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SEVAN DRILLER

AnnuAl RepoRt 2012

OVERVIEW2

Content oveRview

04 Year in brief06 This is Sevan Drilling08 Letter from the CEO

ouR Business

10 Business and market description12 Products and technology14 QHSE and operational excellence16 Cosco shipyard and Sevan Drilling

oRgAnisAtion

18 The Board of Directors20 The Management Team

ouR Results

22 Board of Directors’ report 201229 Responsibility statement32 Financial statement36 Notes to the financial statement63 Financial statement Sevan Drilling ASA67 Notes to Sevan Drilling ASA76 Auditor’s report78 Corporate governance85 Remuneration and benefits

86 Terms and definitions87 Office locations

OVERVIEW 3

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 2013.

sevan Drilling’s vision is to take advantage of the unique design to capture a significant share of global deepwater market.

sevAn DRilling At A glAnce

OVERVIEW4

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 three-year compulsory marine hull survey. the work took in total 25 days and sevan Drilling received 90 percent of the day rate for 20 days.

OVERVIEW 5

Key figures

87.3%2+2+27,500All 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 2012.

FiguRes in usD Million 2012 2011

Operating income 173.4 115.8Operating expenses -119.0 -82.3EBITDA 54.4 33.5

Depreciation, amortisation and impairment -43.1 -25.1Operating profit / (loss) 11.4 8.4

Financial income/(expense) -42.3 -56.8Foreign exchange gain /(loss) -0.0 1.3Net financial items -42.4 -55.5

Profit/(loss) before tax -31.0 -47.1

Tax income/(expense) 19.3 -1.8Net profit/(loss) -11.7 -48.9

EBITDA margin 31.4% 28.9%Operating margin 6.6% 7.3%

Equity share 38.5% 42.0%

Earnings per share -0.03 -0.21

unit Built Region client 2011 2012 2013 2014 2015 2016 2017 2018

Sevan Driller 2009 Brazil PetrobasSevan Brasil 2012 Brazil PetrobasSevan Louisiana 2013 Gulf of Mexico LLOGSevan Drilling Rig 4 2014 - -

Firm contract period Construction period

OVERVIEW6

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 effi-cient 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 2012. 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 2015.

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:

OVERVIEW 7

• Recruit,developandtrainaninternationalworkforceto deliver premium quality services throughout our organisation.

• Furtherenhanceourexistingdesigntoextendtheoperating capabilities of our rigs to meet expected market demand.

•Buildstrong,longterm,relationshipswithkeysuppliers and construction yards and continuously improve project execution to capture cost benefits of building and operating our rigs.

•DeliverbestinclassQHSEperformancebybuildingacompany culture where we take responsibility for each other’s wellbeing, the operation of our equipment and our impact on the environment.

•Delivercontinuousimprovementinoperations–focusingon providing efficient and cost effective solutions to client needs.

•Deliveranexcellentreturntoourshareholdersbyprovidinga valuable service to our customers and the communities where we operate.

OVERVIEW8

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 antici-pated. 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 2013.

Doubling of fleet baseSevan 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 finan-cial 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.

Letter from the CEO

stRongeR AnD wiseR

OVERVIEW 9

We are building a foundation for a good operational environ-ment 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 outlookThroughout 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 announcementat the start of the year of a successful private placement ofNOK 987.5 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 tofocus on operational excellence there. We have signed a three-year charter contract for our third rig which will initiate opera-tions in the Gulf of Mexico. We need to market our fourth rig,knowing that the completion of the construction of both ournewbuilds 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

OUR BUSINESS10

Business AnD MARKet DescRiption

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 2014.

Another two units can be added to the portfolio during 2013 if Sevan Drilling decides to execute options before end of June 2013.

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 2012. 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 2016.

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 plat-form for growth in the ultra deepwater market. This is evident by our contract for Sevan Louisiana in the US Gulf of Mexico.

OUR BUSINESS12

SEVAN DRILLER

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 DesignThe cylindrical hull shape enables the vessels to respond accu-rately regardless of wind, waves and currents, thus allowing for optimised operations. Wind conditions and waves will there-fore 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 opera-tions with minimum power consumption regardless of weather conditions.

high variable Deck loaD capacityWith the large displacement and stability reserves of the cylindrical hull, the variable deck load capacity is above 15,000 tons. Paired with generous tank capacities this significantly reduces the need for resupply and thus also the logistic cost.

simplifieD constructionThe cylindrical hull is built by using traditional section building method based on prefabrication 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 ship-building steel, and no special welding procedures are required.

storageThe lower hull of the vessel can be used for storage of consum-able fluids i.e. fuel oil, drilling fluids, dry bulk materials, ballast water in addition to utility systems. Oil storage from extended well tests / early production is an alternative storage solution.

upper level The upper section of the hull carries power generation, mud system, cementing system, riser, drilling tubulars, derrick, and temporary equipment such as equipment for well testing. protecteD moon poolThe drilling operation is executed through the 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.

OUR BUSINESS 13

SEVAN DRILLER

station keepingThe 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 combina-tion 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 environ-ments 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.

pRoDucts AnD technology

OUR BUSINESS14

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 implemen-tation 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.

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.

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 2012.

Sevan Brasil has been subject to Petrobras’ rating system since the rig was accepted by Petrobras in July 2012. Sevan Brasil has received high score well above the average and accomplished an average rating of 9 in fourth quarter 2012.

Qhse AnD opeRAtionAl excellence

OUR BUSINESS16

cosco shipyARD AnD sevAn DRilling

Partnership for growth

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 Brasilin January 2012. 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 construc-tion 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.

cosco shipyARD AnD sevAn DRilling

ORGANISATION18

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 2012. Mr. Lind does not hold any shares in Sevan Drilling.

beneDicte schilbreD fasmer Board member

Benedicte Schilbred Fasmer is a Norwegian citizen and has a MSc in Economics and Business Administration from the Norwegian School of Economics. 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 2012. 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.

kitty hallDeputy 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 2008-2012. Ms. Hall holds 62,900 shares in Sevan Drilling.

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 2012. Mr. Johansen holds 17,000 shares in Sevan Drilling.

per WullfBoard 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 2012. Mr. Wullf does not hold any shares in Sevan Drilling.

ORGANISATION20

THE ManagEMEnT TEaM

scott i. kerr (1957), CEO

Scott Kerr has been the CEO of Sevan Drilling since June 2011. 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.*

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.*

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 1985. 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.*

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.*

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.*

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.*

gilberto g. carDarelli(1956), VP operations/Brazil Country Manager

Gilberto G. Cardarelli joined Sevan Drilling in 2013. 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.

* Subject to certain terms and conditions (including vesting periods). See note 13.

OUR RESULTS22

Board of dirEcTors’ rEporT 2012

Highlights

•SevanDrillingtransferreditslistingfromOsloAxesstoOsloBørs•Start-upofSevanBrasiloperationon24July2012anddoubling

of fleet base •UptimeforSevanBrasilhasbeen96percentsincerestartedoperation

after the Bop incident, while 96.5 percent in second half of 2012 for sevan Driller

•Continuousworkonrefinancingthroughoutthefallculminatedinan equity issue and debt restructuring in January 2013 leaving the company fully funded until delivery of sevan Drilling Rig 3

•TheconstructionofSevanDrillingRigs3and4iswellunderwayand both remain on track for delivery in the fourth quarter 2013 and

second quarter 2014, respectively•Inthefirstquarterof2013athree-yearchartercontractwassigned

with llog Bluewater holdings llc for sevan Drilling Rig 3 (“sevan louisiana”), for operation in the us gulf of Mexico

•FournewBoardmembersappointed;ErlingLind(Chairman), per wullf, Kristian Johansen and Benedicte schilbred Fasmer.

key events in 2012Sevan Drilling reached several milestones in 2012. 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 connec-tion 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.

OUR RESULTS 23

Sevan Driller experienced increasing performance in the ultra deepwater market offshore Brazil throughout 2012.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 mainte-nance 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.

activitiesThe 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 subsidi-aries 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.

OperationsSevan 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 deep-water 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 2016. 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 2012. 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 847.5 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 2013. Overall progress per February 2013 was 70 percent completed towards delivery from Cosco. The drill-floor, derrick and living quarters were lifted and integrated to the main hull in November, and commissioning of the first systems started in first quarter 2013. 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 2014. 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 2013.

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 pre-operational 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.

OUR RESULTS24

For Sevan Drilling Rig 3 a USD 105.2 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 2013.

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 2014. 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 statementsPursuant 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 4. 80 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 2014. 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 173.4 million (USD 115.8 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 2012.

Cash flow and liquidityCash 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 426.5 million). The net cash flow from financing activities amounted to minus USD 12.8 million (USD 409.8 million). Cash and cash equival-ents was USD 76.8 million at 31 December (USD 188.5 million). See note 8 for further information.

Balance sheetAt 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 662.4 million (USD 673.4 million). Total liabilities were USD 1,057.3 million (USD 926.4 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 2011. As per end 2012, USD 522.8 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 factorsSevan Drilling’s activities expose the company to a variety of risks in its operations. These include financial risks, operational

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 2016.

The strong growth in ultra deepwater units is due to the increased focus of oil companies on existing and new ultra deep-water 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 produc-tion 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 managementSee 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 there-fore 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.

• Currencyrisk 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.

• Pricerisk 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.

• Interestraterisk 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.

• Creditrisk 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.

OUR RESULTS26

• Liquidityrisk 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.

• Fundingandcovenants 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 neces-sary financing in a timely manner on acceptable terms.

organisationHealth, safety and environmentOperating 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 oper-ating units. Total Recordable Injury Rate (TRIR) amounted to 1.02 for 2012 which is slightly above the South American average of 0.85. 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 contin-ually 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 practicesThe number of employees increased from 350 to 463 at the end of 2012.

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 meas-ures 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 governanceThe 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 78-84.

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 appropriationsThe 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 141.3 million as of 31 December 2012.

events after the balance sheet DateSevan 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.

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 approxi-mately 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 place-ment and the authorisation of the Board of Directors to issue shares in the subsequent offering following the private place-ment. 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.

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 2014. 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.

outlookSevan Drilling has through 2012 advanced from being acompany relying on a single rig generating revenues, to anorganisation 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 righas been operating well and recorded high uptime in the third and fourth quarter 2012. 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 maintainstable performance in Brazil by hiring a Country Manager/VPOperations, Gilberto Cardarelli who was in place 1 February2013. Mr. Cardarelli brings a wealth of Brazilian and interna-tional experience to the company. Sevan Drilling will strive to keep the current high uptime levels in Brazil, where tightercontrol 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 formarketing of the Sevan Drilling Rig 4, and the companysigned in April a three-year charter contract with LLOGBluewater Holdings LLC for Sevan Drilling Rig 3 (“SevanLouisiana”), for operation in the US Gulf of Mexico. Followingthe strategy from Brazil by hiring a manager in charge ofoperations, 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 customi-sation 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.

OUR RESULTS28

Oslo, 17 April 2013The Board of Directors of Sevan Drilling ASA

Erling Lind Chairman

Per WulffBoard member

Kitty HallBoard member

Kristian JohansenBoard member

Benedicte Schilbred FasmerBoard member

Scott KerrCEO

The financial position has improved following the equity issueand debt restructuring at the start of 2013. 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 2013.

OUR RESULTS 29

The Board of Directors and the Chief Executive Officer have today considered and approved the report and the finan-cial statements for the Sevan Drilling Group and the parent company Sevan Drilling ASA for the year ending 31 December 2012. The consolidated financial statements of Sevan Drilling have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and addi-tional disclosure requirements as stated in the Norwegian Accounting Act that are applicable per 31 December 2012. 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 2012. 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 2012.

We confirm that, to the best of our knowledge:• ThefinancialstatementsfortheSevanDrillingGroup

and Sevan Drilling ASA for the year ending 31 December 2012 have been prepared in accordance with applicable accounting standards.

•Theinformationinthefinancialstatementsgivesatrueandfair 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 2012.

•ThereportfromtheBoardofDirectorsreportfortheyearending 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.

rEsponsiBiliTy sTaTEMEnT







Scott KerrCEO

OUR RESULTS30

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

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 2012.

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

OUR RESULTS32

consolidaTEd incoME sTaTEMEnT

coMprEHEnsivE incoME

FiguRes in usD Million note 2012 2011

Operating revenue 5 173.4 115.8

Operating expense -49.7 -32.1Depreciation, amortisation and impairment 6 -43.1 -25.1Employee benefit expense 13 -54.0 -42.7Other operating expense 24 -14.6 -8.9Foreign exchange gain/(loss) related to operation 23 -0.7 1.4Total operating expense -162.0 -107.5

Operating profit/(loss) 11.4 8.4

Financial income 14 0.6 3.8Financial expense 14 -42.9 -60.6Foreign exchange gain/(loss) related to financing 23 0.0 1.3Net financial items -42.4 -55.5


Tax income/(expense) 15 19.3 -1.8Net profit/(loss) -11.7 -48.9

Attributable to:Equity holders of the Company -11.7 -48.9

earnings per share for profit/(loss) attributable to the equity holders of the company during the year (usD per share):- Basic 16 -0.03 -0.21- Diluted 16 -0.03 -0.21


Net profit/(loss) -11.7 -48.9Foreign currency translation -0.2 -0.7Comprehensive income -11.9 -49.6

Attributable to:Equity holders of the Company -11.9 -49.6

OUR RESULTS 33

consolidaTEd BalancE sHEET


assetsnon-current assetsSevan capital assets 6 1,500.4 1,319.3Other fixed assets 6 12.5 8.6Intangible assets 1.6 0.7Deferred income tax assets 12 51.5 26.9Other non-current assets 26 20.4 20.2Total non-current assets 1,586.4 1,375.6

current assetsInventories 25 22.5 13.6Trade and other receivables 28 33.9 22.1Cash and cash equivalents 8 76.8 188.5Total current assets 133.2 224.3Total assets 1,719.7 1,599.8

eQuitycapital and reserves attributable to equity holders of the companyShare capital 9 61.9 61.9Share premium 533.8 814.5Other equity 66.7 -202.9Total equity 662.4 673.4

liabilitiesnon-current liabilitiesOther non-current liabilities 11 763.6 785.6Derivative financial instruments, Long term 11 27.4 23.8Deferred tax liabilities 12 0.0 0.0Total non-current liabilities 790.9 809.4

current liabilitiesTrade payables 10 74.2 7.6Short term bank borrowings 11 140.8 76.8Other current liabilities 10 51.4 32.6Total current liabilities 266.4 117.1Total liabilities 1,057.3 926.4Total equity and liabilities 1,719.7 1,599.8







Scott KerrCEO

OUR RESULTS34

consolidaTEd sTaTEMEnT of cHangEs in EquiTy

AttRiButABle to eQuity holDeRs oF the coMpAny

otheR eQuity

FiguRes in usD Million noteshARe

cApitAlshARe

pReMiuMotheR

ReseRvesRetAineD

eARningstotAl

eQuity

reservesJanuary 1, 2012 9 61.9 814.5 -0.7 -202.2 673.4

Net profit/(loss) -11.7 -11.7Transferred from paid in equity to other equity -280.6 280.6Foreign currency translation -0.2 -0.2Comprehensive income for the year 0 -11.7 -11.9Fair value of share options 1.4 1.4Accumulated translation differences -0.6 -0.6December 31, 2012 9 61.9 533.8 280.5 -213.9 662.4

January 1, 2011 9 0.5 0.0 0.0 -20.4 -19.9Contribution in kind March 21, 2011 6.0 183.0 189.0Contribution in kind March 21, 2011 9.8 324.8 -132.8 201.8Issue of shares (IPO) April 29, 2011 45.5 318.5 363.9Cost related to the IPO net of tax 0.0 -11.7 -11.7Net profit/(loss) -48.9Foreign currency translation -0.7Comprehensive income for the year 0.0 -0.7 -48.9 -49.6December 31, 2011 9 61.9 814.5 -0.7 -202.2 673.4

OUR RESULTS 35

consolidaTEd casH flow sTaTEMEnT


cash flows from operation activitiesCash from operations 18 52.1 25.0Interest paid -46.0 -28.6Net cash generated from operating activities 6.1 -3.6

cash flows from investment activitiesPurchases of property, plant and equipment (PPE) -105.0 -426.5Purchases of intangible assets 0.0 0.0Net cash flow from investment activities -105.0 -426.5

cash flows from financing activitiesNet proceeds from capital increase 0.0 347.9Proceeds from interest-bearing debt 43.8 350.4Repayment interest-bearing debt -56.6 -288.5Net cash flow from financing activities -12.8 409.8

Net cash flow for the period -111.7 -20.3

Cash balance at beginning of period 188.5 1.8Cash balance included in contribution in kind 0.0 207.0Cash balance at end of period* 8 76.8 188.5

* Restricted cash USD 71.6 million

OUR RESULTS36

note 1: corporate informationSevan 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 2013.

overview of the group structure as of 31 December 2012:

suBsiDiARiesRegisteReD

oFFice inteRest

helDFunctionAl

cuRRency

Sevan Drilling Management AS Norway 100 % USDSevan Drilling Invest AS Norway 100 % USDSevan Drilling Rig II AS Norway 100 % USDSevan Drilling AS Norway 100 % USDSevan Drilling Rig V AS Norway 100 % USDSevan Drilling Rig VI AS Norway 100 % USDSevan Drilling Rig VII AS Norway 100 % USDSevan Drilling Rig VIII AS Norway 100 % USDSevan Drilling Rig IX AS Norway 100 % USDSevan Drilling Pte Ltd Singapore 100 % USDSevan Drilling Rig II Pte Ltd Singapore 100 % USDSevan Drilling Rig IV Pte Ltd Singapore 100 % USDSevan Drilling Rig V Pte Ltd Singapore 100 % USDSevan Drilling Rig VI Pte Ltd Singapore 100 % USDSevan Drilling Rig VII Pte Ltd Singapore 100 % USDSevan Drilling Rig VIII Pte Ltd Singapore 100 % USDSevan Drilling Rig IX Pte Ltd Singapore 100 % USDSevan Drilling Limited UK 100 % USDSevan Marine Servicos de Perfuracao Ltda Brazil 99,99 % BRLSevan Investimentos do Brasil Ltda Brazil 100 % BRL

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

2.1 basis of preparationThe consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations as adopted by the European Union (EU) and valid as of 31 December 2012.

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.

noTEs To THE consolidaTEd financial sTaTEMEnT

OUR RESULTS 37

2.1.1 changes in accounting policy anD Disclosuresa) New and amended standards adopted by the GroupThere 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 adoptedA 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 2011. 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 2010. 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 2015. 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 addi-tional 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, includ-ing 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 2013.

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 consoliDationSubsidiariesSubsidiaries 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

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at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of the acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the income statement immediately.

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

2.3 segment reportingSince 31 December 2011, reporting has been divided 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 translationFunctional and presentation currencyItems included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which each entity operates (‘the functional currency’). The consolidated financial statements are presented in USD, which is the Group’s presentation currency.

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

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

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

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

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

2.5 property, plant anD eQuipmentFixed assets are stated at 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 20-30 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.

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

2.6 construction in progressConstruction contracts are capitalised as construction in progress based on instalments 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 assetsComputer softwareAcquired computer software is capitalised on the basis of the cost incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives, ranging from three to five years. Cost associated with developing or maintaining computer software programs are recognised in the income statement as incurred.

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

2.9 financial assetsThe 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 2011.

2.10 share-baseD paymentsThe 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:

• includinganymarketperformanceconditions(forexample,anentity’sshareprice);• excludingtheimpactofanyserviceandnon-marketperformancevestingconditions(forexample,profitability,salesgrowthtargets

and remaining an employee of the entity over a specified time period); and• includingtheimpactofanynon-vestingconditions(forexample,therequirementforemployeestosave).

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.

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

2.11 inventoriesInventories 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.

2.12 traDe receivablesTrade 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’.

2.13 cash anD cash eQuivalentsIn the consolidated statement of cash flow, cash and cash equivalents includes cash in hand, bank deposits, other short-term highly liquid investments.

2.14 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.

2.15 interest-bearing DebtInterest-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.

2.16 current anD DeferreD income taxThe 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.

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

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

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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.

2.18 traDe payablesTrade Payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. 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.

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

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

Revenue is recognised as follows:Charter revenues are recognised on a straight-line basis over the contract period during which the services are rendered, and at the rates established in the underlying contracts.

Penalties imposed as compensation to client for delivery of a unit later than contractually agreed shall be accrued for on a separate ac-count in the balance sheet at the date the charter contract commences. If any part of the penalties is recoverable from vendors due to di-rectly 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.

2.20 leasesLeases 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 straight-line basis over the period of the lease.

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

2.21 DiviDenD DistributionDividend 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 management3.1 financial risk factorsThe 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.

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3.1.1 market riskForeign exchange riskThe 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 riskThe 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.

3.1.2 creDit riskCredit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers. The Group has no significant concentration of credit risk towards single financial institutions and has policies that limit the amount of credit exposure to any single financial institution. Credit exposures to customers are mainly concentrated around the charter contracts. The Company has as per today one customer.

3.1.3 liQuiDity riskPrudent 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 2013. 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.

3.1.4 cash floW anD fair value interest rate riskThe 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.

OUR RESULTS 43

note 4: accounting estimates anD JuDgmentsEstimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are assumed to be reasonable under current circumstances.

4.1 critical accounting estimates anD assumptionsThe 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 rigsThe 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.

CommitmentsThe Group uses estimates regarding assessment of remaining commitments regarding outstanding open PO’s.

Depreciation of units in operationThe 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 testingAssumptions 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.

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note 5: segment informationthe segment results as per 31 December 2012

FiguRes in usD Million opeRAtionconstRuction in

pRogRess (cip)otheR/not AllocAteD gRoup

Total segment revenue 172.4 0.0 1.0 173.4Inter-segment revenue 0.0 0.0 0.0 0.0Revenue from external customers 172.4 0.0 1.0 173.4Operating profit/Segment result 18.5 -0.3 -6.9 11.4Finance costs – net -62.6 -7.8 28.0 -42.4Profit before income tax -44.1 -8.1 21.1 -31.0Income tax expense 1.3 0.0 18.0 19.3Profit as per 31 December 2012 -42.7 -8.1 39.1 -11.7

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

Depreciation of PP&E -42.5 0.0 -0.6 -43.1Amortisation of intangible assets 0.0 0.0 0.0 0.0

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:



Assets 1,618.7 169.1 -68.1 1,719.7Liabilities 1,167.2 5.5 -115.4 1,057.3Capital expenditure accumulated 1,327.5 172.9 0.0 1,500.4

All segment assets and liabilities are allocated.

the segment results for 2011



Total segment revenue 114.9 0.0 0.9 115.8Inter-segment revenue 0.0 0.0 0.0 0.0Revenue 114.9 0.0 0.9 115.8Operating profit/Segment result 26.9 -4.0 -14.5 8.4Finance costs – net -40.1 -12.7 -2.7 -55.5Profit before income tax -13.2 -16.7 -17.3 -47.1Income tax expense 0.0 0.0 -1.8 -1.8Profit for the year -13.2 -16.7 -19.0 -48.9

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

Depreciation of PP&E -23.8 0.0 -1.3 -25.1Amortisation of intangible assets 0.0 0.0 0.0 0.0

All revenue is from one customer regarding Sevan Driller in Brazil.

OUR RESULTS 45

the segment assets and liabilities at 31 December 2011 and capital expenditure for the year ended as follows:



Assets 786.4 783.4 30.0 1,599.8Total assets 786.4 783.4 30.0 1,599.8Liabilities 405.7 464.4 56.3 926.4Capital expenditure 611.9 662.8 44.6 1,319.3

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 MillionconstRuction in

pRogRess (cip)

unit in opeRAtion

(uio)DRilling

Rigs

otheR FixeD

Assets

totAlFixeD

Assets

year ended December 31, 2012Book value January 1 661.2 658.1 1,319.3 8.7 1,327.9Additions 31.6 191.2 222.8 5.2 228.0Transfer to UIO -519.9 519.9 0.0 0.0 0.0Impairment 0.0 0.0 0.0 0.0 0.0Depreciation 0.0 -41.7 -41.7 -1.4 -43.1Book value December 31 172.9 1,327.5 1,500.4 12.5 1,512.9

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

year ended December 31, 2011Book value January 1 327.2 0.0 327.2 0.4 327.6Additions 333.9 681.9 1,015.8 9.6 1,025.3Impairment 0.0 0.0 0.0 0.0 0.0Depreciation 0.0 -23.8 -23.8 -1.3 -25.1Book value December 31 661.2 658.1 1,319.3 8.7 1,327.9

at December 31, 2011Cost 669.7 681.9 1,351.6 10.0 1,361.5Accumulated impairment -8.5 0.0 -8.5 0.0 -8.5Accumulated depreciation 0.0 -23.8 -23.8 -1.3 -25.1Book value December 31 661.2 658.1 1,319.3 8.7 1,327.9

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.

OUR RESULTS46

note 7a: financial instruments by categoryAccounting principles for financial instruments were applied to the line items below as indicated:

31 December 2012

FiguRes in usD MillionloAns AnD

ReceivABles

Assets At FAiRvAlue thRough

pRoFit AnD loss totAl

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

31 December 2011

FiguRes in usD MillionloAns AnD

ReceivABles

Assets At FAiRvAlue thRough


financial assetsTrade and other receivables 16.2 0.0 16.2Currency forwards 0.0 0.3 0.3Cash and cash equivalents 188.5 0.0 188.5Total financial assets 204.8 0.3 205.1

31 December 2012

FiguRes in usD MillionotheR FinAnciAl

liABilities

liABilities At FAiRvAlue thRough the


financial liabilities Bank loans 858.6 0 858.6Trade payables 74.2 0.0 74.2Non-current liabilities 43.0 0.0 43.0Interest rate swaps 0.0 27.4 27.4Total financial liabilities 975.9 27.4 1,003.2

31 December 2011

FiguRes in usD MillionotheR FinAnciAl

liABilities

liABilities At FAiRvAlue thRough the


financial liabilities Bank loans 861 0 861.2Trade payables 22.1 0.0 22.1Non-current liabilities 0.0 0.0 0.0Interest rate swaps 0.0 23.8 23.8Total financial liabilities 883.3 23.8 907.1

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

assetsFinancial derivates 0.0 0.0 0.0 0.0

liabilitiesFinancial derivates 0.0 27.4 0.0 27.4

2011

FiguRes in usD Million level 1 level 2 level 3 suM

assetsFinancial derivates 0.0 0.3 0.0 0.3

liabilitiesFinancial derivates 0.0 23.8 0.0 23.8

interest and currency swaps 2012

inteRest RAte swAps FAiR vAlue

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

cuRRency swAps FAiR vAlue

Nil

interest and currency swaps 2011

inteRest RAte swAps FAiR vAlue

MUSD 125.2 fixed at 2.21% -1.4MUSD 116.4 fixed at 2.15% -4.2MUSD 193.8 fixed at 2.975% -14.8

cuRRency swAps FAiR vAlue

MEUR 1.1 (equivalent to MUSD 1.4) against USD 0.0MNOK 5.0 (equivalent to MUSD 0.8) against USD 0.0MUSD 87.9 against RMB 0.3

OUR RESULTS48

note 7b: creDit Quality of financial assets The credit quality of financial assets that were neither past due nor impaired was assessed by reference to external credit ratings (where available) and by analysis of historical information about counterparty default rates:

trade receivables - counterparty with external credit rating


BBB- 0.0 0.0BBB 12.5 9.7Total 12.5 9.7

trade receivables - counterparty without external credit rating


Group 1 0.0 0.0Group 2 0.0 0.0Group 3 0.0 0.0Total 0.0 0.0Total trade receivables 12.5 9.7

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

cash at bank and short-term bank deposits


AA+ 0.0 14.4AA 0.0 0.0A+ 12.6 0.0A 32.6 146.7A- 1.5 11.6BBB 30.1 15.8No rating available 0.0 0.0Total cash and cash equivalents 76.8 188.5

note 8: cash anD cash eQuivalents


Cash at bank and in hand 5.2 172.4Restricted employees' tax deduction fund 0.5 0.4Restricted short-term bank deposits 71.0 15.8Total cash and cash equivalents 76.8 188.5

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.

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, 2012 336,625,000 61.9 814.5 876.3Proceeds from shares issued 0 0.0 0.0 0.0December 31, 2012 336,625,000 61.9 814.5 876.3

nuMBeR oF shARes shARe cApitAl shARe pReMiuM totAl

January 1, 2011 3,000,000 0.5 0.0 0.5Proceeds from shares issued 333,625,000 61.4 814.5 875.8December 31, 2011 336,625,000 61.9 814.5 876.3

the 20 largest shareholder accounts as at 7 January 2013

shAReholDeR Accounts no. oF shARes %-shARe

SEADRILL LTD 96,000,000 28.52SKAGEN VEKST 17,599,671 5.23THE BANK OF NEW YORK MELLON 16,660,155 4.95ODIN OFFSHORE 13,232,104 3.93VARMA MUTUAL PENSION 12,497,726 3.71JPMORGAN CHASE BANK 8,684,422 2.58VERDIPAPIRFONDET DNB NORGE (IV) 8,001,055 2.38SKANDINAVISKE ENSKILDA BANKEN A/C SEC FIN 6,132,605 1.82SKANDINAVISKA ENSKILDA A/C CLIENTS ACCOUNT 5,937,342 1.76DNB LIVSFORSIKRING A 5,824,375 1.73CITIBANK N.A. (LONDON BRANCH) 5,000,020 1.49WENAASGRUPPEN AS 4,000,000 1.19BNYBE - US BK EVERMORE GLO VAL 3,802,670 1.13VERDIPAPIRFONDET DNB SMB 3,350,000 1.00VERDIPAPIRFONDET DNB NORGE (AVANSE) 3,128,059 0.93SKANDINAVISKA ENSKILDA BANKEN S.A. 2,532,964 0.75CREDIT SUISSE SECURITIES (USA) 2,511,278 0.75ODIN MARITIM 2,250,000 0.67DEUTSCHE BANK AG LONDON BRANCH 2,216,299 0.66SKANDINAVISKA ENSKILDA BANKEN A/C FINNISH 2,025,608 0.60Total, 20 largest shareholder accounts 221,386,353 65.77

Total no. of shares 336,625,000Foreign ownership 195,015,827 57.93

OUR RESULTS50

note 10: current liabilities


Trade payables 45.7 7.6Accrued expenses relating to trade payables 28.5 14.5Total trade payables 74.2 22.1Income tax payable 6.2 5.0Other payables 45.2 13.1Total other current liabilities 51.4 18.1Total current liabilities 125.6 40.2

note 11: interest-bearing Debts


non-current liabilitiesBank borrowings 717.9 784.4Derivative financial instruments 27.4 23.8Other non-current liabilities* 45.7 1.2Total non-current liabilities 790.9 809.4

* including non-current trade payable of USD 43 million.

total borrowings


bank loansNon-Current 718.0 784.4 Sevan Driller USD 480M Loan 284.0 357.6 Sevan Brasil USD 525M Loan 434.0 426.8 Current 140.7 76.9 Sevan Driller USD 480M Loan 76.1 54.8 Sevan Brasil USD 525M Loan 64.6 22.1 Total 858.7 861.2

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 + 3.50%

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 + 3.75% and libor + 2.90%

OUR RESULTS 51

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

cARRying AMount FAiR vAlue

2012 2011 2012 2011

Bank borrowings 858.7 861.2 858.7 861.2Total 858.7 861.2 858.7 861.2

the group has the following undrawn borrowing facilities:


floating rate– Expiring within one year 0.0 46.0– Expiring beyond one year 0.0 0.0

fixed rate– Expiring within one year 0.0 0.0– Expiring beyond one year 0.0 80.0Total un-drawn debt facilities 0.0 126.0

payment schedule 2012

FiguRes in usD Million 0 - 3 Month 3 - 12 Month 1 - 3 yeARs lAteR

Borrowings (including interest) 86.0 117.8 948.1 588.1Trade payable 45.7 0.0 0.0 0.0Other payables 29.3 1.0 0.0 0.0Swaps 2.4 6.7 12.7 4.4Total 163.4 125.4 960.8 592.6

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) 13.9 150.3 471.9 549.1Trade payable 3.2 4.4 0.0 0.0Other payables 14.0 18.6 0.0 0.0Total 31.1 173.3 471.9 549.1

OUR RESULTS52

note 12: DeferreD income taxDeferred income tax assets and liabilities are offset when a legally enforceable right to offset current tax assets against current tax liabilities exists.

Offsetting amounts were as follows:

Deferred tax assets


Deferred tax asset to be recovered after more than 12 months 48.3 34.0Deferred tax asset to be recovered within 12 months 3.2 0.0Total deferred tax assets 51.5 34.0

Deferred tax liabilities


Deferred tax liability to be recovered after more than 12 months 0.0 -7.1Deferred tax liability to be recovered within 12 months 0.0 0.0Total deferred tax liabilities 0.0 -7.1

net deferred tax assets/(liabilities)


Deferred tax asset to be recovered after more than 12 months 48.3 26.9Deferred tax asset to be recovered within 12 months 3.2 0.0Net deferred tax assets/(liabilities) 51.5 26.9

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


Book value January 1 26.9 -1.2Received in connection with contribution in kind 0.0 25.2Income statement charge relating to deferred tax assets 24.7 2.9Book value December 31 51.5 26.9

specification of deferred tax assets/deferred tax liabilities:


Deferred tax asset 51.5 34.0Deferred tax liability 0.0 -7.1Net deferred tax assets/(liabilities) 51.5 26.9


Unrealised currency gain/(loss) -7.1Total deferred tax liabilities 0.0 -7.1

Unrealised currency gain/(loss) 3.2 0.0Losses carry forward 48.3 34.0Total deferred tax assets 51.5 34.0

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


Wages and salaries 37.7 23.1Bonuses 1.6 7.5Employer's contribution tax 10.8 3.4Pension costs 0.6 0.5Share based payment - option cost 1.4 0.0Other employee benefit expense 1.9 8.3Total employee expense 54.0 42.7

Average no. of man-years 453 222

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 sAlARiesRetiReMent

BeneFits otheR

BeneFits

shARe optionsgRAnteD

(thousAnD)stARt DAte

enDDAte

Scott Kerr CEO 908.6 22.7 50.4 1,600Jon Willmann CFO 717.4 22.5 52.7 1,100Bjørn Egil Gustavsen VP Projects 583.8 36.9 43.0 500Heitor Gioppo VP Brazil 872.6 17.6 10.5 0.0 July 2012Paul Grimen VP Operations 408.0 0.0 13.4 500Pascal Busch VP QHSE 346.8 0.0 9.7 500Eileen Aspehaug VP HR 166.8 17.0 46.8 500Erling Lind * Chairman 62.4 0.0 0.0 0.0 09 Jan 2012Anne Breive Board member 36.3 0.0 0.0 0.0 15 May 2012Kitty Hall Board member 65.5 0.0 0.0 0.0Benedicte Schilbred Fasmer Board member 29.2 0.0 0.0 0.0 15 May 2012Per Wulff Board member 53.7 0.0 0.0 0.0Kristian Johansen Board member 53.7 0.0 0.0 0.0 09 Jan 2012Total remuneration paid 4,304.8 116.7 226.4

* Invoiced from Advokatfirmaet Wiersholm AS

2011

nuMBeRs in usD thousAnD sAlARiesRetiReMent

BeneFits otheR

BeneFits stARt DAte

Scott Kerr CEO 393.0 17.0 29.0 26 May 2011Jon Willmann CFO 306.0 17.0 30.0 01 May 2011Bjørn Egil Gustavsen VP Projects 258.0 22.0 14.0 01 May 2011Heitor Gioppo VP Brazil 447.2 12.4 13.2 01 May 2011Paul Grimen VP Operations 314.0 0.0 0.0 01 Jun 2011Pascal Busch VP QHSE 306.0 0.0 0.0 01 Jun 2011Eileen Aspehaug VP HR 20.0 17.0 4.0 27 Nov 2011Anne Breive Board member 35.7 0.0 0.0 03 May 2011Arne Smedal Board member 35.7 0.0 0.0 03 May 2011 Jon C. Cole Chairman 49.1 0.0 0.0 03 May 2011Kitty Hall Board member 35.7 0.0 0.0 03 May 2011Total remuneration paid 2,200.2 85.4 90.2

OUR RESULTS54

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 2011. 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:

2012 2011

AveRAge exeRcise pRice peR shARe

optionoptions

(thousAnDs)


optionoptions

(thousAnDs)

At 1 January 0 0.0 0 0Granted NOK 5.75 9,903.3 0 0Forfeited 0 -500.0 0 0Exercised 0 0.0 0 0Expired 0 0.0 0 0At 31 December NOK 5.75 9,403.3

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 2011.

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

financial income:


Interest income 0.6 0.0Other financial income 0.0 3.7Total financial income 0.6 3.8

OUR RESULTS 55

financial expense:


Interest expense 27.2 19.9Swap 3.6 14.8Call premium bond loan 0.0 7.2Other financial expenses 12.1 18.7Total financial expense 42.9 60.6

note 15: income tax expense


Current tax -5.3 -4.7Change deferred tax 24.7 2.9Net tax income/(expense) 19.3 -1.8


Gross revenue tax -5.2 -4.2Withholding tax -0.1 -0.5Current tax -5.3 -4.7


Profit/(loss) before tax -31.0 -47.1Tax calculated at domestic tax rates applicable to profits in holding company -8.7 -13.2Profit not subject to payable tax in shipping regime 41.4 15.2Currency translation adjustment -13.8 -4.0Expenses not deductible 0.4 0.2Tax income/(expense) 19.3 -1.8

note 16: earnings per share

2012 2011

Profit attributable to equity holders of the Company (1,000 USD) -11,676 -48,917Weighted average number of ordinary shares on issue (thousands) 336,625 233,024Basic and diluted earnings per share (USD per share) -0.03 -0.21

basic earnings per shareBasic earnings per share were calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares on issue during the year. Options are not in money at 31 December 2012 and are not included in calculating diluted earnings per share.

note 17: DiviDenD per shareNo dividend was paid in 2012 or 2011. No dividend is to be proposed at the Annual General Meeting on 13 May 2013.

OUR RESULTS56

note 18: cash generateD from operations



adjustments for:– Depreciation, amortisation and impairment 43.1 25.1– Paid taxes 5.2 0.0

changes in working capital:– Inventory -8.9 -5.2– Trade and other receivables -7.0 -13.8– Trade and other payables 17.4 35.2– Other current liabilities, provisions and charges 33.3 30.8Cash generated from operations 52.1 25.0

note 19: securities for DebtThe Group has contingent liabilities in respect of bank and other guarantees as well as other matters arisen in the ordinary course of business.

at balance sheet Date, the group is party to the folloWing security arrangements: Security arrangements relating to financing:The USD 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


Drilling Rig II 26.5 115.8Drilling Rig III 420.8 420.8Drilling Rig IV 499.7 499.7Total capital commitments 947.0 1,036.3

payment schedule for rig 3 and 4 - 2012

Milestone Rig 3 stAtus Rig 4 stAtus

1 26.3 Paid in 2011 26.3 Paid in 20112a 78.9 Paid in 2011 26.3 To be paid in Q2 2014 at delivery2b 0 52.6 To be paid in Q2 2014 at delivery3 420.8 To be paid in Q4 2013 at delivery 420.8 To be paid in Q2 2014 at deliveryTotal commitments 420.8 499.7

OUR RESULTS 57

payment schedule for rig 3 and 4 - 2011

Milestone Rig 3 stAtus Rig 4 stAtus

1 26.3 Paid in 2011 26.3 Paid in 20112a 78.9 Paid in 2011 26.3 Paid in Q1 20122b 0 52.6 To be paid in Q2 2014 at delivery3 420.8 To be paid in Q4 2013 at delivery 420.8 To be paid in Q2 2014 at deliveryTotal commitments 420.8 499.7

note 21: relateD party transactionsRelated-party transactions were made on an arm’s-length basis, and include the following:

purchases from related parties


Purchase of services from the Sevan Marine ASA 0.0 2.1Design fee paid to Sevan Marine ASA 0.0 12.0Guarantee fee 0.0 3.2Financial expenses from the Sevan Marine ASA 0.0 0.0Financial income from the Sevan Drilling Invest AS 0.0 0.0Total purchases and financial items 0.0 17.4

year-end balances arising from loans, sales/purchases of goods/services:


Receivables from the Sevan Marine ASA 0.0 0.0Receivables from the Sevan Drilling Invest AS 0.0 0.0Total receivables 0.0 0.0

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 2011.

note 22: operating leasesAt balance sheet date, the Group has entered into lease- and rental-obligations:

lease- and rental obligations


No later than 1 year 1.0 32.8Between 1-5 years 2.0 2.4Later than 5 years 0.0 0.0Total lease and rental-obligations 3.1 35.2

OUR RESULTS58

future lease payments receivable under charter contracts:


No later than 1 year 232.6 187.9Between 1-5 years 737.2 859.5Later than 5 years 60.1 152.5Total minimum future charter revenues 1,029.9 1,199.9

order back-log for charter revenue:

unit clientFixeD teRM

(yeARs)option peRioDs

(yeARs) coMMenceMent

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

note 23: foreign exchange gain/(loss) relateD to financingforeign exchange gain/(loss) related to operation


Unrealised gain/(loss) -0.5 2.6Realised gain/(loss) -0.3 -1.2Total foreign exchange gain/(loss) related to operation -0.7 1.4

foreign exchange gain/(loss) related to financing


Unrealised gain/(loss) -0.6 -0.3Realised gain/(loss) 0.7 1.6Total foreign exchange gain/(loss) related to financing 0.0 1.3

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

note 24: other operating expensesother operating expense


Office cost (IT, rental etc) 5.0 2.3Consultancy (audit, tax and legal) * 5.5 3.9Marketing 1.5 1.2Other 2.6 1.5Total other operating expense 14.6 8.9

OUR RESULTS 59

specification of auditor’s fee (excl. vat)


Statutory audit (incl. technical assistance with financial statements) 0.4 0.3Other assistance* 0.3 0.4Total audit fees 0.8 0.7

*Included in other assistance 2011 are work performed in connection with IPO 0.25

note 25: inventories


Diesel Stock on-board 2.7 1.3Spares on-board Sevan Driller 10.6 8.9Consumables Sevan Brasil 0.0 1.5Spares Sevan Brasil 9.2 2.0Provision for stock obsoleteness 0.0 0.0Inventories - net 22.5 13.6

note 26: other non-current assets


Net late delivery penalties 6.0 6.9Net mobilisation expense 14.1 12.6Others 0.3 0.8Total other non-current assets 20.4 20.2

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 – proformacombineD income statement

FiguRes in usD Million note 2012

Operating revenue 141.7Total operating expense -127.0Operating profit/(loss) 14.7Net financial items -74.9Profit/(loss) before tax -60.3Tax income/(expense) 15 -1.8Net profit/(loss) -62.1

The combined income statement for 2011 is made on basis of Sevan Driller being part of Sevan Driller Group the whole year 2011. 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.

OUR RESULTS60

note 28: traDe anD other receivables


Trade receivables 12.5 9.7Provision for impairment of receivables 0.0 0.0Trade receivables – net 12.5 9.7Prepayments 11.5 5.9Other receivables 9.9 6.2Derivative and financial instruments, current 0.0 0.3Trade and other receivables 33.9 22.1

The Group did not make any losses on receivables during 2012 and 2011. The Group did not make any provisions relating to receivables during 2012 and 2011.

fair value of trade and other receivables were as follows:


Trade receivables 12.5 9.7Prepayments 11.5 5.9Other receivables 9.9 6.2Derivative and financial instruments, current 0.0 0.3Total trade and other receivables 33.9 22.1

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

ageing of trade receivables was as follows:


Before due date 12.4 9.2 Up to 3 months after due date 0.1 0.5Total trade receivables - net 12.5 9.7

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


USD 7.9 7.2BRL 4.7 2.5Total trade receivables - net 12.5 9.7

OUR RESULTS 61

note 29: events after balance sheet DateSevan 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 2013.

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 authori-sation 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 2013.

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 place-ment, 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 2014. 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.

OUR RESULTS62

OUR RESULTS 63

sTaTEMEnT of incoMEsEvan drilling asa

note 2012 2011

operating income and operating expensesPayroll expenses 6, 7 -1,612,310 4,804,749Depreciation and amortisation expense 5 485,571 86,126Write down on tangible and intangible assets 0 40,878Other operating expenses 6 8,316,549 3,508,383Operating currency loss / (gain) 14 72,717 -30,490Operating expenses 7,262,528 8,409,645

Operating profit / (loss) -7,262,528 -8,409,645

Financial income and expensesInterest income 10 25,387,489 16,066,612Impairment of financial assets 10, 11 0 150,000,000Interest expenses 10 83,717 1,752,251Other financial expenses 198 331,254Financial currency (gain/loss) 14 1,647,485 171,578Net financial income and expenses 23,656,089 -136,188,471

Profit / (loss) before tax 16,393,561 -144,598,116Tax cost / (income) 4 -5,952,986 17,369,007Operating result after tax 22,346,546 -161,967,123

Annual net profit 22,346,546 -161,967,123

Brought forwardTo other equity 22,346,546 -161,967,123Net brought forward 22,346,546 -161,967,123

OUR RESULTS64

sTaTEMEnT of financial posiTions sEvan drilling asa

note 2012 2011

assetsnon-current assets

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

tangible fixed assetsEquipment and other movables 5 1,060,637 1,350,660Total tangible fixed assets 1,060,637 1,350,660

financial assetsInvestments in subsidiaries 11 243,566,972 232,561,846Loans to group companies 10 530,358,444 464,798,485Total financial assets 773,925,415 697,360,331

Total non-current 778,140,103 698,710,992

current assetsReceivablesAccounts receivables 10 2,480,148 513,150Other receivables 8, 10 1,251,531 3,080,101Total receivables 3,731,679 3,593,251

Cash and bank deposits 9 3,263,556 52,289,359

Total current assets 6,995,235 55,882,610

Total assets 785,135,339 754,593,602

OUR RESULTS 65



note 2012 2011

equity and liabilities

restricted equityShare capital 2, 3, 12 61,854,554 61,854,554Share premium 2 533,818,153 664,456,181Total restricted equity 595,672,707 726,310,735

retained earningsOther equity 2 144,483,596 -8,897,803Total retained earnings 144,483,596 -8,897,803

Total equity 740,156,303 717,412,931

liabilitiesProvisionsDeferred tax 4 0 7,078,705

other long-term liabilitiesTrade creditors 10 2,610,182 1,355,214Tax payable 4 0 0Public duties payable 298,438 178,503Other short term liabilities 8, 10 42,070,415 28,568,249Total short term liabilities 44,979,036 30,101,965

Total liabilities 44,979,036 37,180,670

Total equity and liabilities 785,135,339 754,593,602







Scott KerrCEO

OUR RESULTS66

sTaTEMEnT of casH flowssEvan drilling asa

note 2012 2011

cash flows from operating activitiesProfit/loss before tax 16,393,561 -144,598,116Tax paid during the period 0 0Depreciation and write downs 485,571 150,127,004Currency effects 217,654 573,663Change in trade and other receivables -138,428 -3,431,458Change in trade creditors 1,254,968 847,494Change in other accruals -4,190,370 6,714,622Net cash flow from operating activities 14,022,956 10,233,209

cash flows from investment activitiesPurchases of tangible assets -195,548 -1,422,553Investment in subsidiaries -24,643,795 0net cash flow from investment activities -24,839,343 -1,422,553

cash flow from financing activitiesChange in long term intercompany balances -38,297,105 -304,097,212Increase of equity (IPO) net of emission cost 0 347,637,444Net cash flow from financing activities -38,297,105 43,540,232

Net cash flows for the period -49,113,492 52,350,888

Cash and cash equivalents at the beginning of the year 52,289,359 110,049Currency effect bank deposits 87,689 -171,578

Cash and cash equivalents at the end of the year 3,263,556 52,289,359

Cash and bank deposits actual 3,263,556 52,289,359Difference 0 0

OUR RESULTS 67

note 1: accounting policiesSevan Drilling’s financial statements have been prepared in accordance with the Norwegian Accounting Act and generally acceptedaccounting principles.

The functional currency for the company is USD as this is the currency for which the Company is financed. The functinal currency in the subsiditaries are USD and future dividends will be nominated in USD.

All numbers are in USD 1 unless otherwise stated.

revenue recognitionRevenues related to sales of goods and sales of services are recognised when delivered.

main principle for evaluation anD classification of assets anD liabilitiesCurrent assets and current liabilities includes items with due date within one year after transaction date, as well items relating to the operating cycle. Other items have been classified as non-current assets/non-current liabilities.

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

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

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

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

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

research anD DevelopmentCost associated with research activities are expensed as incurred. Qualifying expense associated with development activities are capitalised and depreciated over expected usedul life.

cash anD bank DepositsCash and bank deposits include cash, bank deposits and other means of payment with an original due date of three months or less from the date of purchase.

currencyCash and bank deposits, current assets, and short-term liabilities nominated in other than functional currencies are converted to exchange rates that prevail on the balance sheet date. Realised and unrealised exchange gains and losses on assets and liabilities in other than functional currencies are expensed unless defined as hedging.

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

shares in subsiDiariesInvestments in subsidiaries are measured under the cost method.

noTEs To sEvan drilling asa

OUR RESULTS68

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

cash floW statementThe cash flow statement is prepared in accordance with the indirect method.

note 2: eQuity

unitshARe-

cApitAlshARe

pReMiuMotheReQuity totAl

Equity January 1, 2012 61,854,554 814,462,262 -158,903,884 717,412,932Capital deduction -280,644,109 280,644,109 0Value of options, cost directly to equity 396,825 396,825Net result for the year 22,346,546 22,346,546Equity December 31, 2012 61,854,554 533,818,153 144,483,596 740,156,303

note 3: share capital anD shareholDer information

share capital:

nuMBeR noMinAl vAlue (noK) RegisteReD

Ordinary shares 336,625,000 1,00 336,625,000Total 336,625,000 336,625,000

list of 20 major shareholders at 31 December 2012

shAReholDeR Accounts no. oF shARes %-shARe

SEADRILL LTD 96,000,000 28.5 % SKAGEN VEKST 17,599,671 5.2 %THE BANK OF NEW YORK MELLON 16,660,155 4.9 %ODIN OFFSHORE 13,232,104 3.9 %VARMA MUTUAL PENSION 12,497,726 3.7 %JPMORGAN CHASE BANK 8,684,422 2.6 %VERDIPAPIRFONDET DNB NORGE (IV) 8,001,055 2.4 %SKANDINAVISKE ENSKILDA BANKEN A/C SEC FIN 6,132,605 1.8 %SKANDINAVISKA ENSKILDA A/C CLIENTS ACCOUNT 5,937,342 1.8 %DNB LIVSFORSIKRING A 5,824,375 1.7 %CITIBANK N.A. (LONDON BRANCH) 5,000,020 1.5 %WENAASGRUPPEN AS 4,000,000 1.2 %BNYBE - US BK EVERMORE GLO VAL 3,802,670 1.1 %VERDIPAPIRFONDET DNB SMB 3,350,000 1.0 %VERDIPAPIRFONDET DNB NORGE (AVANSE) 3,128,059 0.9 %SKANDINAVISKA ENSKILDA BANKEN S.A. 2,532,964 0.8 %CREDIT SUISSE SECURITIES (USA) 2,511,278 0.7 %ODIN MARITIM 2,250,000 0.7 %DEUTSCHE BANK AG LONDON BRANCH 2,216,299 0.7 %SKANDINAVISKA ENSKILDA BANKEN A/C FINNISH 2,025,608 0.6 %Total 221,386,353 65.77 %Other owners 115,238,647 34.23 %Total 336,625,000 100.00 %

OUR RESULTS 69

shares and options owned or controlled by the board of Directors:

nuMBeR oF shARes

Scott Kerr, CEO (directly and through his wholly owned company Kerr Energy AS) 620,100Jon Helge Wilmann, CFO 126,388Erling Lind, ChaimanBenedichte Elisabeth Schilbred Fasmer, member of boardKathrine Jessie Martin, member of board 30,000Kristian Kuvaas Johansen, member of board 17,000Per Winther Wullf, member of board

note 4: taxesbasis for taxes payable:

2012 2011

Profit before tax 16,393,561 -144,598,116Permanent differences 30,618 135,702,529Permanent currency differences -37,684,840 54,622,342Tax basis -21,260,661 45,726,755Changes in temporary differences 36,545,560 -21,082,960Used losses carry forward 0 0Basis for deferred tax 15,284,899 24,643,795- Group contribution -15,284,899 -24,643,795Tax income 0 0

temporary differences:

2012 2011

Net temporary differences -11,264,470 25,281,090Losses carry forward relating to income statement 0 0Basis for deferred tax assets -11,264,470 25,281,09028% deferred tax -3,154,052 7,078,705Deferred tax liabilities/assets -3,154,052 7,078,705

basis for taxes payable:

2012 2011

Tax payable relating income statement 4,279,772 10,906,115Change in deferred tax liabilities/assets -10,232,757 6,462,892Change in deferred tax assets -5,952,896 17,369,007

tax payable in the balance:

2012 2011

Tax payable from income statement 4,279,772 10,906,115Tax effect of IPO cost directly in equity 0 4,005,853Tax on group contribution -4,279,772 -14,911,968Tax payable in the statement of financial positions 0 0

OUR RESULTS70

note 5: fixeD assets

it eQuipMent it eQuipMent it eQuipMent

Cost as of January 1, 2012 1,168,596 253,958 1,422,554Additions 0 195,548 195,548Disposals 0 0Cost as of December 31, 2012 1,168,596 449,506 1,618,102

Accumulated depreciation December 31, 2012 512,180 45,283 557,463

Net book value 31.12. 1,680,776 494,789 2,175,565

Depreciation in 2012 447,657 37,914 485,571

Economic life 3 year 5 yearDepreciation plan Straight line Straight line

annual rental of non-financial assets

RentAl peRioD AnnuAl Rent

Machines 5.5 years 21,893Buildings 0.0 0.0

note 6: employee benefit expense

employee benefit expense

2012 2011

Salaries and vacation pay 2,616,892 4,504,219Employer's share of social security 382,934 149,467Pension costs 45,200 34,000Other salary related costs -4,657,336 117,062Total employee benefit expense -1,612,310 4,804,748

At December 31, 2012, there are five employees in Sevan Drilling ASA.

Included in Salary and vacation pay is 288 625 in bonuses for 2012. The bonus is related to Group recongnisation of the bonus program. In 2011 the bonuses was 3 500 000. This is reversed in 2012 and included in other salary costs.

The company’s pension schemes meet the requirements of the law on compulsory occupational pension.

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

OUR RESULTS 71

remuneration of senior management and board of Directors

2012

nAMe title sAlARiesRetiReMent

BeneFitsotheR

BeneFitsshARe option

gRAnteD

Scott Kerr CEO 908,600 22,700 50,400 1,600Jon Wilmann CFO 717,400 22,500 52,700 1,100Erling Lind Chairman of the Board 62,400 - - - Benedichte Fasmer Board member 36,300 - - - Kitty Hall Board member 65,500 - - - Kristian Kuvaas Johansen Board member 53,700 - - - Per Winther Wullf Board member 53,700 - - -

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

2011

nAMe title sAlARiesRetiReMent

BeneFitsotheR

BeneFitsshARe option

gRAnteD

Scott Kerr CEO 393,000 17,000 29,000 1,600Jon Wilmann CFO 306,000 17,000 30,000 1,100Anne Breive Board member 36,000 - - - Fred Egil Hansen Board member 18,000 - - - Arne Smedal Board member 36,000 - - - Jon C. Cole Chairman of the Board 49,000 - - - Kitty Hall Board member 36,000 - - -

auditor fees

2012 2011

Statutory audit 376,885 112,645Tax services 42,072 3,012Other audit attestation services 80,907 6,025Other assistance 105,198 250,000Total audit fees 605,062 371,682

Assistance in 2011 is related to the contributions in kind, and issue of shares (IPO).

OUR RESULTS72

note 7: share-baseD paymentsShare options are granted to directors and to selected employees. The exercise price of the granted options is equal to the market price of the shares on the date of the grant. The options shall vest with one third each year. Vesting of the options is conditional upon the Employee, on each of the vesting dates, remaining employed by the company. The options may, once vested, be exercised at any time up to and including the date falling three years after the relevant vesting dates. The group has no legal or constructive obligation to repurchase or settle the options in cash. movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

2012 2011


optionoptions

(thousAnDs)


optionoptions

(thousAnDs)

At 1 January 0 0.0 0 0Granted NOK 5.75 9,903.3 0 0Forfeited 0 -500.0 0 0Exercised 0 0.0 0 0Expired 0 0.0 0 0At 31 December NOK 5.75 9,403.3

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 2011.

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 over the last three years. See above for the total expense recognised in the income statement for share options granted to directors and employees.

note 8: receivables anD liabilitiesThe company has no receivables or liabilities with due date later than five years. See note 11.

note 9: cash anD bank Deposits

2012 2011

Taxes witheld from eomployees deposited in a restricted bank account 174,028 120,053Cash and other bank deposits 3,089,528 52,169,306Total cash and bank deposits 3,263,556 52,289,359

OUR RESULTS 73

note 10: intercompany transactionsRemuneration to executives is disclosed in note 6.

statement of financial positions

2012 2011

Long-term receivables to Group companies 530,558,444 464,798,485Accounts receivables to Group companies 2,078,039 512,631Other receivables to Group companies 2,797,654Total receivables to Group companies 532,636,483 468,108,770

2012 2011

Long-term payables to Group companies 0 0Accounts payables to Group companies -224,438 -277Other short-term liabilities to Group companies -42,008,873 -24,836,643Total liabilities to Group companies -42,233,311 -24,836,920

statement of income

2012 2011

Purchase sales of services to Group companies 1,955,244 501,720Interest income from Group Companies 24,368,825 16,044,301Interest cost to Group companies -72,074 -1,748,631Total income / (cost) from Group comapnies 26,251,995 14,797,390

note 11: investments in subsiDiariesstatement of financial positions

coMpAny (nuMBeRs in ‘000) ADDRess owneRship BooK vAlue eQuity

net Result oF the yeAR 2012

Sevan Drilling Management AS Oslo 100 % 24 -14,733 -11,195Sevan Drilling Invest AS Oslo 100 % 243,567 208,503 -3,945Sevan Drilling Rig II AS Oslo 100 % 25 -46,708 -39,037Sevan Drilling AS Oslo 100 % 26 5 -7Sevan Drilling Rig V AS Oslo 100 % 24 -5,101 -5,357Sevan Drilling Rig VI AS Oslo 100 % 24 -2,337 -2,407Sevan Drilling Rig VII AS Oslo 100 % 24 0 -12Sevan Drilling Rig VIII AS Oslo 100 % 25 1 -12Sevan Drilling Rig IX AS Oslo 100 % 25 -713 -831

Total 243,765 138,917 -62,803

OUR RESULTS74

note 12: earnings per share

2012 2011

Profit attributable to equity holders -21,653,291 -161,967,123Average no. of outstanding shares 336,625 336,625Weighted avg. no. of ordinary shares for diluted earnings per share 233,024Earnings per share -0.02 -0.002Earnings per share diluted -0.003

note 13: financial risk managementThe Company’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 Company’s overall risk management program focuses on the unpredict-ability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance. The Company uses derivative financial instruments to hedge certain risk exposures.

The companies identifies, evaluates and hedges financial risk attached to their activities. For the companies the main risk is related to cur-rency. The parent Company’s maintains risk management for the Company as a whole when it relates to interest rate risk.

a) market risk(i) Foreign exchange riskThe Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the NOK, GBP and Euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities.

To manage the foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, the Company use forward contracts to some extent. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s functional currency.

External foreign exchange contracts are designated at fair value through the result.

(ii) Price riskThe Company may be affected by changes to the price level of goods and services acquired. The Company follows price developments carefully, and seeks to handle this risk through contract clauses with its customers.

b) creDit riskThe Company does not have any material concentrations of credit risk. The bulk of Company customers are major, recognised oil compa-nies and contractors with a high creditworthiness. The companies consider customers on a continuous basis, and in some cases, particu-larly in relation to customers abroad, letter of credit or prepayment is used. Counter parties on trading in derivative financial instruments are restricted to banks and financial institutions with a high rating.

c) liQuiDity riskPrudent liquidity risk management 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. It is the Company’s objective to maintain flex-ibility of financing, by providing sufficient withdrawal facilities.

D) floating interest riskThe Company’s interest risk is mainly connected to long-term loans and cash. Company debts and cash are subject to floating interest rates. Loans and cash at a floating interest represent a risk to the Company’s cash flow.

OUR RESULTS 75

note 14: financial anD operational currency effectsThe Company split currency gains and losses in operating and financial elements in the Statement of Income. The currency effects presented in the operating result are related to currecny effects in purchases, while the currency effects in the financial results is mainly related to revaluation of NOK bank deposits.

operation

2012 2011

Realised foreign exchange gains 105,677 131,651Realised foreign exchange loss -137,347 -86,475Unrealised gain/(loss) net -41,047 -14,687Net operational foreign exchange loss -72,717 30,490

financial

2012 2011

Realised foreign exchange gains 0 0Realised foreign exchange loss -3,077 -4,556Unrealised gain/(loss) net -1,644,408 -167,022Net operational foreign exchange gain/-loss -1,647,485 -171,578

OUR RESULTS76

audiTor’s rEporT

PricewaterhouseCoopers AS, Kanalsletta 8, Postboks 8017, NO-4068 Stavanger T: 02316, org. no.: 987 009 713 MVA, www.pwc.no Statsautoriserte revisorer, medlemmer av Den norske Revisorforening og autorisert regnskapsførerselskap

To the Annual Shareholders' Meeting of Sevan Drilling ASA

Independent auditor’s report

Report on the Financial Statements

We have audited the accompanying financial statements of Sevan Drilling ASA, which comprise the financial statements of the parent company and the financial statements of the group. The financial statements of the parent company comprise the balance sheet as at 31 December 2012, and the income statement, statement of changes in equity and cash flow statement, for the year then ended, and a summary of significant accounting policies and other explanatory information. The financial statements of the group comprise the balance sheet at 31 December 2012, income statement, changes in equity and cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information.

The Board of Directors and the Managing Director’s Responsibility for the Financial Statements

The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of the financial statements of the parent company in accordance with Norwegian Accounting Act and accounting standards and practices generally accepted in Norway, and for the preparation and fair presentation of the financial statements of the group in accordance with International Financial Reporting Standards as adopted by EU and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OUR RESULTS 77

Independent auditor's report - 2012 - Sevan Drilling ASA, page 2

(2)

Opinion on the financial statements of the parent company

In our opinion, the financial statements of the parent company are prepared in accordance with the law and regulations and present fairly, in all material respects, the financial position for Sevan Drilling ASA as at 31 December 2012, and its financial performance and its cash flows for the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway.

Opinion on the financial statements of the group

In our opinion, the financial statements of the group present fairly, in all material respects, the financial position of the group Sevan Drilling ASA as at 31 December 2012, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by EU.

Report on Other Legal and Regulatory Requirements

Opinion on the Board of Directors’ report and statement of corporate governance principles and practices

Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors report and statement of corporate governance principles and practices concerning the financial statements and the going concern assumption, and the proposal for the allocation of the profit is consistent with the financial statements and complies with the law and regulations.

Opinion on Registration and Documentation

Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements ISAE 3000 “Assurance Engagements Other than Audits or Reviews of Historical Financial Information”, it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway.

Stavanger, 17 April 2013 PricewaterhouseCoopers AS Henrik Zetlitz Nessler State Authorised Public Accountant (Norway)

OUR RESULTS78

corporaTE govErnancE in sEvan drilling

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

1. implementation anD reporting on corporate governanceImplementation and regulationsSevan Drilling ASA’s (“Sevan Drilling” or “the company”) Board of Directors (the “Board”) has the ultimate responsi-bility for ensuring that the company practices good corporate governance and has prepared and approved the company’s policy for corporate governance. The company, through its Board and executive management, carries out an annual review of its principles for corporate governance.

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

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

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

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

Values, objectives and strategiesConfidence in Sevan Drilling as a company and in its business activities as a whole is essential for the company’s continuing competitiveness. The company aims to maintain

high ethical standards in its business concept and rela-tions with customers, suppliers and employees. The Board has defined the company’s values and has adopted ethical guidelines applicable to all employees. The values, as well as a statement on “who we are”, the company’s vision, “strategic themes” as well as the ethical guidelines are available on the company’s website.

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

2. businessThe company’s business objective is set out in its articles of association section 3:“to own and/or operate, directly or indirectly, drilling rigs and activities related thereto, as well as investing in other companies.”

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

The company will pursue the following main strategies to reach its overall objective:• monetiseitscurrentdesignandtechnologybydelivering

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

• pursuetechnologicaladvancementswithouruniquehulldesign to maximise its flexibility to expand into growth areas in offshore drilling; and

• developastrong,motivatedworkforcethatdeliversoutstanding service and results.

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

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

OUR RESULTS 79

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

As per 31 December 2012, Sevan Drilling had equity of USD 662.4 million, representing an equity ratio of 38.5 percent. The company requires additional capital in the future to finance the instalments due on delivery of the two new vessels under construction, which equals 80 percent and 90 percent on Sevan Drilling Rig 3 and Sevan Drilling Rig 4 respectively as per 31 December 2012, corresponding to a total commitment of USD 900 million. For Sevan Drilling Rig 3, the last payment milestone has been split in 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 costs of 9 percent p.a. as from fourth quarter 2013. For Sevan Drilling Rig 4, USD 52.6 million (10 percent of the total all-in turn-key contract price) has been deferred until delivery of the rig, at interest costs of 9.5 percent p.a. The remainder of the all-in turn-key contract price is due upon delivery of the unit in second quarter 2014.

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

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

At the extraordinary general meeting held on 9 January 2012, the Board was given authorisation to increase the company’s share capital by up to NOK 10 million. The authorisation may only be used for the issuance of shares pursuant to and for fulfilment of the company’s management and employee incentive program. The mandate is valid until the annual general meeting of 2013.

The company proposed a private placement of NOK 987 million (equivalent of ~USD 175 million) on 14 January 2013, subject to approval by an extraordinary general meeting. The extraordinary

general meeting was held on 6 February 2013, and approved the issues of shares in the private placement and the authorisation of the Board to issues shares in the subsequent offering following the private placement.

As per 31 December 2012, the Board did not hold any authorisa-tions to buy own shares.

4. eQual treatment of shareholDers anD transactions With close associatesEqual treatmentThe company has one class of shares with equal rights.

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

Transactions with close associatesAny transactions, agreements or arrangements between the company and its shareholders, members of the Board, members of the executive management team or close associates of any such parties shall only be entered into as part of the ordinary course of business and on arm’s length market terms. All such transactions shall comply with the procedures set out in the Norwegian Public Limited Liability Companies Act or similar provisions, as applicable. The Board shall arrange for a valuation to be obtained from an independent third party unless the transaction, agreement or arrangement in question must be considered to be immaterial. The company’s financial state-ments shall provide further information about transactions with related parties.

There were no transactions conducted with close associates in 2012.

5. freely negotiable sharesThe shares in the company are freely negotiable. The articles of association do not impose any restrictions on transfers of shares.

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

Preparations for the AGMThe AGM is held before 30 June, which is the latest date permitted by company law. In 2013, the AGM will be held on 13 May.

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

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

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

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

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

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

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

• Therightforshareholderstoproposeresolutionsinrespectof matters to be dealt with by the general meeting.

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

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

appropriate arrangements for the general meeting to vote separately on each candidate nominated for election to the company`s corporate bodies.

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

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

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

The following three members were elected at the company’s extraordinary general meeting at 9 January 2012:• HaraldThorstein,chairman• JarleSjo• GeirTjetland

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

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

8. boarD of Directors - composition anD inDepenDenceElections to the boardThe Board of Sevan Drilling is appointed by the general meeting. According to section 5 of the company’s articles of association, the Board shall consist of three to nine members.

The composition of the BoardAs per 31 December 2012, the Board of Sevan Drilling consists of five members, of which three men and two women. In addi-tion the employees have an observer on the board

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

The members of the Board represent varied and broad experience from relevant industries and areas of technical speciality, and the members bring experience from both

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Norwegian and international companies. More information about the board members expertise and background, as well as their holdings of shares in the company can be found on the company’s website, www.sevandrilling.com.

Independence of the BoardThe Board does not include any members from the company’s executive management team and all the members are consid-ered independent of the company’s material business contacts. Chairman of the Board, Erling Lind, is also chairman of the Board of Seadrill Management AS, 100 percent owned by Seadrill Ltd, while board member Per Wullf is the COO of Seadrill Ltd, which is the company’s main shareholder. All other members of the Board are considered independent of the company’s main shareholders.

9. the Work of the boarD of DirectorsThe Board`s duties and responsibilityThe Board prepares an annual plan for its work with special emphasis on goals, strategy and implementation. The Board’s primary responsibility is:• participatinginthedevelopmentandapprovalofthe

company’s strategy,• performingnecessarymonitoringfunctionsand• actingasanadvisorybodyforthemanagementteam.

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

The Board conducts an annual strategy meeting. The strategy meeting in 2012 was held in June.

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

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

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

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

Board meetingsDuring 2012 the Board had 14 meetings, 5 physical meetings and 9 meetings by telephone conference, with a turnout of 91.4 percent.

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

Remuneration committeeThe company shall have a remuneration committee appointed by the Board. The purpose of the committee is to:• Evaluateandproposethecompensationofthecompany’s

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

• Produceanannualreportonthecompensationoftheexecutive management team, which shall be included in the company’s annual accounts pursuant to applicable rules and regulations, including accounting standards, promulgated from time to time.

• Evaluateandproposeincentivecompensationplansandequity based plans for the company and any subsidiaries.

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

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

The audit committee will not make any decisions on behalf of the Board, but will present its assessment and recommendations to the Board. The Board has approved instructions to the audit committee.

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The Board may also appoint other sub-committees, as deemed necessary or appropriate.

The Board`s evaluation of its own workThe Board carries out an annual evaluation of its own performance, working arrangements and competence. The Chairman of the Board prepares a report on this evaluation, which is made available to the nomination committee. The Board did not perform this evaluation in 2012 but will do so in 2013.

10. risk management anD internal controlThe Board shall seek to ensure that the company has sound internal control and systems for risk management that are appropriate in relation to the extent and nature of the company’s activities.

The Board shall ensure that the company’s internal control comprises guidelines, processes, duties, conducts and other matters that:• facilitatetargetedandeffectiveoperationalarrangements

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

• contributetoensuringthequalityofinternalandexternalreporting; and

• contributetoensuringthatthecompanyoperatesin accordance with the relevant legislation and regulations as well as with its internal guidelines for its activities, including the company’s ethical guidelines and corporate values.

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

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

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

The Board has approved routines for internal control and risk management. The objective for the company’s risk manage-ment and internal control is to manage, rather than eliminate exposure to risks related to the successful conduct of the company’s business and to support the quality of its financial

reporting. Effective risk management and good internal control contribute to securing shareholders’ investment in the company and the company’s assets.

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

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

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

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

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

Sevan Drilling has an audit committee. Within risk management and internal control, the committee’s duties and responsibilities include; • Monitoringthefinancialreportingprocess,focusingonthe

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

management and the statutory auditor• Monitoringtheeffectivenessofthecompany’sfinancial

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

• Monitoringthestatutoryauditoftheannualaccounts.• Establishingandevaluatingproceduresforthecorrect

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

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

The company’s annual accounts provide information about the Board’s compensation.

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

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

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

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

ReportingThe company’s annual accounts provide information about salary and other compensation to the CEO and the executive management team.

The CEO determines the remuneration of executive employees based on guidelines for the remuneration prepared by the Board through the remuneration committee. The guidelines

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

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

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

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

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

Other market informationSevan Drilling holds open presentations in connection with the publication of the company’s quarterly results. The pres-entations are webcasted for the benefit of investors who are not able to attend the presentations. At the presentations, the executive management review and comment on the published results, market conditions and the company’s future prospects.

Dialogue with shareholdersThe company’s management gives high priority to commu-nication with the investor market. Individual meetings are organised for major investors, investment managers and analysts. The company also attends investor conferences.

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

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14. take-oversThe Board has established guiding principles for how it will act in event of a take-over bid for the company. It sets out that the Board will• seektofollowageneralprincipleofequaltreatmentand

help to ensure equal treatment of all shareholders;• seektoensurethatthecompany’sbusinessactivitiesarenot

disrupted unnecessarily;• seektoensurethatshareholdersaregivensufficient

information and time to form a view of any take-over bid; • notunjustlyseektopreventanytake-overbid,unlessthis

is believed to be in the interests of the company and the shareholders;

• induecourseissueastatementonthetake-overbidinaccordance with statutory requirements and applicable Norwegian corporate governance recommendations; and

• considerand,ifdeemednecessaryorpurposeful,arrangefor a valuation of the take-over bid by an independent expert, the conclusion of which will be made available to shareholders.

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

15. auDitorSevan Drilling is audited by PricewaterhouseCoopers in Stavanger, Norway.

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

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

The use of the auditor as a financial advisor to the company should be sought limited to cases where such use of the auditor does not have the ability to affect or question the auditors’ independence and objectiveness as auditor for the company. Only the company’s CEO and/or CFO shall have the authority to enter into agreements in respect of such counselling assignments.

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

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

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

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rEMunEraTion and BEnEfiTs

remuneration anD benefits of the boarD of DirectorsApproval of director remuneration will be subject to approval on the 2013 annual general meeting of the company. No members of the Board are entitled to severance pay or other benefits upon termination of their terms.

remuneration anD benefits of the members of the senior managementThe current CEO and senior management of the company currently receive a fixed base salary, and a variable salary of up to 65% of the base salary. The variable salary (bonus) is based on the achievement of financial, operational and personal goals and the provision of leadership in line with the company’s values. The employment contract of the CEO and the other members of senior management can be mutually terminated with six months’ notice and entitles on certain conditions to 24 months’ severance pay.

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

As of this date an option program comprising a total of 9,403,334 options has been issued. Each of the options entitles the holder to subscribe for one new ordinary share of the company, at an exercise price per share of NOK 5.75 (market price at the time of grant).

The grant levels as of 31 December 2012 are shown below:

nuMBeR oF incuMBents Role in the coMpAny nuMBeR oF options totAl nuMBeR oF options

1 Chief Executive Officer 1,600,000 1,600,0001 Chief Financial Officer 1,100,000 1,100,0004 Management Group 500,000 2,000,00027 Line Management 170,000 4,703,334

Total 34 9,790,000

As of 31 December 2012, the last balance sheet date, the company or its subsidiaries had not set aside or accrued any amounts for pensions, retirement or similar benefits, except from what is specified in note 13.







Scott KerrCEO

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TErMs and dEfiniTions

Sevan Drilling Sevan Drilling ASA.Sevan Drilling Group Sevan Drilling ASA and its subsidiaries.Anti-Money Laundering Legislation The Norwegian Money Laundering Act no. 11 of 6 March 2009 and the Norwegian

Money Laundering Regulations no. 302 of 13 March 2009 taken together.Articles of Association The Company’s articles of association. Board The Board of Directors of the Company.Board of Directors The Board of Directors of the Company.BOEMRE Bureau of Ocean Energy Management, Regulation and Enforcement.BOP Blow out preventer.Capex Capital expenditures.Combined Financial Statement The Company’s audited consolidated and combined financial statement as of and for the

years ended 31 December 2010, 2009 and 2008 consisting of Sevan Drilling ASA Group and Sevan Drilling Invest AS Group.

Company Sevan Drilling.Corporate Governance Code The Norwegian Code of Practice for Corporate Governance, recommended by Norsk

Utvalg for Eierstyring og Selskapsledelse (NUES) of 23 October 2012.Deepwater Water depths greater than 3,000 feet.Directors The Board of Directors of the Company.EIA The US Energy Information Administration.E&P Exploration and production.EBITDA Earnings before interest, tax, depreciation and amortisation. FSMA Financial Services and Markets Act 2000. GAAP Generally Accepted Accounting Practices. Specifically, US GAAP is the generally accepted

accounting practices used by US companies.Group The Company and its subsidiaries.HSE Health, safety and environment.IEA The International Energy Agency.IAS International Accounting Standard.IFRS International Financial Reporting Standards as adopted by the European Union.Member States The participating member states of the European Union.NCS The Norwegian Continental Shelf.NGL Natural gas liquids.NOK Norwegian Kroner, the lawful currency of Norway.Norwegian FSA The Norwegian Financial Supervisory Authority (Nw. Finanstilsynet).Norwegian Public Limited Liability Companies Act

The Norwegian Public Limited Companies Act of 13 June 1997, no. 45 (Nw. allmennaksjeloven).

Norwegian Securities Trading Act The Norwegian Securities Trading Act of 28 June 2007, no. 75 (Nw. verdipapirhandelloven).OPEC The Organisation of Petroleum Exporting Countries.Oslo Børs Oslo Børs ASA, or, as the context may require, Oslo Børs, a Norwegian regulated stock

exchange operated by Oslo Børs ASA. (Eng. The Oslo Stock Exchange).QHSE Quality, Health, Safety and Environment.Semi A semi-submersible drilling rig.Share(s) Means the ordinary shares in the capital of the Company, each with a par value of

NOK 1.00, or any one of them.UDW Ultra deepwater, specifying water depths greater than 7,500 feet.US Securities Act The United States Securities Act of 1933, as amended.USD United States Dollars.USGS US Geological Survey.VPS The Norwegian Central Securities Depository (Nw. Verdipapirsentralen or VPS).VPS account An account with VPS for the registration of holdings of securities.

officE locaTions

Sevan Drilling - OsloTordenskioldsgate 60160 OsloNorway

Phone: +47 22 33 00 00E-mail: [email protected]

Sevan Drilling - Arendal Tromøyveien 184841 ArendalNorway

Postal address:Post box 2654802 ArendalNorway

Phone: +47 22 33 00 00E-mail: [email protected]

Sevan Drilling - Rio de JaneiroPalácio Austregésilo de Athayde buildingAvenida Presidente Wilson No 231 salas 1003/1004Centro - Rio de Janeiro - RJZIP CODE 20030-905Brazil

Phone: +55 21 3177 4301Fax: +55 21 3177 4399E-mail: [email protected]

Sevan Drilling - Singapore 350 Orchard RoadShaw House #15-10Singapore 238868

Phone: +65 6430 4111Fax: +65 6220 4114E-mail: [email protected]

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