Report 2012 SEVAN DRILLER

Transcription

1 Annual Report 2012 SEVAN DRILLER

2 2 OVERVIEW Content Overview 04 Year in brief 06 This is Sevan Drilling 08 Letter from the CEO Our Business 10 Business and market description 12 Products and technology 14 QHSE and operational excellence 16 Cosco shipyard and Sevan Drilling Organisation 18 The Board of Directors 20 The Management Team Our results 22 Board of Directors report Responsibility statement 32 Financial statement 36 Notes to the financial statement 63 Financial statement Sevan Drilling ASA 67 Notes to Sevan Drilling ASA 76 Auditor s report 78 Corporate governance 85 Remuneration and benefits 86 Terms and definitions 87 Office locations

3 OVERVIEW 3 Sevan Drilling at a glance Sevan Drilling is an international offshore drilling contractor specialising in the ultra deepwater segment. Sevan Drilling owns rigs of a unique and proprietary cylindrical design which are among the world s most advanced, robust and state-of-the-art ultra deepwater drilling units. Sevan Drilling has since June 2010 had the ultra deepwater unit Sevan Driller in drilling operations for Petrobras off the coast of Brazil. Sevan Drilling has since July 2012 had an additional unit Sevan Brasil in operation for Petrobras off the coast of Brazil. Sevan Drilling has currently two more ultra deepwater rigs under construction for delivery in fourth quarter 2013 and second quarter 2014, respectively. Sevan Drilling also has options for two additional rigs, Sevan Drilling Rig 5 and Sevan Drilling Rig 6. The due date for exercise of the options has been extended to end of June Sevan Drilling s vision is to take advantage of the unique design to capture a significant share of global deepwater market.

4 4 OVERVIEW Important events in 2012 An extraordinary general meeting in January appointed three new Board members, Erling Lind (chairman), Per Wullf and Kristian Johansen. Later in January, an incident occurred on Sevan Driller when replacing the wash pipe during routine maintenance. There were no injuries or environ mental damages related to the incident. The rig was out of operations approximately 17 days. On 13 February Sevan Drilling transferred its listing from Oslo Axess to Oslo Børs. On 6 March Sevan Brasil departed China on the heavy lift vessel Mighty Servant I. In April, a leak was found in the control line during a pressure test of the blowout preventer on Sevan Driller, resulting in downtime of approximately seven days. At the annual general meeting in May, Benedicte Schilbred Fasmer was appointed as a new member of the Board of Directors, replacing Anne Breive. Sevan Drilling held in June an investor update (capital markets day) in Oslo. The agenda covered a strategic, market and financial update in addition to in depth presentations of Sevan Drilling s ultra deepwater operations. On 24 July Sevan Brasil completed the acceptance testing and commenced work under its six year contract with Petrobras in Brazil. At the end of the second quarter Sevan Drilling experienced a temporary breach with one of the covenants in a bank loan agreement due to costs associated with mobilisation of Sevan Brasil. In September Sevan Drilling received USD 45 million from Petrobras which referred to reimbursement of mobilisation fee and importation tax, which brought the company out of breach with the above mentioned covenant. Sevan Brasil experienced problems in connection with testing of the blowout preventer in late September. The rig received a day rate corresponding to 80 percent of the contract value until testing was completed 16 November. On 29 December Sevan Driller commenced maintenance and completed the threeyear compulsory marine hull survey. The work took in total 25 days and Sevan Drilling received 90 percent of the day rate for 20 days.

5 OVERVIEW 5 Key figures 7, % All Sevan Drilling units are classified for drilling in ultra deepwater, specifying water depths greater than 7,500 feet. Sevan Driller and Sevan Brasil are in operation. Sevan Drilling Rig 3 and Sevan Drilling Rig 4 are under construction, and the company has options for construction of another two ultra deepwater drilling rigs. Average technical uptime for Sevan Driller and Sevan Brasil in second half of Figures in USD million Operating income Operating expenses EBITDA Depreciation, amortisation and impairment Operating profit / (loss) Financial income/(expense) Foreign exchange gain /(loss) Net financial items Profit/(loss) before tax Tax income/(expense) Net profit/(loss) EBITDA margin 31.4% 28.9% Operating margin 6.6% 7.3% Equity share 38.5% 42.0% Earnings per share Unit built region client Sevan Driller 2009 Brazil Petrobas Sevan Brasil 2012 Brazil Petrobas Sevan Louisiana 2013 Gulf of Mexico LLOG Sevan Drilling Rig Firm contract period Construction period

6 6 OVERVIEW This is Sevan Drilling Sevan Drilling is an international drilling contractor specialising in the ultra deepwater (UDW) segment. The company owns and operates two rigs of the Sevan Cylindrical Drilling Unit Design. Both rigs have long term charter contracts in Brazil. Sevan Drilling owns and operates Sevan Driller, which is one of the world s most advanced, robust and state-of-the-art ultra deepwater drilling units. Sevan Driller is of the Sevan Cylindrical Drilling Unit Design, and built for safe and efficient year-round operations in ultra deepwaters worldwide. Sevan Driller has since June 2010 been operating off the coast of Brazil under a six-year charter contract with Brazilian oil company Petrobras. The second unit - Sevan Brasil - left the Cosco shipyard on 10 January 2012 to commence thruster installation and sea trials. On 6 March 2012 the rig departed China, and arrived in Rio De Janeiro in Brazil on 29 April On 24 July 2012 the rig commenced its six-year contract with Petrobras. Sevan Brasil is also an ultra deepwater drilling unit of the Sevan Cylindrical Drilling Unit Design Sevan Drilling has also ordered two additional newbuilds expected for delivery in fourth quarter 2013 and second quarter 2014, and has options for additional two rigs for delivery in 2014 and Sevan Drilling has an experienced management team and operating organisation which is well positioned for further growth. The company has robust financing in 2013, at attractive terms, and solid contract coverage and cash flows. The four high-end UDW rigs have a unique and cost effective design, and are built for safe and efficient operations in ultra deepwater worldwide including Brazil, West Africa and the US Gulf of Mexico. Sevan Drilling has a perpetual license with Sevan Marine for use of the Sevan design for drilling purposes. Long experience and strong focus on operating excellence and quality, health, safety and environment (QHSE) characterise both the management and the operating organisation, which comprises 463 employees based in Brazil, Singapore, Norway and China. Sevan Drilling has identified the following key strategic objectives in order to fulfil its ambition of being recognised as a world class and fully integrated drilling contractor, owning and operating drilling units:

7 Recruit, develop and train an international workforce to deliver premium quality services throughout our organisation. Further enhance our existing design to extend the operating capabilities of our rigs to meet expected market demand. Build strong, long term, relationships with key suppliers and construction yards and continuously improve project execution to capture cost benefits of building and operating our rigs. Deliver best in class QHSE performance by building a company culture where we take responsibility for each other s wellbeing, the operation of our equipment and our impact on the environment. Deliver continuous improvement in operations focusing on providing efficient and cost effective solutions to client needs. Deliver an excellent return to our shareholders by providing a valuable service to our customers and the communities where we operate. OVERVIEW 7

8 8 OVERVIEW Letter from the CEO Stronger and wiser Despite a challenging year where a serious rig incident weighed on our business, I am confident that Sevan Drilling has a more solid foundation for growth than one year ago. The year 2012 turned out to be more challenging than we anticipated. However, after the start-up phase of our second drilling rig and intense refinancing activity throughout the fall, finalised in 2013, Sevan Drilling has today a stronger balance sheet and much more flexibility in our loan agreements. This allows us to focus on operational excellence in Brazil and marketing of the remaining newbuild in Doubling of fleet base Sevan Brasil left the Cosco shipyard in China in January and arrived in Rio de Janeiro in Brazil at the end of April. The rig was accepted by Petrobras on 24 July, and moved to its location. By the beginning of the second half of 2012, Sevan Drilling had doubled the fleet base and we were set for a substantial increase in operational cash flow. During testing of the blowout preventer (BOP) on Sevan Brasil in September a human error unfortunately caused problems with the BOP control system. Consequently, the BOP had to be pulled to the surface and sent ashore for repair, causing several weeks of off-hire for our new rig. This placed substantial financial strain on the company. I am obviously not pleased with the position that Sevan Drilling was put in. But I am satisfied with the way we handled the challenges. We put in all our effort to control the damage to the company and through a very positive dialogue with Petrobras we succeeded in getting the rig into alternative operations while waiting for the repaired BOP. In addition, the incident kick started one important process; the strengthening of our Brazil operations. A fresh start in Brazil Coming together is a beginning, staying together is progress, and working together is success, a wise man once said. Sevan Drilling is putting a lot of effort in improving the way we work together. On 1 February 2013 we put a new and experienced country manager in place in Brazil. The mandate is to gain much tighter control on day-to-day operations and improve work processes. The first step in Brazil will be to simplify, remove split responsibilities and improve processes and procedures. In the next step we will build a more cohesive operational group by bringing in more local content. We will also need to work with training and issues related to spare parts. Eventually, we will need to use this step-by-step approach to drive efficiency.

9 OVERVIEW 9 We are building a foundation for a good operational environment in Brazil. The fact is that Sevan Driller today is a strong and steady performer and has been for most of 2012, while Sevan Brasil has experienced a technical uptime of 97 percent since the rig came back into operations. Maintaining high operational uptime for both Sevan Driller and Sevan Brasil is job number 1 for us going forward. A stronger outlook Throughout the fall of 2012 we worked continuously with the banks and lending institutions on the financial structure of the company, and the process culminated with the announcement at the start of the year of a successful private placement of NOK million and a set of renegotiated loan agreements. Our outlook has improved quite a bit over the past few months. We have a much more solid foundation for growth. We have a series of loans that are more closely linked to our actual operation. And we are through the startup phase of our first two rigs. With the new management in Brazil in place this allows us to focus on operational excellence there. We have signed a threeyear charter contract for our third rig which will initiate operations in the Gulf of Mexico. We need to market our fourth rig, knowing that the completion of the construction of both our newbuilds at Cosco is well underway at cost and on time. On the back of that we will be looking at the financing structure and how to fund the growth of the company going forward. There are challenges ahead of us. I think we have delivered significant progress, but we have more to go. I am really looking forward to the next milestones in 2013 and beyond. Scott Kerr, CEO Sevan Drilling

10 10 OUR BUSINESS Business and market description

11 OUR BUSINESS 11 Sevan Drilling is a fully integrated ultra deepwater drilling contractor, owning two of the world s most advanced drilling units; Sevan Driller and Sevan Brasil. In addition, the company has two identical units under construction, scheduled for delivery in fourth quarter 2013 and second quarter Another two units can be added to the portfolio during 2013 if Sevan Drilling decides to execute options before end of June All existing and potential semisubmersible drilling rigs are of Sevan Cylindrical Drilling Unit design, built for safe and efficient operations in ultra deepwaters worldwide including Brazil, West Africa and the US Gulf of Mexico. The design offers a particular advantage for drilling operations in ultra deepwater far away from existing infrastructure, due to its variable deck load capacity and internal storage capacity for bulk materials, including drilling fluids and chemicals. Sevan Driller has been in operation since June 2010, whereas Sevan Brasil commenced operations in July Both rigs are contracted to Petrobras on six-year drilling contracts for operations off the coast of Brazil. Sevan Driller has been operating at approximately 1,800 meters water depth in the Campos Basin and approximately 2,200 meters water depth in the Santos Basin. The deep and ultra deepwater energy sector, measured as water depths of greater than 1,500 metres, represents one of the major growth areas of the oil and gas industry today. High oil prices and the need for major operators to find additional reserves are driving the development of offshore oil and gas reserves. Well known deepwater markets like Brazil, West Africa and Gulf of Mexico are driving the development, but the Norwegian Continental Shelf and Asia Pacific are also providing good deepwater opportunities. The worldwide fleet of ultra deepwater and harsh environment drilling units, including the Sevan Driller and the Sevan Brasil, is currently estimated to consist of 122 units, according to data extracted from ODS Petrodata s Rig Base. An additional 57 ultra deepwater units are reported to be under construction or on order with delivery scheduled prior to end of 2016, which would bring the expected total fleet to 179 units by expiry of The strong growth in ultra deepwater units is due to the increased focus from oil companies on existing and new ultra deepwater regions for exploration and production, and the inability to upgrade or modify the existing mid-water fleet to undertake ultra deepwater and harsh environment drilling operations. Based on our strong relationship with Petrobras and thereby a good foothold in the Brazilian market, combined with our strong asset base, we believe that Sevan Drilling has a solid platform for growth in the ultra deepwater market. This is evident by our contract for Sevan Louisiana in the US Gulf of Mexico.

12 12 OUR BUSINESS Products and technology The cylindrically shaped Sevan units introduce a new concept to the offshore drilling industry compared with traditional semi-submersibles and drill ships. The rig 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: Rig design The cylindrical hull shape enables the vessels to respond accurately regardless of wind, waves and currents, thus allowing for optimised operations. Wind conditions and waves will therefore not affect operations due to the low pitch and roll motions of the vessel. Weather conditions with bi-directional waves and currents challenges the free range of movement in traditional drilling operations. The Sevan design enables drilling operations with minimum power consumption regardless of weather conditions. High variable deck load capacity With 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 construction The cylindrical hull is built by using traditional section building method based on prefabrication of large modules. The lower hull may be assembled on a slip way, in a dry dock or on a floating barge with final installment quayside. The main hull structure is constructed by using normal shipbuilding steel, and no special welding procedures are required. Storage The lower hull of the vessel can be 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 pool The drilling operation is executed through the center moon pool which provides for a protected environment for launch and recovery of the BOP and riser. The completely enclosed moon pool also protects the riser and allows the vessel to safely operate even in ice-infested areas.

13 OUR BUSINESS 13 SEVAN DRILLER Station keeping The Sevan UDW rigs are equipped with dynamic positioning system in accordance with class 3 requirements. This system keeps their accurate position by controlling eight azimuth thrusters. For operations in shallow waters or in areas with ice, a conventional mooring system may be installed in combination with the dynamic positioning system. The design is ideally suited for operations in deepwater drilling markets such as Brazil, Gulf of Mexico, West Africa and South East Asia. Simple and robust vessel construction enables a relatively lower building cost than traditional rig design. In addition to the mentioned advantages from the concept, this provides Sevan Drilling with a competitive edge. Drilling packages and other marine equipment are provided by leading offshore rig suppliers. Thus, with the exception of the thrusters and risers on Sevan Drilling Rig 3 and Sevan Drilling Rig 4, the equipment specification is the same for all the rigs in Sevan Drilling s fleet. This allows Sevan Drilling to simplify training requirements and optimise spare parts for the fleet. The design is not optimised for operations in harsh environments such as the North Sea. The rig design may be further developed for special operations in the future. Requirements for development drilling with large available deck space may be further improved by increasing the utilised areas in lower hulls for riser storage and marine equipment. For long term infield operations the vessel may be arranged with permanent mooring system, reducing fuel consumption and emissions. The design may also be easily modified for operations in Arctic areas. The enclosed moon pool which protects the riser, and the fact that the vessels do not need to change heading as the ice flow direction changes, makes the concept ideally suited for Arctic operations. Ice strengthening of hull and general platform winterisation may easily be implemented. Sevan Drilling has the right to utilise the Sevan design for drilling rigs in perpetuity, against a royalty payment to Sevan Marine ASA.

14 14 OUR BUSINESS QHSE and operational excellence The long-term business success of Sevan Drilling depends on our ability to continually improve the quality of our services and products while protecting people and the environment. Our ambition is to deliver best in class QHSE performance by building a company culture where we take responsibility for each other s wellbeing, the operation of our equipment and our impact on the environment. Sevan Drilling believes that all incidents and accidents that cause personal injury or environmental damages can be prevented. We strive to achieve zero incidents and zero accidents by developing a culture where all employees take responsibility for their own safety, for the safety of their co-workers, for the process safety and to protect the environment. We endeavour to ensure that all employees report all unsafe activity or conditions and stop activities until appropriate risk measures are in place. Sevan Drilling has established a QHSE management system with participation from the employees, ensuring acknowledgement and commitment. The following key QHSE principles apply: Health: Sevan Drilling shall evaluate and mitigate the risks to reduce the hazards at work places to an acceptable level. Occupational health for our employees shall be monitored. Safety: Sevan Drilling shall manage activities based on the company s own, the regulators and the clients standards. The company shall focus on the communication and implementation of these standards. Environment: Sevan Drilling shall protect the environment and minimise the amount and effect of discharges, emissions and waste disposals from the company s operating facilities. Quality Management: Sevan Drilling shall fulfil the customers needs and expectations and make commitments that the company fully understands. Continuous improvement: Sevan Drilling shall verify that the operations meet agreed requirements: monitor and continuously improve these operations and the organisation s performance.

15 OUR BUSINESS 15 Risk Management: Risk assessments are carried out using competent personnel, recognised tools and methodology. Focus is given by a correct approach to the different assessments performed. Compliance: Sevan Drilling shall comply with HSE legal requirements and other requirements applicable to the company s operations. In a very competitive ultra deepwater drilling industry, operational excellence is not an option; it is essential to the Sevan Drilling business success. Our system for obtaining operational excellence provides Sevan Drilling with the benefits of lower costs, increased efficiencies, fewer injuries, maximum sustainable returns on operating assets, and an enhanced competitive position. The Brazilian continental shelf is one of the fastest growing ultra deepwater markets in the world. This market requires high standards with respect to personnel, equipment, QHSE and operational procedures, and Sevan Drilling has successfully proven its drilling concept and operations setup to Petrobras. Since the start-up of Sevan Drilling s first producing asset the Sevan Driller for Petrobras in June 2010, the rig has been subject to Petrobras rating system called B.A.D. Sonda. This is a monthly review of all third party rigs. Based on a number of criteria such as safety, technical performance, competence of the crew etc. the contractor is awarded a rating on a scale from 0 to 10 where 10 is top score. Average is around 8. Sevan Driller has consistently received a score well above the average in the B.A.D. Sonda rating system, and accomplished an average rating of 9.5 in fourth quarter Sevan Brasil has been subject to Petrobras rating system since the rig was accepted by Petrobras in July Sevan Brasil has received high score well above the average and accomplished an average rating of 9 in fourth quarter 2012.

16 16 OUR BUSINESS Partnership for growth Cosco shipyard and Sevan Drilling

17 OUR BUSINESS 17 The Sevan Cylindrical Drilling Unit Design represents one of the world s most advanced, robust and state-of-the-art ultra deepwater drilling units. Selecting the right shipyard for construction has thus been of high importance with a view to develop a relationship to establish Sevan Drilling as the preferred partner and to minimise execution risk for new builds through selecting well-recognised yards. On these criteria the cooperation with Cosco has been very successful. Cosco Shipyard, founded in 2001, is a subsidiary of China Ocean Shipping Company (Cosco), a group with a total dock capacity of 1.85 million tonnes spread across several shipyards in China. Cosco is a well-established shipyard with a solid track record in the construction of a wide range of offshore drilling vessels for domestic and international markets. The two rigs delivered so far have both been built at the Cosco (Qidong) Nantong Shipyard in the Yangtze River Delta region. Sevan Driller was delivered in November 2009 and Sevan Brasil in January Two additional rigs, Sevan Drilling Rig 3 and Sevan Drilling Rig 4 are both under construction at the same yard for delivery in fourth quarter 2013 and second quarter 2014, respectively. Sevan Drilling has also options for building Sevan Drilling Rig 5 and Sevan Drilling Rig 6. There are significant advantages in using the same design with the same shipyard. Sevan Drilling has through the construction periods built a strong collaborative relationship with Cosco. Significant improvements in the construction process have been made in the construction of the Sevan Brasil compared to the Sevan Driller, and the trend continues with the construction of the current rigs. This joint learning enables an efficient construction, continuous technical improvements, and rigs that are delivered on time and on budget. In addition, the long-term commitment with Cosco has enabled Sevan Drilling to be allocated sufficient shipyard capacity. Sevan Drilling has options on the construction of Sevan Drilling Rig 5 and Sevan Drilling Rig 6 for delivery in fourth quarter 2014 and second quarter 2015, respectively. During 2012 the maturity dates of these options was moved from 10 December 2012 to end of June 2013 for both rigs. Sevan Drilling remains very satisfied with Cosco. The shipyard has displayed its technical competence, its ability to deliver quality rigs on time and on budget, and willingness to invest time and resources with the client.

18 18 ORGANISATION THE Board of directors Erling Lind Chairman Erling Lind is a Norwegian citizen and he has a law degree from the University of Oslo. Mr. Lind is a partner at Wiersholm, an Oslo based leading law firm. Mr. Lind acts as external legal counsel to Seadrill Ltd. Mr. Lind is ranked amongst Norway s most prominent lawyers in his fields of expertise. Mr. Lind has served as a member of the board since January Mr. Lind does not hold any shares in Sevan Drilling. Kitty Hall Deputy chairman Kitty Hall is a British citizen and she has a BSc in Geology from University of Leeds and an MSc in Stratigraphy from the University of London. Ms. Hall has over 30 years experience in the exploration industry. She has been a board member of Sevan Drilling since May 2011, of Seabird Exploration since May 2012, and was previously a board member of Polarcus Ms. Hall holds 62,900 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. She is currently Head of Business Development and Capital Markets in Argentum. She has previously been Head of the Capital Markets Division in Sparebanken Vest, Finance Director at Rieber & Søn and has more than 20 years experience from the financial sector in companies such as Citibank International, Paal Wilson Management and Pareto Securities. Ms. Fasmer has served as a member of the board since May She has had several board positions, and currently serves on Oslo Børs VPS Holding / Oslo Børs and Frydenbø Industri. Previous positions include e.g. Eksportkreditt, Vesta Forsikring and Verdipapirforetakenes Sikringsfond. Ms. Fasmer does not hold any shares in Sevan Drilling.

19 ORGANISATION 19 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 Mr. Johansen holds 17,000 shares in Sevan Drilling. Per Wullf Board member Per Wullf is a Danish citizen and he is COO of Seadrill Ltd. He has some 30 years of experience from the drilling industry. Mr. Wullf s extensive experience includes 11 years of international offshore operations and 17 years onshore. Mr. Wullf has served as a member of the board since January Mr. Wullf does not hold any shares in Sevan Drilling.

20 20 ORGANISATION THE Management TEAM Scott I. Kerr (1957), CEO Scott Kerr has been the CEO of Sevan Drilling since June Mr. Kerr is a US citizen, and he holds a BSc in Petroleum Engineering from University of Wyoming and has previous experience from Noreco, BP and ARCO. He has been in the oil business for about 30 years. Mr. Kerr currently holds 873,300 shares in Sevan Drilling and has options to subscribe for additional 1,600,000 new shares.* Jon H. Wilmann (1961), CFO Jon H. Wilmann has been the CFO since the incorporation of Sevan Drilling. He is a Norwegian citizen and holds an MBA from Norwegian School of Economics and Administration (NHH) in Bergen from Mr. Wilmann has previous experience from various positions in oil and finance. Mr. Wilmann currently holds 311,988 shares in Sevan Drilling and has options to subscribe for additional 1,100,000 new shares.* Bjørn Egil Gustavsen (1968), VP Projects Bjørn Egil Gustavsen holds a BSc Electronics from Agder University. He is a Norwegian citizen and has experience from various management positions within project engineering. Mr. Gustavsen currently holds 26,388 shares in Sevan Drilling and has options to subscribe for additional 500,000 new shares.* Pascal Busch (1961), VP QHSE Pascal Busch holds a Nautical Science License from the Nautical College in Antwerpen. He is a Belgian citizen and has 29 years of experience from the shipping and offshore industry in various operational and management positions. Mr. Busch currently holds 40,388 shares in Sevan Drilling and has options to subscribe for additional 500,000 new shares.*

21 ORGANISATION 21 Paul Grimen (1953), Operational Advisor Paul Grimen is a Norwegian citizen, he is electrically certified from the Bergen Technical School and certified from the Arendal Maritime School for work on all electrical equipment for offshore and maritime shipping. Mr. Grimen has more than 30 years of experience from the offshore industry in various operational and management positions worldwide. Mr. Grimen currently holds 51,388 shares in Sevan Drilling, and has options to subscribe for additional 500,000 new shares.* GILBERTO G. CARDARELLI (1956), VP operations/brazil Country Manager Gilberto G. Cardarelli joined Sevan Drilling in Mr. Cardarelli is a Brazilian citizen. He has 28 years of experience from the offshore industry in various operational and commercial management positions with Transocean and Odebrecht, and 3 years of experience from the onshore drilling operations with Enterpa Drilling. Mr. Cardarelli holds a BA in Metallurgical Engineering from UMC University, a MA in Drilling Engineering from IPT and a MBA in Oil Industry from COPPE-UFRJ. Mr. Cardarelli currently holds no shares in Sevan Drilling. Eileen Aspehaug (1970), VP HR Ms. Aspehaug is an Irish citizen, and holds a BA in Economics from University College Cork, Ireland and in 2005 completed a Master of Management program in Human Resource Management from BI, Oslo. She has many years of HR experience from both Norske Skog and REC. Ms. Aspehaug currently holds 12,700 shares in Sevan Drilling, and has options to subscribe for 500,000 new shares.* * Subject to certain terms and conditions (including vesting periods). See note 13.

22 22 OUR RESULTS Board of Directors Report 2012 Highlights Sevan Drilling transferred its listing from Oslo Axess to Oslo Børs Start-up of Sevan Brasil operation on 24 July 2012 and doubling of fleet base Uptime for Sevan Brasil has been 96 percent since restarted operation after the BOP incident, while 96.5 percent in second half of 2012 for Sevan Driller Continuous work on refinancing throughout the fall culminated in an equity issue and debt restructuring in January 2013 leaving the company fully funded until delivery of Sevan Drilling Rig 3 The construction of Sevan Drilling Rigs 3 and 4 is well underway and both remain on track for delivery in the fourth quarter 2013 and second quarter 2014, respectively In the first quarter of 2013 a three-year charter contract was signed with LLOG Bluewater Holdings LLC for Sevan Drilling Rig 3 ( Sevan Louisiana ), for operation in the US Gulf of Mexico Four new Board members appointed; Erling Lind (Chairman), Per Wullf, Kristian Johansen and Benedicte Schilbred Fasmer. KEY EVENTS IN 2012 Sevan Drilling reached several milestones in On 24 July Sevan Brasil commenced work under its six-year drilling contract with Petrobras offshore Brazil. The rig will receive a base day rate of USD 393,000 based on current exchange rates and indexations levels, in addition to a bonus potential of up to 10 percent of the base day rate. Sevan Drilling experienced a temporary breach with one of the covenants in the bank loan agreement at the end of the second quarter due to costs associated with mobilisation of Sevan Brasil. In September, Sevan Drilling received USD 45 million from Petrobras which referred to reimbursement of mobilisation fee and importation tax, which consequently brought the company out of breach with covenants and re-classified the interest bearing bank debt from short term debt to long term debt. In January Oslo Børs approved transfer of the company from Oslo Axess to Oslo Børs proving its position in the drilling industry. Sevan Drilling experienced some smaller incidents with Sevan Driller last year. In January an incident occurred during routine maintenance when replacing the wash pipe. There were no injuries or environmental damages related to the incident. The rig was out of operations from 19 January to 4 February. In April, a leak was found in the control line during a routine pressure test of the BOP. The control line was replaced and the total downtime related to the incident was approximately seven days. Late September, Sevan Brasil experienced problems in connection with testing of the blowout preventer (BOP). The damage was such that it had to be pulled to surface and sent to the manufacturer for repair. As an alternative solution, the rig was used to drill the top hole section on a new well location at a day rate corresponding to 80 percent of the contract value. Testing of the BOP was completed and accepted by Petrobras 16 November, allowing the rig to be eligible for full day rate again.

23 OUR RESULTS 23 Sevan Driller experienced increasing performance in the ultra deepwater market offshore Brazil throughout On 29 December, Sevan Driller successfully completed the well it was drilling in the Santos Basin and moved to Guanabara Bay offshore Rio de Janeiro for maintenance on the dynamic positioning and electrical systems on the rig, and to complete the three-year compulsory marine hull survey. The maintenance and the marine hull survey took in total 25 days and Sevan Drilling received 90 percent of the contract day rate during 20 days of this period. ACTIVITIES The Sevan Drilling Group Sevan Drilling is a Norwegian public limited liability company. The company s head office is located in Oslo, Norway. Sevan Drilling also has offices in Arendal, Norway, in addition to operational subsidiaries in Rio de Janeiro, Brazil and Singapore, and a company in the UK. Several of Sevan Drilling s subsidiaries are Singaporean private companies with registered offices in Singapore. The Sevan Drilling Group comprises a parent company with certain management employees and the ownership of the rigs and operations of the group is carried out by a number of operating subsidiaries. All subsidiaries are wholly owned, directly or indirectly, by Sevan Drilling ASA. Operations Sevan Drilling is an international offshore drilling contractor specialising in the ultra deepwater segment. The company s vision is to take advantage of its unique cylindrical rig design to capture a significant share of the global deepwater market. Sevan Drilling is a fully integrated drilling contractor. The company owns two of the world s most advanced ultra deepwater drilling units Sevan Driller and Sevan Brasil each with a six-year charter contract with Petrobras in Brazil. Sevan Drilling has also two additional rigs under construction and options for two more units. All units are Sevan Cylindrical Unit Design, built for safe and efficient operations in ultra deepwater worldwide. The Sevan Driller has since June 2010 been in operation for Petrobras under a contract that will expire in June The rig receives a day rate of USD 413,000 based on current exchange rates and indexations levels. The charter contract also contains a bonus potential of up to 10 percent of the base day rate which is linked to the operational performance on a monthly basis. Part of the day rate is subject to annual escalation based on certain price indexes, as from the date of contract signature. As of February 2013, Sevan Drilling has estimated the remaining value of the charter contracts with Petrobras for Sevan Driller for the fixed term until June 2016 to approximately USD 545 million, including the bonus potential. Sevan Driller has demonstrated rapidly increasing performance during 2012 and the company has received good client feedback. Sevan Brasil departed China on the heavy lift vessel Mighty Servant I, 6 March In July, Sevan Brasil completed the acceptance testing and was accepted by Petrobras. The rig commenced work 24 July 2012 under its six-year drilling contract with Petrobras offshore Brazil. The rig will receive a base day rate of USD 393,000 based on current exchange rates and indexations levels. The charter contract also contains a bonus potential of up to 10 percent of the base day rate, which is linked to the operational performance on a monthly basis. Sevan Drilling has, as of February 2013, estimated the remaining value of the charter contracts with Petrobras for Sevan Brasil for the fixed term until July 2018 to approximately USD million including the bonus potential. The construction of Sevan Drilling Rig 3 is progressing according to plan and the rig remains on schedule for delivery in fourth quarter Overall progress per February 2013 was 70 percent completed towards delivery from Cosco. The drillfloor, derrick and living quarters were lifted and integrated to the main hull in November, and commissioning of the first systems started in first quarter All main equipment deliveries are on schedule. The construction of Sevan Drilling Rig 4 is also progressing according to plan and the rig remains on schedule for delivery in second quarter Overall progress per February 2013 was 56 percent completed towards delivery from Cosco. The main deck is lifted and integrated to the hull. Lifting of modules up to upper deck was completed in January Sevan Drilling has entered into all-in turn-key construction contracts with Cosco Shipyard, with a total contract value of USD 526 million per unit. A total of USD 55 million per rig will be paid to Sevan Drilling for project management and preoperational activities, whereas USD 27.5 million already has been paid. Furthermore, a USD 6 million in license fee paid to Sevan Marine per rig has been reimbursed by Cosco Shipyard.

24 24 OUR RESULTS For Sevan Drilling Rig 3 a USD million (20 percent of the total all-in turn-key contract price) has been paid to Cosco upon execution of the construction contract. The last payment milestones have been split into two parts, USD 394 million payable upon delivery in fourth quarter 2013 and USD 26.7 million has been deferred until second quarter 2014, at interest cost of 9 percent p.a. as from fourth quarter For Sevan Drilling Rig 4, a USD 52.6 million (10 percent of the total all-in turn-key contract price) has been paid to Cosco, while the same amount has been deferred until delivery of the rig, at interest costs of 9.5 percent p.a. The remaining 80 percent of the all-in turn-key contract price is due upon delivery of the unit in second quarter Sevan Drilling also has options for Sevan Drilling Rig 5 and Sevan Drilling Rig 6 with Cosco Shipyard. The contract value is USD 526 million per rig, with 20 percent of the total all-in turn-key contract price due for payment at execution of the option, and the remaining 80 percent due upon delivery. The rigs will be delivered 28 months after the options are exercised. THE FINANCIAL STATEMENTS Pursuant to Section 3-3a of the Norwegian Accounting Act, the Board of Directors confirm that the financial statements have been prepared under the assumption that the enterprise is a going concern and that this assumption was realistic at the date of the accounts. Sevan Drilling is in dialog with different lending institutions to establish post delivery financing for Sevan Drilling Rig 3 and Sevan Drilling Rig percent of the total turnkey contract price for Sevan Louisiana is due on delivery of the rig in fourth quarter 2013 and 90 percent of the total turnkey contract price for Sevan Drilling Rig 4 is due on delivery of the rig in second quarter The company is confident that good post delivery financing will be obtained for Sevan Louisiana and Sevan Drilling Rig 4. However, no guarantees can be given in this respect. 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. Income statement Consolidated revenue for the year was USD million (USD million in 2011). Operating profit was USD 11.4 million (USD 8.4 million). Net financial items were minus USD 42.4 million (minus USD 55.5 million). Loss before tax was USD 31.0 million (loss of USD 47.1 million). The net loss for the year was USD 11.7 million (loss of USD 48.9 million). The changes in the values from 2011 to 2012 are mainly related to increased activity, when Sevan Brasil started to generate revenues in the Sevan Drilling Group account from July Cash flow and liquidity Cash generated from operations was USD 52.1 million (USD 25.0 million). The difference between cash generated from operations and operating result is USD 40.7 million. The difference is mainly due to depreciations. The net cash flow from operating activities was USD 6.1 million (minus USD 3.6 million). The net cash flow from investing activities was minus 105 million (minus USD million). The net cash flow from financing activities amounted to minus USD 12.8 million (USD million). Cash and cash equivalents was USD 76.8 million at 31 December (USD million). See note 8 for further information. Balance sheet At 31 December 2012 total consolidated assets amounted to USD 1,719.7 million (USD 1,599.8 million per end 2011). The book value of the equity was USD million (USD million). Total liabilities were USD 1,057.3 million (USD million). Capital and financing In December 2010 commitment was secured for a USD 525 million senior debt project finance facility for Sevan Brasil with ING Bank N.V. ( ING ) as mandated lead arranger. The facility is structured as a limited recourse construction financing and is fully underwritten by ING, GIEK/Eksportfinans, PGGM (Dutch pension fund) and Sinosure. The facility completes the construction financing of Sevan Brasil and the first drawdown under the credit facility was made in February As per end 2012, USD million is drawn on the loan. In March 2011 commitment was secured for a USD 480 million senior debt project finance facility for Sevan Driller with ING Bank N.V. ( ING ) as mandated lead arranger. The facility is structured as a limited recourse construction financing and is fully underwritten by ING, DvB, NIBC, GIEK/Eksportfinans, China Development Bank, Natexis, Bank Itau and Deka Bank. RISK FACTORS Sevan Drilling s activities expose the company to a variety of risks in its operations. These include financial risks, operational

25 OUR RESULTS 25 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 factors The worldwide fleet of ultra deepwater and harsh environment drilling units is currently estimated to consist of 122 units, according to data extracted from ODS Petrodata s Rig Base. An additional 57 ultra deepwater units are reported to be under construction or on order with delivery scheduled prior to end of 2016, which would bring the expected total fleet to 179 units by expiry of The strong growth in ultra deepwater units is due to the increased focus of oil companies on existing and new ultra deepwater regions for exploration and production, and the inability to upgrade or modify the existing mid-water fleet to undertake ultra deepwater and harsh environment drilling campaigns. Historically, demand for offshore exploration, development and production has been volatile and closely linked to the price of hydrocarbons. The demand for Sevan Drilling s services in connection with exploration in the offshore oil and gas sector is particularly sensitive to price fluctuations, changes in production levels and disappointing exploration results. Contracts in the offshore sector require high standards of performance and safety, entailing considerable risks and responsibilities. These include technical, operational, commercial and political risks. Changes in the legislative 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 Drilling s operations directly. In connection with the construction of the drilling rigs, Sevan Drilling 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. The experience gained to date by the Group, the shipyard and main suppliers, is expected to benefit the construction of future rigs. However, Sevan Drilling cannot guarantee that cost increases and delays in delivery of future units will not occur. Financial risk factors and risk management See the consolidated financial statements for more information, especially note 3. The Group is exposed to a variety of financial risks, currency risk, price risk, interest rate risk, credit risk, liquidity risk, and funding and covenants. Sevan Drilling 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 will therefore continue to manage its currency and interest exposures through certain derivative financial instruments in accordance with market practice and to maintain flexibility in the liquidity 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 contract amount on both Sevan Driller and Sevan Brasil with Petrobras is nominated in Brazilian Reais. However, the revenues in Reais correspond to the Group s costs in Reais and represent a natural hedge. Sevan Drilling uses forward contracts to some extent to manage the foreign exchange risk arising from future commercial transactions and recognised assets and liabilities. Price risk Changes to the price level of goods and services acquired may affect Sevan Drilling, therefore price developments are carefully monitored. Sevan Drilling 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 A limited part (25 percent) of Sevan Drilling s debt financing carries floating interest rates which fluctuate with the market. The Group may therefore to a limited extent be exposed to risks due to changes in interest rates. Credit risk Sevan Drilling considers customers on a continuous basis, and in some cases, particularly in relation to customers abroad, letter of credit or prepayment is used. Credit risk related to counter parties on trading in derivative financial instruments is handled by restricting to banks and financial institutions with a high rating. Petrobras is Sevan Drilling s client on both Sevan Driller and Sevan Brasil. With Petrobras BBB rating, (Standard & Poor s affirmed Petrobras rating December 2012) the risk is acceptable.

26 26 OUR RESULTS Liquidity risk It is Sevan Drilling s objective to maintain a flexibility of financing, by providing sufficient withdrawal facilities when managing liquidity. This includes 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. Sevan Drilling has an acceptable cash position, however, the company s liquidity situation is to a certain extent sensitive to operational uptime on the rigs. Funding and covenants The Group is not in breach with covenants. Sevan Drilling will require additional capital in the future to finance the installments due on delivery of the two new build vessels (80 percent on Sevan Drilling Rig 3 and 90 percent on Sevan Drilling Rig 4). Sevan Drilling will, on the back of a charter contract, target to finance the remaining payments with bank debt, bond or a combination of bank debt and bond. Obtaining such financing may be subject to market risks and other risks that may influence the availability, structure and terms of such financing. Further, Sevan Drilling may require additional capital in the future due to unforeseen operational issues, unforeseen liabilities or potential acquisitions, joint ventures or other business opportunities that may be presented to it. There can be no assurance that the Group will be able to obtain necessary financing in a timely manner on acceptable terms. Organisation Health, safety and environment Operating sound health, safety and environment (HSE) principles is a critical success factor for Sevan Drilling. Four loss time incidents occurred in 2012 on board our operating units. Total Recordable Injury Rate (TRIR) amounted to 1.02 for 2012 which is slightly above the South American average of Sick leave came to 2.48 percent for the Group for the year. Sevan Drilling is certified according to ISM (international safety code) and ISPS (international ship and port facility security code). The Group has an environmentally friendly profile and continually seeks new ways to reduce the environmental impacts of its operations. However, Sevan Drilling s operations involve activities that entail potential risks to the external environment. The Group is careful in its approach to the environment and continuously strives to reduce the use of hazardous chemicals and materials to minimise negative effects and seeks alternative products to safeguard the environment. The parent company acts as a holding company to the group and has no activities that entail potential significant risks to the external environment. Employment and labor practices The number of employees increased from 350 to 463 at the end of The Board and the management continue to focus on equal positions and 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, 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 of Directors, the management and the HR function. CORPORATE GOVERNANCE The Board of Directors seeks to provide effective governance of business and affairs to ensure long-term benefit to Sevan Drilling s shareholders, and puts emphasis on transparency and equal treatment of its shareholders. The Group emphasises the importance of maintaining 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 Drilling s compliance with the above recommended corporate governance principles is presented on pages The Group aims at maintaining sound corporate governance routines that provide the basis for long-term value creation, to the benefit of shareholders, employees, other interested parties and the society at large. ANNUAL RESULTS AND YEAR-END APPROPRIATIONS The Board proposes the following appropriation of the annual profit of USD 22,346,546 in the parent company Sevan Drilling ASA: Profit transferred to other equity: USD 22,346,546 The company has unrestricted equity of USD million as of 31 December Events after the balance sheet date Sevan Driller achieved a technical uptime of 76 percent in the first quarter of 2013, while Sevan Brasil had a technical uptime of 98 percent in the first quarter of 2013.

27 OUR RESULTS 27 On 14 January 2013 Sevan Drilling announced amendments to existing loan agreements with its lending banks and proposed a private placement of NOK 987 million (equivalent to approximately USD 175 million) through an issue of new shares in the company directed towards Norwegian and international investors. The private placement took place as an accelerated book building process. The private placement was oversubscribed at the subscription price on NOK 3.95 per share and was supported by existing shareholders, as well as new institutional investors. The net proceeds to the company from the private placement will be used as follows: (i) USD 40 million in payment of deferred liabilities and CAPEX, (ii) USD 35 million in pre-payment of bank debt and, and (iii) USD 100 million for general corporate purposes including contingency and transaction cost. An extraordinary general meeting of the shareholders of Sevan Drilling ASA was held 6 February. The extraordinary general meeting approved all proposals made by the company s board of directors, including the issue of shares in the private placement and the authorisation of the Board of Directors to issue shares in the subsequent offering following the private placement. The subsequent offering was directed towards existing shareholders of the company holding less than 300,000 shares in the company as of 14 January The final amendment agreements, documenting revised financing terms, was executed on 7 February, following which the conditions for completion of the USD 175 million private placement was fulfilled. The private placement shares were issued on 13 February, following approval and publication of the prospectus. The subsequent offering was directed towards existing shareholders of the company holding less than 300,000 shares in the company as of 14 January 2013, as registered in the Norwegian Central Securities Depository (the VPS ), who were not allocated new shares in the private placement, and who are not resident in a jurisdiction where such offering would be unlawful, or would (in jurisdictions other than Norway) require any prospectus filing, registration or similar action (the Eligible Shareholders ). 7,998,436 new shares were issued from the subsequent offering, with additional NOK 31.6 million received from the subsequent offering. In April Sevan Drilling signed a three-year charter contract for operation in the US Gulf of Mexico between one of its wholly owned subsidiaries and LLOG Bluewater Holdings LLC. Sevan Drilling Rig 3 which is currently under construction at Cosco Quidong shipyard, will be named Sevan Louisiana and used for the charter contract. The rig will be capable of drilling in water depths up to 10,000 feet and will employ an innovative, proven cylindrical hull design that makes the rig less sensitive to weather conditions. The Sevan Louisiana is scheduled for delivery in fourth quarter 2013, and the start of operations under the charter contract is expected to be in January The total value of the charter contract is in excess of USD 550 million. Sevan Drilling intends to establish a Houston office to support US GoM operations. OUTLOOK Sevan Drilling has through 2012 advanced from being a company relying on a single rig generating revenues, to an organisation operating two units. Both rigs are operating on long term contracts at attractive terms for Petrobras in Brazil. Following downtime for Sevan Driller early in 2012, the rig has been operating well and recorded high uptime in the third and fourth quarter Sevan Brasil has recorded record high uptime levels since commencing work 24 July 2012, except for the incident with the BOP causing some downtime in September and October. Sevan Drilling has initiated measures in order to maintain stable performance in Brazil by hiring a Country Manager/VP Operations, Gilberto Cardarelli who was in place 1 February Mr. Cardarelli brings a wealth of Brazilian and international experience to the company. Sevan Drilling will strive to keep the current high uptime levels in Brazil, where tighter control of operations and optimisation of processes and procedures will be Mr. Cardarelli s key focus going forward. Sevan Drilling is currently in dialog with oil companies for marketing of the Sevan Drilling Rig 4, and the company signed in April a three-year charter contract with LLOG Bluewater Holdings LLC for Sevan Drilling Rig 3 ( Sevan Louisiana ), for operation in the US Gulf of Mexico. Following the strategy from Brazil by hiring a manager in charge of operations, the company intends to establish a Houston office to support US GoM operations. Sevan Drilling expects a charter contract for Sevan Drilling Rig 4 in due course before delivery. The contract outlook for newbuilds is strong, and Sevan Drilling s rigs fit well into the market. The option for a potential redesign, to prepare for new markets, enables this unit to provide a higher level of customisation than other established rigs. In parallel, Sevan Drilling is in the process of arranging financing for Sevan Drilling Rig 3 and 4 for the remaining payments to Cosco, payable upon delivery.

28 28 OUR RESULTS The financial position has improved following the equity issue and debt restructuring at the start of The deepwater drilling market continues to be strong and Sevan Drilling Rig 4 will be among the first available deepwater rigs in the market. Annual General Meeting The date of the Annual General Meeting is scheduled for 13 May Oslo, 17 April 2013 The Board of Directors of Sevan Drilling ASA Erling Lind Chairman Kitty Hall Board member Benedicte Schilbred Fasmer Board member Per Wulff Board member Kristian Johansen Board member Scott Kerr CEO

29 OUR RESULTS 29 Responsibility Statement The Board of Directors and the Chief Executive Officer have today considered and approved the report and the financial statements for the Sevan Drilling Group and the parent company Sevan Drilling ASA for the year ending 31 December The consolidated financial statements of Sevan Drilling have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional disclosure requirements as stated in the Norwegian Accounting Act that are applicable per 31 December The financial statements 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 The 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 We confirm that, to the best of our knowledge: The financial statements for the Sevan Drilling Group and Sevan Drilling ASA for the year ending 31 December 2012 have been prepared in accordance with applicable accounting standards. The information in the financial statements gives a true and fair view of the Sevan Drilling Group s and Sevan Drilling ASA s assets, liabilities, financial position and results of operations for the year ending 31 December The report from the Board of Directors report for the year ending 31 December 2012 includes a fair view of: The development, results of operations and position for the Sevan Drilling Group and Sevan Drilling ASA. The principal risks and uncertainties for the Sevan Drilling Group and Sevan Drilling ASA. Oslo, 17 April 2013 The Board of Directors of Sevan Drilling ASA Erling Lind Chairman Kitty Hall Board member Benedicte Schilbred Fasmer Board member Per Wulff Board member Kristian Johansen Board member Scott Kerr CEO

30 30 OUR RESULTS 29/04/2012 Sevan Brasil arrived in Rio De Janeiro in Brazil

31 OUR RESULTS 31 Sevan Brasil Left the Cosco shipyard on 10 January 2012 to commence thruster installation and sea trials. On 6 March 2012 the rig departed China, and arrived in Rio De Janeiro in Brazil 29 April On 24 July 2012 the rig commenced its six-year contract with Petrobras. Sevan Brasil is an ultra deepwater drilling unit of the Sevan Cylindrical Drilling Unit Design

32 32 OUR RESULTS Consolidated Income Statement Figures in USD million Note Operating revenue Operating expense Depreciation, amortisation and impairment Employee benefit expense Other operating expense Foreign exchange gain/(loss) related to operation Total operating expense Operating profit/(loss) Financial income Financial expense Foreign exchange gain/(loss) related to financing Net financial items Profit/(loss) before tax Tax income/(expense) Net profit/(loss) Attributable to: Equity holders of the Company Earnings per share for profit/(loss) attributable to the equity holders of the Company during the year (USD per share): - Basic Diluted Comprehensive income Figures in USD million Note Net profit/(loss) Foreign currency translation Comprehensive income Attributable to: Equity holders of the Company

33 OUR RESULTS 33 Consolidated Balance Sheet Figures in USD million Note ASSETS Non-current assets Sevan capital assets 6 1, ,319.3 Other fixed assets Intangible assets Deferred income tax assets Other non-current assets Total non-current assets 1, ,375.6 Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets 1, ,599.8 EQUITY Capital and reserves attributable to equity holders of the Company Share capital Share premium Other equity Total equity LIABILITIES Non-current liabilities Other non-current liabilities Derivative financial instruments, Long term Deferred tax liabilities Total non-current liabilities Current liabilities Trade payables Short term bank borrowings Other current liabilities Total current liabilities Total liabilities 1, Total equity and liabilities 1, ,599.8 Oslo, 17 April 2013 The Board of Directors of Sevan Drilling ASA Erling Lind Chairman Kitty Hall Board member Benedicte Schilbred Fasmer Board member Per Wulff Board member Kristian Johansen Board member Scott Kerr CEO

34 34 OUR RESULTS Consolidated Statement of Changes in Equity Figures in USD million Note Share capital Attributable to equity holders of the Company Share premium Other equity Other reserves reserves Retained earnings Total equity January 1, Net profit/(loss) Transferred from paid in equity to other equity Foreign currency translation Comprehensive income for the year Fair value of share options Accumulated translation differences December 31, January 1, Contribution in kind March 21, Contribution in kind March 21, Issue of shares (IPO) April 29, Cost related to the IPO net of tax Net profit/(loss) Foreign currency translation -0.7 Comprehensive income for the year December 31,

35 OUR RESULTS 35 Consolidated Cash Flow Statement Figures in USD million Note Cash flows from operation activities Cash from operations Interest paid Net cash generated from operating activities Cash flows from investment activities Purchases of property, plant and equipment (PPE) Purchases of intangible assets Net cash flow from investment activities Cash flows from financing activities Net proceeds from capital increase Proceeds from interest-bearing debt Repayment interest-bearing debt Net cash flow from financing activities Net cash flow for the period Cash balance at beginning of period Cash balance included in contribution in kind Cash balance at end of period* * Restricted cash USD 71.6 million

36 36 OUR RESULTS Notes to THE Consolidated Financial Statement Note 1: CORPORATE INFORMATION Sevan Drilling ASA (the Company ) is an international offshore drilling contractor specialising in the ultra deepwater segment. The company owns rigs of the cylindrical Sevan design. The Company 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 of Directors on 17 April Overview of the Group structure as of 31 December 2012: Subsidiaries Registered office Interest held Functional currency Sevan Drilling Management AS Norway 100 % USD Sevan Drilling Invest AS Norway 100 % USD Sevan Drilling Rig II AS Norway 100 % USD Sevan Drilling AS Norway 100 % USD Sevan Drilling Rig V AS Norway 100 % USD Sevan Drilling Rig VI AS Norway 100 % USD Sevan Drilling Rig VII AS Norway 100 % USD Sevan Drilling Rig VIII AS Norway 100 % USD Sevan Drilling Rig IX AS Norway 100 % USD Sevan Drilling Pte Ltd Singapore 100 % USD Sevan Drilling Rig II Pte Ltd Singapore 100 % USD Sevan Drilling Rig IV Pte Ltd Singapore 100 % USD Sevan Drilling Rig V Pte Ltd Singapore 100 % USD Sevan Drilling Rig VI Pte Ltd Singapore 100 % USD Sevan Drilling Rig VII Pte Ltd Singapore 100 % USD Sevan Drilling Rig VIII Pte Ltd Singapore 100 % USD Sevan Drilling Rig IX Pte Ltd Singapore 100 % USD Sevan Drilling Limited UK 100 % USD Sevan Marine Servicos de Perfuracao Ltda Brazil 99,99 % BRL Sevan Investimentos do Brasil Ltda Brazil 100 % BRL NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The 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 Preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations as adopted by the European Union (EU) and valid as of 31 December The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and 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.

37 OUR RESULTS Changes in Accounting Policy and Disclosures a) New and amended standards adopted by the Group There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after 1 January 2012 that would be expected to have a material impact on the group. b) New standards and interpretations not yet adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the group, except the following set out below: Amendment to IAS 1, Financial statement presentation regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially re-classifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI. IFRS 13, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. IAS 19, Employee benefits, was amended in June The impact on the group will be as follows: to immediately recognise all past service costs; and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset).the group s assessment is that this implementation will have immaterial effect on the accounts. IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The group is yet to assess IFRS 9 s full impact and intends to adopt IFRS 9 no later than the accounting period beginning on or after 1 January The group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board. IFRS 10, Consolidated financial statements, builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The group s assessment is that this implementation will have immaterial effect on the accounts. IFRS 12, Disclosures of interests in other entities, includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The group is yet to assess IFRS 12 s full impact and intends to adopt IFRS 12 no later than the accounting period beginning on or after 1 January There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the group. 2.2 Consolidation Subsidiaries Subsidiaries comprise all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. 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

38 38 OUR RESULTS 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 Reporting Since 31 December 2011, reporting has been divided by two segments. The reporting is based on a split between operation and operation in connection with construction. Operating segments are reported in manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Board of Directors. 2.4 Foreign Currency Translation Functional and presentation currency Items 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, which is the Group s presentation currency. Transactions and balances Foreign 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 relates 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 relates to operation are presented (net) as a separate line item in the income statement within operating expenses. Group companies The 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. 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 Equipment Fixed assets are stated at historic 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. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of an asset to estimated discounted future cash flows expected to be generated by the asset. If the carrying value of an asset exceeds its estimated discounted future cash flows, an impairment charge is recognised. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost 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. Received and approved invoices are the basis of capitalisation. All other repairs and maintenance are charged to the income statement as incurred. General and specific borrowing cost directly attributable to the acquisition, construction or producing 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 years. Other fixed assets consist of furniture, fixtures and equipment that are depreciated using the straight-line method over their estimated useful lives ranging from three to ten years.

39 OUR RESULTS 39 Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement. 2.6 Construction in Progress Construction contracts are capitalised as construction in progress based on instalments payable to the yard and other suppliers. Received and approved invoices are the basis of capitalisation. 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. Cost of training, manning and other pre-operational activities are expensed as incurred. 2.7 Intangible Assets Computer software Acquired 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. Cost associated with developing or maintaining computer software programs are recognised in the income statement as incurred. Research and Development Cost associated with research is expensed as incurred. Development costs are expensed when the criteria for recognition are not met. 2.8 Impairment of Non-Financial Assets Assets 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 has suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 2.9 Financial Assets The Group classifies its financial assets as fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired: Management determines the classification of its financial assets at initial recognition. Loans and receivables are measured at fair value at transaction date, subsequently re-measured at amortised cost. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets are included in current assets, except for those with maturities greater than 12 months after balance sheet date, in which case they are classified as non-current assets. 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 2012 or Share-based payments The group has an equity-settled, share-based compensation plan, under which the entity receives 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 is recognised as an expense. The total amount to be expensed is 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 are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises 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 company 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 company 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.

40 40 OUR RESULTS 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 Inventories 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 Trade Receivables Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as noncurrent 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 provision is recognised in the income statement as other operating expense Cash and Cash Equivalents In the consolidated statement of cash flow, cash and cash equivalents includes cash in hand, bank deposits, other short-term highly liquid investments Share Capital Ordinary shares are classified as equity. Incremental cost directly attributable to the issue of new shares is shown in equity as a deduction, net of tax, from the proceeds. Where any Group company acquires the Company s equity share capital (treasury shares), the consideration paid, including any directly attributable cost (net of income taxes) is deducted from equity attributable to the Company 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 Company s equity holders Interest-Bearing Debt Interest-bearing debt is initially recognised at fair value, net of transaction cost incurred and including the value of any embedded call options. Interest-bearing debt is subsequently stated at amortised cost; any difference between the proceeds (net of transaction cost and embedded value of call options) 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 presented net of the separated financial asset and is classified as current liabilities unless the Group has an unconditional right to defer settlement for more than 12 months after the balance sheet date Current and Deferred Income Tax The tax expense for the period comprises current and change in deferred tax. Tax 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 Company 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 balance sheet date. Deferred income tax asset and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities related to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis Provisions A 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 likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

41 OUR RESULTS 41 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 recognised as interest expense Trade payables Trade Payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method Revenue Recognition Revenue 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. 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. Net accrued amount shall subsequently be amortised as a reduction of income over the fixed term of the charter contract. Lease income is recognised in accordance with the underlying contract. 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. Dividend income is recognised when the right to receive payment is established Leases Leases in which a significant 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 straightline 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 Dividend Distribution Dividend distribution to the Company s shareholders is recognised as a liability in the Group s financial statements in the period in which the dividend is approved by the Company s shareholders. NOTE 3: FINANCIAL RISK MANAGEMENT 3.1 Financial Risk Factors The Group s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price 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 hedge, but do not apply hedge accounting.

42 42 OUR RESULTS Market Risk Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the NOK, USD, EURO and Reais. Foreign exchange risk arises from future commercial transactions, recognised assets or liabilities, and net investments in foreign operations. The consequence of change in exchange rates +/- 5% for USD / NOK is USD 0.1 million, for USD / Euro is USD 0.1 million and for USD / BRL is USD 0.1 million. 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 at achieving a natural hedge between cash inflows and cash outflows and manages remaining foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, by forward contracts and similar instruments as appropriate. Hedging of foreign exchange exposures are executed on a gross basis and foreign exchange contracts with third parties generally designated at Group level. The Group s risk management policy is to hedge anticipated transactions in each major currency Price risk The Group is exposed to commodity price risk at two main levels; The demand for drilling units is sensitive to oil price developments, fluctuations in production levels, exploration results and general activity within the oil industry. The cost of construction of future units is sensitive to changes in market prices of the input factors Credit Risk Credit 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. The Company has as per today one customer Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities, and the ability to close out market positions. The Group aims to maintain flexibility in its liquidity by keeping committed credit lines available. The Group is subjected to bank covenant as described below. A breach had occurred during this period but extended waivers have been granted by the lenders as at 31 December 2012, which are in effect through the end of February Separate amendment deeds have been entered into between the Group with the respective syndicated facilities lenders and the bank covenant has been amended to a minimum free cash balance of (i) USD 60 million from 15 February 2013 to and including 31 March 2013; (ii) USD 35 million from 1 April 2013 to and including 30 June 2013; (iii) USD 25 million from 1 July 2013 to and including 30 September 2013; (iv) USD 15 million from 1 October 2013 until the end of Security Period; and (v) unless, in each case, any member of the Group has taken delivery of a new drilling rig currently under construction, USD 40 million from the date of delivery acceptance onwards. 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 Cash Flow and Fair Value Interest Rate Risk The Group s interest rate risk arises from non-current debt. Debt subject to floating interest rates exposes the Group to cash flow interest rate risk. A change in interest rate of +/- 1% would affect the Group interest cost with +/- USD 4.6 million. Similar a change in interest rate of +/- 0.5% would affect the Group interest cost with +/- USD 2.3 million. Debt subject to fixed interest rates exposes the Group to fair value interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group s policy is to maintain part of its debt at fixed rates. The Group simulates various scenarios taking into consideration refinancing and renewal of current positions, alternative financing and hedging. Based on the different scenarios, the Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of conversion from floating interest rates to fixed interest rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals the difference between fixed interest rates and floating interest rates calculated by reference to the agreed notional amounts.

43 OUR RESULTS 43 NOTE 4: ACCOUNTING ESTIMATES AND JUDGMENTS Estimates 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. 4.1 Critical Accounting Estimates and Assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results. 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. Estimated impairment of Drilling rigs The Group has tested whether the Drilling rigs have suffered any impairment, in accordance with the accounting policy stated in Note 2.5. The recoverable amounts of the assets have been determined based on value-in-use calculations. These calculations require the use of estimates. See also 4.2. 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 asset relies upon management s judgment of the Group s ability to generate future positive taxable income in each respective jurisdiction. Commitments The Group uses estimates regarding assessment of remaining commitments regarding outstanding open PO s. Depreciation of units in operation The 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. Critical Judgments in Applying the Group s Policies Assumptions applied for the purpose of impairment testing of Drilling rigs include estimated WACC and expected future cash flows. Due to the inverse relationship between discount rate and net present value, a decrease in WACC will increase the net present value and an increase in WACC will decrease the net present value. An increase in estimated future cash flows will increase the net present value and a decrease in estimate expected future cash flows will decrease the net present value. Estimation of future cash flows is based on several assumptions, including forecasted operational expense, utilisation and day rates which are based on actual contracts as well as forecasts beyond the contracted periods. 4.2 Impairment testing Assumptions applied for the purpose of impairment testing of rig in operation include estimated WACC and expected future cash flows. Due to the inverse relationship between discount rate and net present value, a decrease in WACC will increase the net present value and an increase in WACC will decrease the net present value. An increase in estimated future cash flows will increase the net present value and a decrease in estimate expected future cash flows will decrease the net present value. Estimation of WACC is based on determination of an average WACC for the Group of 10% which is differentiated for specific assets if the underlying asset risk is viewed as being different to that of an average rig in operation. Estimated WACC applied for the operation segment is 10% for both rigs. Estimation of future cash flows is based on several assumptions, including forecasted operational expense, utilisation and day rates which are based on actual contracts as well as forecasts beyond the contracted periods. A change in estimated WACC of 1% could result in an impairment of USD 23 million.

44 44 OUR RESULTS NOTE 5: SEGMENT INFORMATION The segment results as per 31 December 2012 Figures in USD million Operation Construction in progress (CIP) Other/not allocated Group Total segment revenue Inter-segment revenue Revenue from external customers Operating profit/segment result Finance costs net Profit before income tax Income tax expense Profit as per 31 December Other segment items included in the income statement are as follows; Depreciation of PP&E Amortisation of intangible assets All revenue is from one customer regarding Sevan Driller and Sevan Brasil in Brazil. The segment assets and liabilities at 31 December 2012 and capital expenditure ended as follows: Figures in USD million Operation Construction in progress (CIP) Other/not allocated Group Assets 1, ,719.7 Liabilities 1, ,057.3 Capital expenditure accumulated 1, ,500.4 All segment assets and liabilities are allocated. The segment results for 2011 Figures in USD million Operation Construction in progress (CIP) Other/not allocated Group Total segment revenue Inter-segment revenue Revenue Operating profit/segment result Finance costs net Profit before income tax Income tax expense Profit for the year Other segment items included in the income statement are as follows; Depreciation of PP&E Amortisation of intangible assets All revenue is from one customer regarding Sevan Driller in Brazil.

45 OUR RESULTS 45 The segment assets and liabilities at 31 December 2011 and capital expenditure for the year ended as follows: Figures in USD million Operation Construction in progress (CIP) Other/not allocated Group Assets ,599.8 Total assets ,599.8 Liabilities Capital expenditure ,319.3 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 million Construction in Progress (CIP) Unit in Operation (UIO) Drilling Rigs Other Fixed Assets Total Fixed Assets Year ended December 31, 2012 Book value January , ,327.9 Additions Transfer to UIO Impairment Depreciation Book value December , , ,512.9 At December 31, 2012 Cost , ,589.6 Transfer to UIO Accumulated impairment Accumulated depreciation Book value December , , ,512.9 Year ended December 31, 2011 Book value January Additions , ,025.3 Impairment Depreciation Book value December , ,327.9 At December 31, 2011 Cost , ,361.5 Accumulated impairment Accumulated depreciation Book value December , ,327.9 An interest rate of 5% is used for capitalisation. Capitalised borrowing cost in 2012 was USD 28,5 million (2011: 21,4). Security arrangements relating to drilling rigs are described in Note 19 and commitments relating to capital expenditure are described in Note 20.

46 46 OUR RESULTS NOTE 7A: FINANCIAL INSTRUMENTS BY CATEGORY Accounting principles for financial instruments were applied to the line items below as indicated: 31 December 2012 Figures in USD million Loans and receivables Assets at fair value through profit and loss Total Financial assets Trade and other receivables Currency forwards Cash and cash equivalents Total financial assets December 2011 Figures in USD million Loans and receivables Assets at fair value through profit and loss Total Financial assets Trade and other receivables Currency forwards Cash and cash equivalents Total financial assets December 2012 Figures in USD million Other financial liabilities Liabilities at fair value through the profit and loss Total Financial liabilities Bank loans Trade payables Non-current liabilities Interest rate swaps Total financial liabilities , December 2011 Figures in USD million Other financial liabilities Liabilities at fair value through the profit and loss Total Financial liabilities Bank loans Trade payables Non-current liabilities Interest rate swaps Total financial liabilities

47 OUR RESULTS 47 The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1 : Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 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) 2012 Figures in USD million Level 1 Level 2 Level 3 Sum Assets Financial derivates Liabilities Financial derivates Figures in USD million Level 1 Level 2 Level 3 Sum Assets Financial derivates Liabilities Financial derivates Interest and currency swaps 2012 Interest Rate swaps Fair value MUSD fixed at 2.21% -4.8 MUSD fixed at 2.15% -4.3 MUSD 71.9 fixed at % -0.8 MUSD fixed at 2.975% Currency swaps Fair value Nil Interest and currency swaps 2011 Interest Rate swaps Fair value MUSD fixed at 2.21% -1.4 MUSD fixed at 2.15% -4.2 MUSD fixed at 2.975% Currency swaps Fair value MEUR 1.1 (equivalent to MUSD 1.4) against USD 0.0 MNOK 5.0 (equivalent to MUSD 0.8) against USD 0.0 MUSD 87.9 against RMB 0.3

48 48 OUR RESULTS 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 Figures in USD million BBB BBB Total Trade receivables - Counterparty without external credit rating Figures in USD million Group Group Group Total Total trade receivables Group 1 - New customers (less than 6 months) Group 2 - Existing customers (more than 6 months) with no defaults in the past Group 3 - Existing customers (more than 6 months) with some defaults in the past Cash at bank and short-term bank deposits Figures in USD million AA AA A A A BBB No rating available Total cash and cash equivalents NOTE 8: CASH AND CASH EQUIVALENTS Figures in USD million Cash at bank and in hand Restricted employees' tax deduction fund Restricted short-term bank deposits Total cash and cash equivalents USD 19,4 million and USD 21,5 million was reserved as Debt Service repayment at maturity in relation to the bank facility for Sevan Drilling Pte Ltd. and Sevan Drilling Rig II Pte Ltd. respectively. The remaining amounts are reserved for short-term Debt Service repayment and operating costs in relation to the projects. USD 0,5 million relates to customary income taxes withheld from employees.

49 OUR RESULTS 49 NOTE 9: SHARE CAPITAL The total authorised number of ordinary shares was 336,625 million (2011: 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, ,625, Proceeds from shares issued December 31, ,625, Number of shares Share capital Share premium Total January 1, ,000, Proceeds from shares issued 333,625, December 31, ,625, The 20 largest shareholder accounts as at 7 January 2013 Shareholder accounts No. of shares %-share SEADRILL LTD 96,000, SKAGEN VEKST 17,599, THE BANK OF NEW YORK MELLON 16,660, ODIN OFFSHORE 13,232, VARMA MUTUAL PENSION 12,497, JPMORGAN CHASE BANK 8,684, VERDIPAPIRFONDET DNB NORGE (IV) 8,001, SKANDINAVISKE ENSKILDA BANKEN A/C SEC FIN 6,132, SKANDINAVISKA ENSKILDA A/C CLIENTS ACCOUNT 5,937, DNB LIVSFORSIKRING A 5,824, CITIBANK N.A. (LONDON BRANCH) 5,000, WENAASGRUPPEN AS 4,000, BNYBE - US BK EVERMORE GLO VAL 3,802, VERDIPAPIRFONDET DNB SMB 3,350, VERDIPAPIRFONDET DNB NORGE (AVANSE) 3,128, SKANDINAVISKA ENSKILDA BANKEN S.A. 2,532, CREDIT SUISSE SECURITIES (USA) 2,511, ODIN MARITIM 2,250, DEUTSCHE BANK AG LONDON BRANCH 2,216, SKANDINAVISKA ENSKILDA BANKEN A/C FINNISH 2,025, Total, 20 largest shareholder accounts 221,386, Total no. of shares 336,625,000 Foreign ownership 195,015,

50 50 OUR RESULTS NOTE 10: CURRENT LIABILITIES Figures in USD million Trade payables Accrued expenses relating to trade payables Total trade payables Income tax payable Other payables Total other current liabilities Total current liabilities NOTE 11: INTEREST-BEARING DEBTS Figures in USD million Non-current liabilities Bank borrowings Derivative financial instruments Other non-current liabilities* Total non-current liabilities * including non-current trade payable of USD 43 million. Total borrowings Figures in USD million Bank Loans Non-Current Sevan Driller USD 480M Loan Sevan Brasil USD 525M Loan Current Sevan Driller USD 480M Loan Sevan Brasil USD 525M Loan Total Total borrowings include secured liabilities (bank and collateralised borrowings) of USD 858,7 million (2011: USD 861,2 million) Loan Sevan Driller - USD 480 million. As at December 2012 the weighted interest rate is 4.16% (2011: 4.96%) Basic terms is libor % Loan Sevan Brasil - USD 525 million. As at December 2012 the weighted interest rate is 4.84% (2011: 6.11%) Basic terms is devided between libor % and libor %

51 OUR RESULTS 51 The carrying amounts and fair value of the non-current borrowings are as follows: carrying amount Fair value Bank borrowings Total The group has the following undrawn borrowing facilities: Figures in USD million Floating rate Expiring within one year Expiring beyond one year Fixed rate Expiring within one year Expiring beyond one year Total un-drawn debt facilities Payment schedule 2012 Figures in USD million 0-3 month 3-12 month 1-3 years Later Borrowings (including interest) Trade payable Other payables Swaps Total The debt repayments are not fixed but on a variable basis depending on rig s performance in 2013 Payment schedule 2011 Figures in USD million 0-3 month 3-12 month 1-3 years Later Borrowings (including interest) Trade payable Other payables Total

52 52 OUR RESULTS NOTE 12: DEFERRED INCOME TAX Deferred 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 Figures in USD million Deferred tax asset to be recovered after more than 12 months Deferred tax asset to be recovered within 12 months Total deferred tax assets Deferred tax liabilities Figures in USD million Deferred tax liability to be recovered after more than 12 months Deferred tax liability to be recovered within 12 months Total deferred tax liabilities Net deferred tax assets/(liabilities) Figures in USD million Deferred tax asset to be recovered after more than 12 months Deferred tax asset to be recovered within 12 months Net deferred tax assets/(liabilities) Gross movement on the deferred income tax account was as follows: Figures in USD million Book value January Received in connection with contribution in kind Income statement charge relating to deferred tax assets Book value December Specification of deferred tax assets/deferred tax liabilities: Figures in USD million Deferred tax asset Deferred tax liability Net deferred tax assets/(liabilities) Figures in USD million Unrealised currency gain/(loss) -7.1 Total deferred tax liabilities Unrealised currency gain/(loss) Losses carry forward Total deferred tax assets

53 OUR RESULTS 53 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. An assessment of the recognised deferred tax assets has been made, the supporting cash flows and budget support a further capitalisation of the loss carried forward. NOTE 13: EMPLOYEE BENEFIT EXPENSE Figures in USD million Wages and salaries Bonuses Employer's contribution tax Pension costs Share based payment - option cost Other employee benefit expense Total employee expense Average no. of man-years No loans were granted to the CEO, the Chairman of the Board, or to any other related party. Remuneration of Senior Management and Board of Directors 2012 Numbers in USD thousand Salaries Retirement Benefits Other benefits Share options granted (Thousand) Start date End date Scott Kerr CEO ,600 Jon Willmann CFO ,100 Bjørn Egil Gustavsen VP Projects Heitor Gioppo VP Brazil July 2012 Paul Grimen VP Operations Pascal Busch VP QHSE Eileen Aspehaug VP HR Erling Lind * Chairman Jan 2012 Anne Breive Board member May 2012 Kitty Hall Board member Benedicte Schilbred Fasmer Board member May 2012 Per Wulff Board member Kristian Johansen Board member Jan 2012 Total remuneration paid 4, * Invoiced from Advokatfirmaet Wiersholm AS 2011 Numbers in USD thousand Salaries Retirement Benefits Other benefits Start date Scott Kerr CEO May 2011 Jon Willmann CFO May 2011 Bjørn Egil Gustavsen VP Projects May 2011 Heitor Gioppo VP Brazil May 2011 Paul Grimen VP Operations Jun 2011 Pascal Busch VP QHSE Jun 2011 Eileen Aspehaug VP HR Nov 2011 Anne Breive Board member May 2011 Arne Smedal Board member May 2011 Jon C. Cole Chairman May 2011 Kitty Hall Board member May 2011 Total remuneration paid 2,

54 54 OUR RESULTS Salaries and other benefits included in 2011 were based on actual period of employment and translated at average exchange rate for each year. Until May 2012 Anne Breive was the leader of the audit committee with Kristian Johansen member of the audit committee. From May 2012 Kristian Johansen has been the leader of the audit committee with Benedicte Schilbred Fasmer as a member of the audit committee. The Group has an immaterial defined benefit pension plan for one employee, established in The net retirement benefit obligation in the balance sheet is USD 110,2 thousand. All other employees are on contribution based pension plans. Share options are granted to executives 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. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: Average exercise price per share option Options (thousands) Average exercise price per share option Options (thousands) At 1 January Granted NOK , Forfeited Exercised Expired At 31 December NOK ,403.3 Out of the 9,403,334 outstanding options (2011: 0 options), 3,153.3 options (2011: 0) were exercisable. There is no exercised option in 2012 or The weighted average fair value of options granted during the period determined using the Black-Scholes valuation model was NOK 1.73 per option (2011: 0). The significant inputs into the model were weighted average share price of NOK 5.75 (2011: 0) at the grant date, exercise price shown above, volatility of 42.5 % (2011: 0%), dividend yield of 0% (2011: 0%), an expected option life of three years (2011: 0 years) and an annual risk-free interest rate of 1.37% (2011: 0%). 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 EXPENSE Currency 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: Figures in USD million Interest income Other financial income Total financial income

55 OUR RESULTS 55 Financial expense: Figures in USD million Interest expense Swap Call premium bond loan Other financial expenses Total financial expense NOTE 15: INCOME TAX EXPENSE Figures in USD million Current tax Change deferred tax Net tax income/(expense) Figures in USD million Gross revenue tax Withholding tax Current tax Figures in USD million Profit/(loss) before tax Tax calculated at domestic tax rates applicable to profits in holding company Profit not subject to payable tax in shipping regime Currency translation adjustment Expenses not deductible Tax income/(expense) NOTE 16: EARNINGS PER SHARE Profit attributable to equity holders of the Company (1,000 USD) -11,676-48,917 Weighted average number of ordinary shares on issue (thousands) 336, ,024 Basic and diluted earnings per share (USD per share) Basic earnings per share Basic 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 money at 31 December 2012 and are not included in calculating diluted earnings per share. NOTE 17: DIVIDEND PER SHARE No dividend was paid in 2012 or No dividend is to be proposed at the Annual General Meeting on 13 May 2013.

56 56 OUR RESULTS NOTE 18: CASH GENERATED FROM OPERATIONS Figures in USD million Profit/(loss) before tax Adjustments for: Depreciation, amortisation and impairment Paid taxes Changes in working capital: Inventory Trade and other receivables Trade and other payables Other current liabilities, provisions and charges Cash generated from operations NOTE 19: SECURITIES FOR DEBT The 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 525,000,000 credit facility is secured by a first priority mortgage over Sevan Brasil, a guarantee from Sevan Drilling ASA and Sevan Marine ASA, a pledge over the shares of Sevan Drilling Rig II Pte Ltd and of its immediate holding corporation, assignment of contract and insurance proceeds, first ranking assignment of the interest rate hedging arrangements to be entered into in accordance with provisions of the loan facility, and a charge over revenues and bank accounts to be maintained in respect of Sevan Brasil. The USD 480,000,000 credit facility is secured by a first priority mortgage over Sevan Driller, a guarantee from Sevan Drilling ASA, first ranking assignment of contract and insurance proceeds, first ranking assignment of the interest rate hedging arrangements which has been entered into in accordance with provisions of the credit facility, and a charge over revenues and bank accounts in respect of Sevan Driller. NOTE 20: COMMITMENTS Figures in USD million Drilling Rig II Drilling Rig III Drilling Rig IV Total capital commitments ,036.3 Payment schedule for Rig 3 and Milestone RIG 3 Status RIG 4 Status Paid in Paid in a 78.9 Paid in To be paid in Q at delivery 2b To be paid in Q at delivery To be paid in Q at delivery To be paid in Q at delivery Total commitments

57 OUR RESULTS 57 Payment schedule for Rig 3 and Milestone RIG 3 Status Rig 4 Status Paid in Paid in a 78.9 Paid in Paid in Q b To be paid in Q at delivery To be paid in Q at delivery To be paid in Q at delivery Total commitments NOTE 21: RELATED PARTY TRANSACTIONS Related-party transactions were made on an arm s-length basis, and include the following: Purchases from related parties Figures in USD million Purchase of services from the Sevan Marine ASA Design fee paid to Sevan Marine ASA Guarantee fee Financial expenses from the Sevan Marine ASA Financial income from the Sevan Drilling Invest AS Total purchases and financial items Year-end balances arising from loans, sales/purchases of goods/services: Figures in USD million Receivables from the Sevan Marine ASA Receivables from the Sevan Drilling Invest AS Total receivables Sevan Marine ASA is no longer a related party for Sevan Drilling ASA. Sevan Marine ASA sold all their shares in Sevan Drilling ASA December NOTE 22: OPERATING LEASES At balance sheet date, the Group has entered into lease- and rental-obligations: Lease- and rental obligations Figures in USD million No later than 1 year Between 1-5 years Later than 5 years Total lease and rental-obligations

58 58 OUR RESULTS Future lease payments receivable under charter contracts: Figures in USD million No later than 1 year Between 1-5 years Later than 5 years Total minimum future charter revenues 1, ,199.9 Order back-log for charter revenue: Unit Client Fixed term (years) Option periods (years) Commencement Sevan Driller I (Sevan Driller) Petrobras S.A. 6 N/A 12 June 2010 Sevan Driller II (Sevan Brasil) Petrobras S.A. 6 N/A 24 July 2012 NOTE 23: FOREIGN EXCHANGE GAIN/(LOSS) RELATED TO FINANCING Foreign exchange gain/(loss) related to operation Figures in USD million Unrealised gain/(loss) Realised gain/(loss) Total foreign exchange gain/(loss) related to operation Foreign exchange gain/(loss) related to financing Figures in USD million Unrealised gain/(loss) Realised gain/(loss) Total foreign exchange gain/(loss) related to financing Total foreign exchange gain/(loss) relates mainly to cash and cash equivalents nominated in other currencies than USD. NOTE 24: OTHER OPERATING EXPENSES Other operating expense Figures in USD million Office cost (IT, rental etc) Consultancy (audit, tax and legal) * Marketing Other Total other operating expense

59 OUR RESULTS 59 Specification of auditor s fee (excl. VAT) Figures in USD million Statutory audit (incl. technical assistance with financial statements) Other assistance* Total audit fees *Included in other assistance 2011 are work performed in connection with IPO 0.25 NOTE 25: Inventories Figures in USD million Diesel Stock on-board Spares on-board Sevan Driller Consumables Sevan Brasil Spares Sevan Brasil Provision for stock obsoleteness Inventories - net NOTE 26: OTHER NON-CURRENT ASSETS Figures in USD million Net late delivery penalties Net mobilisation expense Others Total other non-current assets 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. NOTE 27: COMBINED NUMBERS PROFORMA COMBINED INCOME STATEMENT Figures in USD million Note 2012 Operating revenue Total operating expense Operating profit/(loss) 14.7 Net financial items Profit/(loss) before tax Tax income/(expense) Net profit/(loss) The combined income statement for 2011 is made on basis of Sevan Driller being part of Sevan Driller Group the whole year The combined income statement comprise the consolidated accounts for Sevan Drilling ASA and the financial accounts for Sevan Drilling Invest AS and Sevan Drilling Limited, both entities being wholly owned subsidiaries of Sevan Marine ASA up to the date of the IPO of Sevan Drilling Group in March 2011.

60 60 OUR RESULTS NOTE 28: TRADE AND OTHER RECEIVABLES Figures in USD million Trade receivables Provision for impairment of receivables Trade receivables net Prepayments Other receivables Derivative and financial instruments, current Trade and other receivables The Group did not make any losses on receivables during 2012 and The Group did not make any provisions relating to receivables during 2012 and Fair value of trade and other receivables were as follows: Figures in USD million Trade receivables Prepayments Other receivables Derivative and financial instruments, current Total trade and other receivables Trade receivables that are less than three months past due are generally not considered for impairment. Ageing of trade receivables was as follows: Figures in USD million Before due date Up to 3 months after due date Total trade receivables - net Carrying amounts of trade receivables were denominated in the following currencies: Figures in USD million USD BRL Total trade receivables - net

61 OUR RESULTS 61 NOTE 29: EVENTS AFTER BALANCE SHEET DATE Sevan Driller achieved a technical uptime of 76% in the first quarter of 2013, while Sevan Brasil had a technical uptime of 98 percent in the first quarter of On 14 January 2013 Sevan Drilling announced amendments to existing loan agreements with its lending banks and proposed a private placement of NOK 987 million (equivalent to approximately USD 175 million) through an issue of new shares in the company directed towards Norwegian and international investors. The private placement took place as an accelerated bookbuilding process. The private placement was oversubscribed at the subscription price of NOK 3.95 per share and was supported by existing shareholders, as well as new institutional investors. The net proceeds to the Company from the private placement will be used as follows: (i) USD 40 million in payment of deferred liabilities and CAPEX, (ii) USD 35 million in pre-payment of bank debt and, and (iii) USD 100 million for general corporate purposes including contingency and transaction cost. An extraordinary general meeting of the shareholders of Sevan Drilling ASA was held 6 February. The extraordinary general meeting approved all proposals made by the Company s board of directors, including the issue of shares in the private placement and the authorisation of the board of directors to issue shares in the subsequent offering following the private placement. The subsequent offering was directed towards existing shareholders of the Company holding less than 300,000 shares in the Company as of 14 January The final amendment agreements, documenting revised financing terms, was executed on 7 February, following which the conditions for completion of the USD 175 million private placement was fulfilled. The private placement shares were issued on 13 February, following approval and publication of the prospectus. The subsequent offering started on 14 February. The subsequent offering was directed towards existing shareholders of the Company holding less than 300,000 shares in the Company as of 14 January 2013, as registered in the Norwegian Central Securities Depository (the VPS ) on 17 January 2013 (the Record Date ), who were not allocated new shares in the private placement, and who are not resident in a jurisdiction where such offering would be unlawful, or would (in jurisdictions other than Norway) require any prospectus filing, registration or similar action (the Eligible Shareholders ). 7,998,436 new shares were issued from the subsequent offering, with additional NOK 31.6 million received from the subsequent offering. In April Sevan Drilling signed a three-year charter contract for operation in the US Gulf of Mexico between one of its wholly owned subsidiaries and LLOG Bluewater Holdings LLC. Sevan Drilling Rig 3 which will be named Sevan Louisiana, which is currently under construction at Cosco Quidong shipyard in China, will be used for the charter contract. The rig will be capable of drilling in water depths up to 10,000 feet and will employ an innovative, proven cylindrical hull design that makes the rig less sensitive to weather conditions. The Sevan Louisiana is scheduled for delivery in Q4 2013, and the start of operations under the charter contract is expected to be in January The total value of the charter contract is in excess of USD 550 million. Sevan Drilling intends to establish a Houston office to support US GoM operations.

62 62 OUR RESULTS