Leases

6 Months Ended

Jun. 30, 2023

Leases [Abstract]

Leases

Leases

Current leasing arrangements

We have operating leases relating to our premises, for which we are the lessee. The most significant leases are for our offices in London, Liverpool, Stavanger, Houston, Rio de Janeiro, and Luanda. In accordance with Topic 842, we record lease liabilities and associated right-of-use assets for our portfolio of operating leases.

We continue to lease three of our benign environment jackup rigs, West Castor, West Telesto and West Tucana, to our joint venture, Gulfdrill, for a contract with GDI in Qatar. As of June 30, 2023, these rigs have been classified as held for sale; please refer to Note 27 – Assets held for sale for further details. On July 1, 2022 we commenced a lease for our benign environment floater, West Gemini, to our Sonadrill joint venture at a nominal charter rate. As a lessor we recognize the associated revenue over the lease term in accordance with Topic 842.

Lease fair value and Chapter 11

In accordance with bankruptcy guidance, Seadrill follows specific guidance for assumed leases under ASC 842 and ASC 805. Liabilities and assets associated with assumed leases are recognized as of the date of emergence in accordance with the provisions of ASC 805. Leases are one of the limited exceptions to the fair value recognition and measurement principles under ASC 805. At emergence, assumed leases are remeasured using the remaining lease term (including consideration for any lessee options that are reasonably certain of exercise), the remaining lease payments, and the updated discount rate for the successor entity reflective of the new lease term. Additionally, under this guidance, the successor entity is required to retain the predecessor’s previous lease classification, unless the lease is modified.

Further, in accordance with ASC 805, Seadrill adjusted its acquired operating lease right-of-use ("ROU") assets to the amount of the corresponding lease liabilities, taking into account any favorable or unfavorable terms of the lease compared to market terms. To determine any favorable or unfavorable terms, Seadrill considered all the terms of the lease, including rent payments, options for renewal or termination, purchase options, and lease incentives.

You may find further details of the adjustments recorded on fresh start accounting within Note 4 - "Fresh Start Accounting".

Lease liabilities (Short-term & Long-term)

In accordance with ASC 805, acquired operating lease liabilities should be measured as if they were new leases following the guidance under ASC 842 (e.g., reassessment of the lease term, incremental borrowing rate (“IBR”), lease payments, purchase options). Therefore, all assumed lease liabilities were measured at the present value of remaining lease payments discounted at the IBR of the successor on the date of remeasurement (i.e., the Effective Date).

Undiscounted cashflows of operating leases

For operating leases where we are the lessee, our future undiscounted cash flows as at June 30, 2023 are as follows:

(In $ millions)	Years Ended December 31:
Remainder of 2023	2
2024	2
2025	2
2026 and thereafter	3
Total	9

The following table gives a reconciliation between the undiscounted cash flows and the related operating lease liability recognized in our Consolidated Balance Sheets as at June 30, 2023 and December 31, 2022:

(In $ millions)	As at June 30, 2023	As at December 31, 2022
Total undiscounted cash flows	9	11
Less discount	(2)	(2)
Operating lease liability	7	9
Of which:
Current	3	3
Non-current	4	6
Total	7	9

Supplementary lease information

The following table gives supplementary information regarding our lease accounting for the three and six months ended June 30, 2023 (Successor), the three months ended June 30, 2022, the period from January 1, 2022 through February 22, 2022 (Predecessor), the period February 23, 2022 through June 30, 2022 (Successor):

	Successor				Successor				Predecessor
(In $ million)	Three months ended June 30, 2023		Three months ended June 30, 2022		Six months ended June 30, 2023		Period from February 23, 2022 through June 30, 2022		Period from January 1, 2022 through February 22, 2022
Operating lease cost:
Operating lease cost	2		14		3		20		4
Short-term lease cost	—		1		—		2		1
Total lease cost	2		15		3		22		5
Other information:
Cash paid for lease liabilities- operating cash flows	2		15		3		22		5
ROU assets obtained in exchange for lease liabilities	—		4		—		4		24
Weighted-average remaining lease term in months	51		21		51		21		22
Weighted-average discount rate	10	%	9	%	10	%	9	%	9	%

Undiscounted cashflows under lessor arrangements

For operating leases where we are the lessor, our estimated future undiscounted cashflows as of June 30, 2023, were as follows. For avoidance of doubt, these estimates include future charter revenue from the rigs leased to Gulfdrill but do not include the future amortization of the liability recognized in respect of the Sonadrill arrangement.

(In $ millions)	Year ended December 31
2023	20
2024	53
2025	47
2026 and thereafter	6
Total (1)	126

(1) These rigs have been classified as held for sale for accounting purposes and, as such, depending on the timing of the future disposal, the associated revenue may not all be recognized by Seadrill.

Refer to Note 8 – Other revenue for details of the revenues recorded in respect of the above leases.

Leases

Leases

Current leasing arrangements

We have operating leases relating to our premises, for which we are the lessee. The most significant leases are for our offices in London, Liverpool, Stavanger, Houston, Rio de Janeiro, and Luanda. In accordance with Topic 842, we record lease liabilities and associated right-of-use assets for our portfolio of operating leases.

We continue to lease three of our benign environment jackup rigs, West Castor, West Telesto and West Tucana, to our joint venture, Gulfdrill, for a contract with GDI in Qatar. As of June 30, 2023, these rigs have been classified as held for sale; please refer to Note 27 – Assets held for sale for further details. On July 1, 2022 we commenced a lease for our benign environment floater, West Gemini, to our Sonadrill joint venture at a nominal charter rate. As a lessor we recognize the associated revenue over the lease term in accordance with Topic 842.

Lease fair value and Chapter 11

In accordance with bankruptcy guidance, Seadrill follows specific guidance for assumed leases under ASC 842 and ASC 805. Liabilities and assets associated with assumed leases are recognized as of the date of emergence in accordance with the provisions of ASC 805. Leases are one of the limited exceptions to the fair value recognition and measurement principles under ASC 805. At emergence, assumed leases are remeasured using the remaining lease term (including consideration for any lessee options that are reasonably certain of exercise), the remaining lease payments, and the updated discount rate for the successor entity reflective of the new lease term. Additionally, under this guidance, the successor entity is required to retain the predecessor’s previous lease classification, unless the lease is modified.

Further, in accordance with ASC 805, Seadrill adjusted its acquired operating lease right-of-use ("ROU") assets to the amount of the corresponding lease liabilities, taking into account any favorable or unfavorable terms of the lease compared to market terms. To determine any favorable or unfavorable terms, Seadrill considered all the terms of the lease, including rent payments, options for renewal or termination, purchase options, and lease incentives.

You may find further details of the adjustments recorded on fresh start accounting within Note 4 - "Fresh Start Accounting".

Lease liabilities (Short-term & Long-term)

In accordance with ASC 805, acquired operating lease liabilities should be measured as if they were new leases following the guidance under ASC 842 (e.g., reassessment of the lease term, incremental borrowing rate (“IBR”), lease payments, purchase options). Therefore, all assumed lease liabilities were measured at the present value of remaining lease payments discounted at the IBR of the successor on the date of remeasurement (i.e., the Effective Date).

Undiscounted cashflows of operating leases

For operating leases where we are the lessee, our future undiscounted cash flows as at June 30, 2023 are as follows:

(In $ millions)	Years Ended December 31:
Remainder of 2023	2
2024	2
2025	2
2026 and thereafter	3
Total	9

The following table gives a reconciliation between the undiscounted cash flows and the related operating lease liability recognized in our Consolidated Balance Sheets as at June 30, 2023 and December 31, 2022:

(In $ millions)	As at June 30, 2023	As at December 31, 2022
Total undiscounted cash flows	9	11
Less discount	(2)	(2)
Operating lease liability	7	9
Of which:
Current	3	3
Non-current	4	6
Total	7	9

Supplementary lease information

The following table gives supplementary information regarding our lease accounting for the three and six months ended June 30, 2023 (Successor), the three months ended June 30, 2022, the period from January 1, 2022 through February 22, 2022 (Predecessor), the period February 23, 2022 through June 30, 2022 (Successor):

	Successor				Successor				Predecessor
(In $ million)	Three months ended June 30, 2023		Three months ended June 30, 2022		Six months ended June 30, 2023		Period from February 23, 2022 through June 30, 2022		Period from January 1, 2022 through February 22, 2022
Operating lease cost:
Operating lease cost	2		14		3		20		4
Short-term lease cost	—		1		—		2		1
Total lease cost	2		15		3		22		5
Other information:
Cash paid for lease liabilities- operating cash flows	2		15		3		22		5
ROU assets obtained in exchange for lease liabilities	—		4		—		4		24
Weighted-average remaining lease term in months	51		21		51		21		22
Weighted-average discount rate	10	%	9	%	10	%	9	%	9	%

Undiscounted cashflows under lessor arrangements

For operating leases where we are the lessor, our estimated future undiscounted cashflows as of June 30, 2023, were as follows. For avoidance of doubt, these estimates include future charter revenue from the rigs leased to Gulfdrill but do not include the future amortization of the liability recognized in respect of the Sonadrill arrangement.

(In $ millions)	Year ended December 31
2023	20
2024	53
2025	47
2026 and thereafter	6
Total (1)	126

(1) These rigs have been classified as held for sale for accounting purposes and, as such, depending on the timing of the future disposal, the associated revenue may not all be recognized by Seadrill.

Refer to Note 8 – Other revenue for details of the revenues recorded in respect of the above leases.