to Group companies 408,173 0Accounts payables to Group companies 20,999,976 42,233,311Total liabilities to Group companies 21,408,149 42,233,311

Statement of Income

2013 2012

Sales/(Purchases) of services to/from Group companies 0 1,955,244Interest income from Group Companies 16,564,027 24,368,825Interest cost to Group companies 0 -72,074Total income / (cost) from Group companies 16,564,027 26,251,995

NOTE 11: INVESTMENTS IN SUBSIDIARIESStatement of financial positions

COMPANY (NUMBERS IN ‘000) ADDRESS OWNERSHIP BOOK VALUE EQUITY

NET RESULT OF THE YEAR 2013

Sevan Drilling Rig II AS Oslo 100 % 25 -41,253 -1,663Sevan Drilling AS Oslo 100 % 26 1 -4Sevan Drilling Rig V AS Oslo 100 % 24 -11,224 -5,426Sevan Drilling Rig VI AS Oslo 100 % 24 -4,968 -2,670Sevan Drilling Rig VII AS Oslo 100 % 24 -9 -10Sevan Drilling Rig VIII AS Oslo 100 % 25 -8 -11Sevan Drilling Pte Ltd Singapore 100 % 305,591 294,445 -14,862Sevan Drilling Rig IX Pte Ltd Singapore 100 % 16,846 12,898 -4,078

Total 322,586 249,882 -28,725

Sevan Drilling Management AS, Sevan Drilling Invest AS, and Sevan Drilling Rig IX AS were merged into Sevan Drilling ASA in the current year. The merger was carried out using the continuity method for both accounting and tax as the merged companies were 100% owned subsidiaries.

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COMPANIES OWNED BY SUBSIDIARIES ADDRESS OWNER OWNERSHIP

Sevan Drilling Rig II Pte Ltd Singapore Sevan Drilling Rig II AS 100 %Sevan Drilling Rig IV Pte Ltd Singapore Sevan Drilling AS 100 %Sevan Drilling Rig V Pte Ltd Singapore Sevan Drilling Rig V AS 100 %Sevan Drilling Rig VI Pte Ltd Singapore Sevan Drilling Rig VI AS 100 %Sevan Drilling Rig VII Pte Ltd Singapore Sevan Drilling Rig VII AS 100 %Sevan Drilling Rig VIII Pte Ltd Singapore Sevan Drilling Rig VIII AS 100 %Sevan Drilling Ltd UK Sevan Drilling Pte Ltd 100 %Sevan Investimentos do Brasil Ltda Brazil Sevan Drilling Rig IX Pte Ltd 100 %Sevan Marine Servicos de Perfuracao Ltd Brazil Sevan Drilling Rig IX Pte Ltd 99.99 %

NOTE 12: EARNINGS PER SHARE

2013 2012

Profit attributable to equity holders -28,753,187 -21,653,291Weighted avg. no. of ordinary shares 563,725 336,625Earnings per share (basic and diluted) -0.02 -0.02

NOTE 13: FINANCIAL RISK MANAGEMENTSevan Drilling ASA’s activities are exposed to a variety of financial risks: market risk (foreign currency risk), credit risk, and liquidity risk. The overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.

A) MARKET RISK(i) Foreign exchange riskSevan Drilling ASA operates internationally and is exposed to foreign currency risk arising from various currency exposures, primarily with respect to the NOK, GBP and Euro. Foreign exchange risk arises when future commercial transactions or recognized assets and liabilities are denominated in a currency that is not an entity’s functional currency. Sevan Drilling ASA aims to achieve a natural hedge between cash inflows and cash outflows by matching the currency of operating costs with the currency of revenue as well as the currency of financial assets with the currency of financial liabilities, and thus has minimal exposure of foreign currency risk on its trade receivables and payables.

B) CREDIT RISKCredit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers. No significant concentration of credit risk towards a single financial institutions exists and policies exist that limit the amount of credit exposure to any single financial institution.

C) LIQUIDITY RISKPrudent liquidity risk management includes maintaining sufficient cash and marketable securities and the availability of funding from an adequate amount of committed credit facilities. The objective is to maintain flexibility of financing by providing sufficient withdrawal facilities and committed credit lines.

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NOTE 14: FINANCIAL AND OPERATIONAL CURRENCY EFFECTSTh e Company split currency gains and losses in operating and fi nancial elements in the Statement of Income. Th e currency eff ects presented in the operating result are related to currency eff ects in purchases, while the currency eff ects in the fi nancial results is mainly related to revaluation of NOK bank deposits.

Operation

2013 2012

Realized foreign exchange gains 596,820 105,677Realized foreign exchange loss -539,568 -137,347Unrealized gain/(loss) net 143,557 -41,047Net operational foreign exchange loss 200,809 -72,717

Financial

2013 2012

Realized foreign exchange gains 1,007,196 0Realized foreign exchange loss -482,395 -3,077Unrealized gain/(loss) net 2,731,940 -1,644,408Net operational foreign exchange gain/loss 3,256,741 -1,647,485

NOTE 15: LONG-TERM CONTRACT

Due (to)/from customers under long-term contract

2013 2012

Opening balance** -39,736,221 0Billings -16,311,607 0Contract revenue earned/expenses incurred 58,314,975 0Ending balance*** 2,267,147 0

** Opening balance is a result of the merger with Sevan Drilling Management AS who formerly held the contracts with Cosco*** Ending balance is included in Other receivables in the balance sheet

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AUDITOR’S REPORT

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Th e Board of Directors and the Chief Executive Offi cer have today considered and approved the report and the fi nan-cial statements for the Sevan Drilling Group and the parent company Sevan Drilling ASA for the year ending 31 December 2013. Th e consolidated fi nancial statements of Sevan have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and addi-tional disclo-sure requirements as stated in the Norwegian Accounting Act that are applicable per 31 December 2013. Th e fi nancial state-ments for the parent company Sevan Drilling ASA have been prepared in accordance with the Norwegian Accounting Act and Generally Accepted Accounting Principles in Norway that are applicable per 31 December 2013. Th e Director’s report for the Sevan Drilling Group and Sevan Drilling ASA has been prepared in accordance with the Norwegian Accounting Act and the Norwegian Accounting Standard no. 16 applicable per 31 December 2013.

We confi rm that, to the best of our knowledge:• Th e fi nancial statements for the Sevan Drilling Group

and Sevan Drilling ASA for the year ending 31 December 2013 have been prepared in accordance with applicable accounting standards.

• Th e information in the fi nancial statements gives a true and fair view of the Sevan Drilling Group’s and Sevan Drilling ASA’s assets, liabilities, fi nancial position and results of operations for the year ending 31 December 2013.

• Th e report from the Board of Directors for the year ending 31 December 2013 includes a fair view of:

– Th e development, results of operations and position for the Sevan Drilling Group and Sevan Drilling ASA. – Th e principal risks and uncertainties for the Sevan Drilling Group and Sevan Drilling ASA.

RESPONSIBILITY STATEMENT








Scott McReaken

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CORPORATE GOVERNANCE IN SEVAN DRILLING

Sevan Drilling is committed to sound corporate governance principles contributing to optimal value creation over time. The objective of Sevan Drilling’s corporate governance is to regulate the division of roles between shareholders, the Board and executive management more comprehensively than is required by legislation.

1. IMPLEMENTATION AND REPORTING ON CORPORATE GOVERNANCEImplementation and regulationsSevan Drilling ASA’s (“Sevan”) Board of Directors (the “Board”) has the ultimate responsibility for ensuring that the company practices good corporate governance and has prepared and approved the company’s policy for corporate governance. Sevan, through its Board and executive manage-ment, carries out an annual review of its principles for corpo-rate governance.

Sevan is a Norwegian public limited company listed on Oslo Børs. The Norwegian Accounting Act includes provisions on corporate governance at Section 3-3b which impose a duty on the company to issue an annual statement on its principles and practice for corporate governance. These provisions also stipulate minimum requirements for the content of this report.

The Norwegian Corporate Governance Board (NCGB) has issued the Norwegian Code of Practice for Corporate Governance (the “Code”). Adherence to the Code is based on the “comply or explain” principle, which means that a company must comply with the recommendations of the Code or explain why it has chosen an alternative approach to specific recommendations.

Oslo Børs requires listed companies to publish an annual state-ment of their policy on corporate governance in accordance with the Code in force at the time. The Continuing Obligations of listed companies are available on www.oslobors.no.

Sevan complies with the above mentioned rules and regulations, and the current Code, issued on 23 October 2012, unless otherwise specifically stated. Sevan provides a statement on its principles for corporate governance in its annual report, and this information is also available on the company website, www.sevandrilling.com.

Values, objectives and strategiesConfidence in Sevan as a company and in its business activities as a whole is essential for continuing competitiveness. Sevan aims to maintain high ethical standards in its business concept and relations with customers, suppliers and employees. The Board has defined the values and has adopted ethical guide-lines applicable to all employees. The values, as well as a state-ment on “who we are”, the company’s vision, “strategic themes” as well as the ethical guidelines are available on the company’s website.

Sevan has not established separate guidelines for corporate social responsibility (“CSR”) as recommended by the Code. Sevan was established and listed on Oslo Børs in 2011 and and is continuously considering the need for developing further guidelines.

2. BUSINESSThe business objective is set out in its articles of association section 3:

“to own and/or operate, directly or indirectly, drilling rigs and activities related thereto, as well as investing in other companies.”

The long term objective, following the clause above, is to become a premier drilling contractor owning units specialising in offshore ultra-deep water operations.

Sevan will pursue the following main strategies to reach its overall objective:• monetise its current design and technology by delivering

safe, efficient and cost effective service and delivering newbuild units on time and within budget, and

• pursue technological advancements with our unique hull design to maximise its flexibility to expand into growth areas in offshore drilling.

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Sevan has a set of “Strategic Themes”, available on its website, to further define its strategic priorities.

Sevan’s articles of association are available at the company’s website, www.sevandrilling.com.

3. EQUITY AND DIVIDENDEquityThe Board aims to maintain a satisfactory equity ratio in the company in light of the goals, strategy and risk profile, thereby ensuring that there is an appropriate balance between equity and other sources of financing. The Board regularly assesses the company’s capital requirements.

DividendSevan’s objective is to generate a return for its shareholders through dividends and increases in the share price that is at least in line with the return available on similar investment opportunities of comparable risk. Due to the ongoing new-building programme in the company, Sevan does not intend to pay dividend to shareholders in the short term.

Sevan has no restrictions for making dividend payments in the bank loan agreements.

Authorisations to the BoardThe Board will in the outset not propose that authorisation to increase the share capital and to buy own shares are granted for periods longer than until the next Annual General Meeting of the company.

4. EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH CLOSE ASSOCIATESEqual treatmentSevan has one class of shares with equal rights.

In the event that the Board is granted authorisations to buy own shares and decides to use this authorisation, the transactions will be carried out through the stock exchange or at prevailing stock exchange prices if carried out in any other way.

Transactions with close associatesAny transactions, agreements or arrangements between Sevan and its shareholders, members of the Board, members of the executive management team or close associates of any such parties shall only be entered into as part of the ordinary course of business and on arm’s length market terms. All such

transactions shall comply with the procedures set out in the Norwegian Public Limited Liability Companies Act or similar provisions, as applicable. The Board shall arrange for a valua-tion to be obtained from an independent third party unless the transaction, agreement or arrangement in question must be considered to be immaterial. The Sevan’s financial statements shall provide further information about transactions with related parties.

5. FREELY NEGOTIABLE SHARESThe shares in Sevan are freely negotiable. The articles of associa-tion do not impose any restrictions on transfers of shares.

6. THE GENERAL MEETINGThe annual general meetingThe annual general meeting (“AGM”) is Sevan’s highest authority. The Board strives to ensure that the AGM is an effective forum for communication between the shareholders and the Board, and encourages shareholders to participate in the meeting.

Preparations for the AGMThe notice calling the AGM is made available on the Sevan’s website, www.sevandrilling.com, and sent to shareholders no later than 21 days prior to the meeting, as recommended by the Code.

For extraordinary general meetings, the calling is available at least 14 days prior to the meeting.

The financial calendar for the coming year is published no later than 31 December in the form of a stock exchange announcement and is also made available on Sevan’s website. The deadline for shareholders to give notice of their intention to attend the meeting is set as close to the date of the meeting as possible.

Section 7 of Sevan’s articles of association stipulates that the supporting documents dealing with matters to be considered by the AGM can be made available on Sevan’s website rather than being sent to shareholders by post. However, shareholders are still entitled to receive the documents by post upon request if they so wish.

The supporting documentation provides all the necessary information for shareholders to form a view on the matters to be considered.

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Participation in the AGMShareholders must give written notice of their intention to attend the AGM either by post, telefax, via their VPS securities account, or by e-mail. The notices calling the general meetings shall provide information on the procedures shareholders must observe in order to participate in and vote at the general meeting. The notice will also set out:• The procedure for representation at the meeting through

a proxy, including a form to appoint a proxy, to allow for shareholders who are unable to attend in person will be able to vote by proxy and

• The right for shareholders to propose resolutions in respect of matters to be dealt with by the general meeting.

Agenda and conduct of the AGMThe Board decides the agenda for the AGM. The main agenda items are determined by the requirements of the Public Limited Liability Companies Act and Article 7 of the articles of association of Sevan Drilling.

The Board will seek to propose a person independent of Sevan and the Board to chair the general meetings, ensuring that the AGM has an independent chairperson in accordance with the recommendations of the Code.

The Board and the person chairing the meeting will make appropriate arrangements for the general meeting to vote separately on each candidate nominated for election to the corporate bodies.

Members of the Board and the nomination committee, as well as the company’s auditor are present at the annual general meeting.

The AGM minutes are published by issuing a stock exchange announcement, and are also made available on Sevan’s website at www.sevandrilling.com.

7. NOMINATION COMMITTEESevan has a nomination committee consisting of three members, according to section 6 of the articles of association. The members of the nomination committee are elected by the AGM after considering proposals made by the current nomination committee.

The following three members were elected at Sevan’s extraordinary general meeting at 9 January 2012:• Harald Thorstein, chairman• Jarle Sjo• Geir Tjetland

The members were elected for a period of two years. At the same meeting, instructions to the committee were approved.

Pursuant to section 6 of the articles of associations, the nomination committee shall propose board member candidates to the general meeting in connection with notices thereof. The nomination committee shall also make proposal for the remuneration of the Board.

8. BOARD OF DIRECTORS - COMPOSITION AND INDEPENDENCEElections to the boardThe Board is appointed by the general meeting. According to section 5 of the articles of association, the Board shall consist of three to nine members.

The BoardThe Board has the requisite competency to independently evaluate the cases presented by the management as well as Sevan’s operations, and function well as a body of colleagues.

The members of the Board represent varied and broad experi-ence from relevant industries and areas of technical speciality, and the members bring experience from both Norwegian and international companies. More information about the board members expertise and background, as well as their holdings of shares in Sevan can be found on the company’s website, www.sevandrilling.com.

Independence of the BoardThe Board does not include any members from Sevan’s executive management team and all the members are considered independent of Sevan’s material business contacts. Chairman of the Board, Erling Lind, is currently a partner at the Oslo based law firm Wiersholm, and i.a. act as external legal counsel to Seadrill Ltd, which is Sevan’s main shareholder. Board member Per Wullf is currently the CEO and President of Seadrill. The three other members of the Board are considered independent of Sevan’s main shareholder.

9. THE WORK OF THE BOARD OF DIRECTORSThe Board`s duties and responsibilityThe Board prepares an annual plan for its work with special emphasis on goals, strategy and implementation. The Board’s primary responsibility is:• participating in the development and approval of Sevan’s

strategy,• performing necessary monitoring functions and• acting as an advisory body for the management team.

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Sevan’s strategy is regularly subject to review and evaluation by the Board.

Its duties are not static, and the focus will depend on Sevan’s ongoing needs. The Board is also responsible for ensuring that the operation of Sevan is in compliance with the values and ethical guidelines. The Chairman of the Board is responsible for ensuring that the Board’s work is performed in an effective and correct manner. The Board is responsible for the appoint-ment of the CEO.

Mandate for the BoardThe Board shall ensure that Sevan has a good management with clear internal distribution of responsibilities and duties. Further details on the duties of the Board are included in the instructions to the Board. In accordance with the provisions of the Norwegian company law, the terms of reference for the Board are set out in a formal mandate that includes specific rules and guidelines on the work of the Board and decision making.

Mandate for the CEOThe CEO is responsible for the executive management and the day-to-day operations of Sevan. The Board issues a mandate for the work of the CEO.

Financial reportingAll members of the Board receive information about Sevan’s operational and financial development on a monthly basis.

Board meetingsDuring 2013 the Board had 18 meetings, 7 physical meetings and 11 meetings by telephone conference, with a turnout of 84.4 percent.

Extraordinary Board meetings are held as and when required, to consider matters that cannot wait until the next regular meeting.

Remuneration committeeSevan shall have a remuneration committee appointed by the Board. The purpose of the committee is to:• Evaluate and propose the compensation of the chief

executive officer (CEO) and other senior executives of the company.

• Produce an annual report on the compensation of the executive management team, which shall be included in the annual accounts pursuant to applicable rules and regulations, including accounting standards, promulgated from time to time.

• Evaluate and propose incentive compensation plans and equity based plans for the company and any subsidiaries.

Further details on the committee’s duties and responsibilities are included in the instructions to the remuneration committee approved by the Board. The Board has appointed board members Birgitte Ringstad Vartdal and Per Wullf as members of the remuneration committee.

Audit committeeSevan has an audit committee appointed by the Board as set out in the Norwegian Public Limited Liability Companies Act. The audit committee is appointed by the Board to assist the Board in fulfilling its obligations and responsibilities in respect to financial reporting, auditing and internal control in accord-ance with section 6-42 and 6-43 of the Norwegian Public Limited Liability Companies Act. The Board has appointed board members Kristian Johansen and Benedicte Schilbred Fasmer to represent the Board in the audit committee.

The audit committee will not make any decisions on behalf of the Board, but will present its assessment and recommenda-tions to the Board. The Board has approved instructions to the audit committee. The Board may also appoint other sub-committees, as deemed necessary or appropriate.

The Board`s evaluation of its own workThe Board carries out an annual evaluation of its own perfor-mance, working arrangements and competence. The Chairman of the Board prepares a report on this evaluation, which is made available to the nomination committee.

10. RISK MANAGEMENT AND INTERNAL CONTROLThe Board shall seek to ensure that the company has sound internal control and systems for risk management that are appropriate in relation to the extent and nature of Sevan’s activities.

The Board shall ensure that the company’s internal control comprises guidelines, processes, duties, conducts and other matters that:• facilitate targeted and effective operational arrangements for

the company and also make it possible to manage commer-cial risk, operational risk, financial risk, the risk of breaching applicable legislation and regulations as well as all other forms of risk that may be material for achieving Sevan’s commercial objectives;

• contribute to ensuring the quality of internal and external reporting; and

• contribute to ensuring that Sevan operates in accordance with the relevant legislation and regulations as well as with its internal guidelines for its activities, including the company’s ethical guidelines and corporate values.

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When separate guidelines for CSR are established, these will also be included in the company’s systems.

One of the responsibilities of the audit committee is to assist the Board in fulfilling its obligations and responsibilities with regard to internal control.

The Board shall form its own opinion on Sevan’s internal controls, based on the information presented to the Board. Reporting by executive management to the Board shall be prepared in a format which gives a balanced presentation of all risks of material significance, and of how the internal control system handles these risks.

The Board has approved routines for internal control and risk management. The objective for Sevan’s risk management and internal control is to manage, rather than eliminate exposure to risks related to the successful conduct of business and to support the quality of its financial reporting. Effective risk management and good internal control contribute to securing shareholders’ investment in the company and it’s assets.

Financial riskSevan uses forward contracts to some extent to manage the foreign exchange risk arising from future commercial transactions and recognised assets and liabilities.

Changes to the price level of goods and services acquired may affect Sevan; therefore price developments are carefully monitored. Sevan seeks to handle this risk through contract clauses with its customers.

Credit risk related to counterparties on trading in derivative financial instruments is handled by restricting to banks and financial institutions with a high rating.

The objective is to maintain flexibility of financing, by providing sufficient withdrawal facilities when managing liquidity. This includes maintaining sufficient cash and market-able securities, the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions.

Annual review of internal control by the BoardThe Board shall carry out an annual review of the most impor-tant areas of exposure to risk and its internal control arrange-ments, and provide an account in the annual report of the main features of Sevan’s internal control and risk management systems as they relate to financial reporting.

Sevan has an audit committee. Within risk management and internal control, the committee’s duties and responsibilities include; • Monitoring the financial reporting process, focusing on the

following main areas: – Changes in accounting principles – Critical accounting estimates or judgments – Material adjustments to the accounts requested or suggested by the statutory auditor – Areas where there is a difference of opinion between the management and the statutory auditor• Monitoring the effectiveness of the financial reporting

processes, internal control, and internal audit where applicable, and risk management systems.

• Monitoring the statutory audit of the annual accounts.• Establishing and evaluating procedures for the correct

handling and registering of complaints relating to financial reporting, accounting, internal control and statutory audit.

11. REMUNERATION OF THE BOARD OF DIRECTORSThe general meeting annually determines the Board’s remu-neration, based on proposal by the nomination committee. Remuneration of board members shall be reasonable and based on the Board’s responsibilities, work, time invested and the complexity of the enterprise. The compensation shall be a fixed annual amount. The Chairman of the Board may receive a higher compensation than the other members. The Board shall be informed if individual board members perform other tasks for Sevan than exercising their role as board members. Work in sub-committees may be compensated in addition to the remuneration received for board membership.

Sevan’s annual accounts provide information about the Board’s compensation.

12. REMUNERATION OF EXECUTIVE PERSONNELThe Board has approved a policy for the remuneration of the CEO and other executive personnel. The Board decides the salary and other compensation to the CEO, however so that any compensation linked to the value of the company’s shares shall be approved by the general meeting in accordance with the Norwegian Public Limited Companies Act. The CEO’s salary and bonus shall be determined on the basis of an evaluation with emphasis on the following factors: financial results, busi-ness development, employee and customer satisfaction. Any fringe benefits shall be in line with market practice, and should not be substantial in relation to the CEO’s basic salary.

The performance related remuneration is subject to an absolute limit. This is further described in Sevan’s compensation policy.

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Share option schemeThe management incentive program includes a share option scheme, where granted options will have a 3 year vesting period and 10 year duration. The strike price has been set at the average closing price over the 3 days preceding the granting of the options. The value of the options will be dependent solely on the share price.

The Board annually carries out an assessment of the salary and other remuneration to the CEO.

ReportingSevan’s annual accounts provide information about salary and other compensation to the CEO and the executive manage-ment team.

The CEO determines the remuneration of executive employees based on guidelines for the remuneration prepared by the Board through the remuneration committee. The guidelines lay down the main principles for the company’s management remuneration policy. The salary levels should not be of a size that could harm the company’s reputation, or above the norm in comparable companies. The salary levels should, however, ensure that Sevan can attract and retain executive employees with the desired expertise and experience.

13. INFORMATION AND COMMUNICATIONSSevan maintains a proactive dialogue with analysts, inves-tors and other stakeholders of the company. Sevan strives to continuously publish relevant information to the market in a timely, effective and non-discriminatory manner, and has a clear goal to attract both Norwegian and foreign investors and to promote higher stock liquidity.

All stock exchange announcements are made available on the Oslo Børs website, www.newsweb.no, as well as on the Sevan’s website, www.sevandrilling.com. The announcements are also distributed to news agencies and other online services through Thomson Reuters.

Financial reportsSevan publishes its preliminary annual accounts by the end of February and the complete annual report, including approved and final annual accounts and the Board of Directors report, is available no later than 30 April each year as required by the Securities Trading Act.

Sevan’s financial calendar for the coming year is published as a stock exchange announcement and made available on the website no later than 31 December each year, in accordance with the continuing obligations for companies listed on Oslo Børs.

Other market informationSevan held open presentations in connection with the publication of the quarterly results. The presentations are webcasted for the benefit of investors who are not able to attend the presentations. Following the management agree-ments with Seadrill., the quarterly presentations are aligned with the quarterly presentations of Seadrill, starting with the presentation of fourth quarter 2013. At the presentations, the executive management reviews and comments on the published results, market conditions and future prospects.

Dialogue with shareholdersSevan’s management gives high priority to communication with the investor market. Individual meetings are organised for major investors, investment managers and analysts. Sevan also attends investor conferences.

The Board has issued guidelines for the investor relations function, including authorised spokespersons.

14. TAKE-OVERSThe Board has established guiding principles for how it will act in event of a take-over bid. It sets out that the Board will• seek to follow a general principle of equal treatment and help to ensure equal treatment of all shareholders;• seek to ensure that business activities are not disrupted

unnecessarily;• seek to ensure that shareholders are given sufficient information and time to form a view of any take-over bid; • not unjustly seek to prevent any take-over bid, unless this is

believed to be in the interests of Sevan and the shareholders; • in due course issue a statement on the take-over bid in

accordance with statutory requirements and applicable Norwegian corporate governance recommendations; and

• consider and, if deemed necessary or purposeful, arrange for a valuation of the take-over bid by an independent expert, the conclusion of which will be made available to shareholders.

Any transaction that is in effect a disposal of Sevan’s activities will be sought submitted to the general meeting for approval.

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15. AUDITORSevan is audited by PricewaterhouseCoopers in Stavanger, Norway.

Each year the auditor presents a plan to the Board for the audit work and confirms that the auditor satisfies established requirements as to independence and objectivity.

The auditor can be present at Board meetings where the annual accounts are on the agenda. Whenever necessary, the Board shall meet with the auditor to review the auditor’s view on the accounting principles, risk areas, internal control routines etc.

The use of the auditor as a financial advisor should be sought limited to cases where such use of the auditor does not have the ability to affect or question the auditors’ independence and

objectiveness as auditor for Sevan. Only the company’s CEO shall have the authority to enter into agreements in respect of such counselling assignments.

At the annual general meeting, the Board shall present a review of the auditor’s compensation as paid for auditory work required by law and remuneration associated with other assignments.

In connection with the auditor’s presentation to the Board of the annual work plan, the Board should specifically consider if the auditor to a satisfactory degree also carries out a control function.

The Board shall arrange for the auditor to attend general meetings as and where appropriate.

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Confidence in Sevan is essential for continuing competitiveness, and Sevan aims to maintain high ethical standards in its operations and in relation to its stakeholders. Being socially responsible is part of Sevan’s business. The Board has defined Sevan’s values and adopted ethical guidelines applicable to all employees. However, the Board has not established separate guidelines for corporate social responsibility.

HEALTH, SAFETY AND ENVIRONMENTSevan’s core business principles involve ensuring the health and safety of employees and taking care of the environment. Sevan strives for a working environment which provides job satisfaction and good health conditions, by aiming for a safe and inspiring working environment characterized by mutual respect and cooperation.

Sevan’s operations are subject to numerous laws and regu-lations in the form of international treaties and maritime regimes, flag state requirements, and national environmental laws and regulations in force in the jurisdictions in which our drilling units operate or are registered.

Sevan has conformed its policies for compliance with these laws and regulations with the Seadrill policies and procedures for health, safety and the environment. The basic fundamentals of safety performance at Seadrill are based on continuous improvement through proactive initiatives in four key areas: safety leadership, risk assessment and hazard recognition, management system and auditing and control. Seadrill has laid down a series of procedures in its management system to contribute to keeping the environment as clean as possible. Emergency response plans have been established to limit harm to the environment in the case of accidental emissions. Sevan reviews the performance of the management system daily and at regular intervals as defined in the management agreements with Seadrill.

Sevan strives for a working environment that provides job satisfaction and good health conditions, by aiming for a safe and inspiring working environment characterized by mutual respect and cooperation.

Sevan Drilling had 27 incidents in 2013, of which 1 loss time incidents occurred onboard our operating units. Total Recordable Injury Rate (TRIR) amounted to 0.23 for 2013, which is under the South American average of 0.85.

Sevan rigs have an environmentally friendly profile and works continuously to minimize and reduce the environmental impacts of its operations. However, its operations involve activities that entail potential risks to the external environment.

EMPLOYMENT AND LABOUR PRACTICESSevan makes efforts to ensure all employees are given equal opportunities for personal and professional development, and that everyone is treated equally regardless of gender, age, ethnic origin and functional ability. Sevan does not tolerate harassment or victimization of another employee or colleague, whether sexual, racial or otherwise.

The Board and Management continue to focus on equal opportunities for men and women among its employees and board members. 10 percent of the employees in the Group are women. Two of five board members are women.

Currently, Sevan has not implemented any specific measures in order to meet the objectives of the Discrimination Act and of the Anti-discrimination and Accessibility Act. The need for specific measures in this respect is continuously considered by the Board and Management.

HUMAN RIGHTSSevan will carry out its business without any violation of basic human rights. Operations are carried out in accordance with internationally recognized human rights standards. Sevan supports the UN’s Universal Declaration of Human Rights and its work to end forced labour, discrimination and child labour.

ANTI-CORRUPTION Sevan rejects all forms of corruption, and will maintain high standards of integrity and seek to identify and eliminate all facilitation payments, enhancing transparency in all business transactions. If anyone is in doubt, it is all employees’ obli-gation to elevate the ethical dilemma to their supervisor or manager.

In November 2013, the Board aligned its anti-bribery and corruption compliance manual with Seadrill, which further expanded Sevan’s governance.

At least once a year a risk assessment shall be conducted and the results shall be communicated to the Board of Sevan. As the manual was updated in November 2013, the first time this will be conducted is in 2014.

CORPORATE SOCIAL RESPONSIBILITY

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REMUNERATION AND BENEFITS

REMUNERATION AND BENEFITS OF THE BOARD OF DIRECTORSApproval of Director remuneration will be subject to approval on the 2013 annual general meeting of Sevan. No members of the Board are entitled to severance pay or other benefi ts upon termination of their terms.

REMUNERATION AND BENEFITS OF THE MEMBERS OF THE SENIOR MANAGEMENTTh e current CEO and senior management currently receive a fi xed base salary. Members of senior management, except the CEO, have resigned eff ective 31 March 2014 and accepted the severance per contract terms.

Th e Group has established a long-term incentive scheme to allow for grants of share options to certain management members and other employees, based on a share authorisation

granted to the Board in the extraordinary general meeting on 9 January 2012. Th e key terms of the scheme include: (i) a one-off grant of share options will be made to eligible employees; (ii) the options will have a 3 year vesting period; (iii) the plan will be reviewed aft er 3 years; (iv) vesting will not be subject to any further performance conditions however options contain an inherent requirement to increase the share price (vesting will, however, be subject to continued employ-ment with the company), (v) Th e option price is the market value at the date of grant based on the average closing price of the 3 preceding dealing days, and (vi) in the event of a change of control of the company unvested options will vest.

As of this date an option program comprising a total of 9,738,326 options has been issued. Each of the options entitles the holder to subscribe for one new ordinary share of the company or cash settlement, at an exercise price per share of NOK 5.75 (market price at the time of grant).

Th e grant levels as of 31 December 2012 are shown below:

NUMBER OF INCUMBENTS ROLE IN THE COMPANY NUMBER OF OPTIONS TOTAL NUMBER OF OPTIONS

1 Chief Executive Offi cer 1,600,000 1,600,0001 Chief Financial Offi cer 1,100,000 1,100,0006 Management Group 500,000 2,249,99936 Line Management 170,000 4,788,327

Total 45 9,783,326

As of 31 December 2013, the last balance sheet date, the company or its subsidiaries had not set aside or accrued any amounts for pensions, retirement or similar benefi ts, except from what is specifi ed in note 13.








Scott McReaken

OUR RESULTS74

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Sevan Drilling - OsloTordenskioldsgate 60160 OsloNorway

E-mail: [email protected]

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Mobile: +47 91 19 46 51E-mail: [email protected]

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