John Roche - Director, Investor Relations Per Wullf - Chief Executive Officer and President Rune Magnus Lundetræ - Chief Financial Officer and Senior Vice President Anton Dibowitz - Chief Commercial Officer and Senior Vice President

Jacob Ng - Morgan Stanley Mukhtar Garadaghi - Citi

Good day, ladies and gentlemen, and welcome to the Q4 2014 Seadrill Limited earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. John Roche, Head of Investor Relations. Please go ahead, sir.

Thanks, Ann. Good afternoon and good morning to everyone on the call today. Welcome to Seadrill Limited's fourth quarter earnings conference call. With us today, we have Per Wullf, our Chief Executive Officer; and Rune Magnus Lundetræ, our CFO; and Anton Dibowitz, our Chief Commercial Officer. Before we do get started, I'd like to remind everyone that much of the discussion today will not be based on historical fact, but rather consist of forward-looking statements and are subject to uncertainty. We articulate some of the key items on Page 2 of the presentation today. For additional information and to view our SEC filings, please visit our website at www.seadrill.com. To begin the discussion today, Per will take us through our fourth quarter highlights and some of his thoughts on Seadrill and the company's position in the current market environment. Rune will then address our financial highlights and near-term funding requirements. And lastly, Anton will offer some color on the overall market and recent developments for Seadrill on the commercial side of the business. With that, I'd like to turn over the call to our CEO, Per Wullf. Per?

Good afternoon, everybody. Seadrill has had a successful year in 2014 in a very challenging market. I'm pleased that we are able to deliver operationally and achieve economic utilization of 94% for the year. In the fourth quarter, we took delivery of three drillships. They are all into service. It's West Jupiter, West Saturn and West Neptune. This was a first for us, and I am pleased with the focus on safety and efficiency that has come to define Seadrill's operational principles. Operational excellence is our bread and butter. It is quite an accomplishment to be able to take three drillships directly from the yard and into service on-time and deliver high operational utilization right from day one. In the case of West Jupiter, we started our well in Nigeria in December and completed the well safely, ahead of schedule and with 98% technical utilization. This is a testament to Seadrill's standardization program, our ability to apply lessons learned and the quality of our workforce. Within our ongoing operations, this quarter, our deepwater unit West Pegasus, which has been operating in Mexico since delivery from the yard has achieved four years without any loss time incident, which is a great accomplishment. I would personally like to give a very big congratulation to all our employees on and offshore, who played a part in these achievements. In addition to executing operationally, we were able to take a number of steps to ensure that Seadrill is able to manage through the market challenges, and believe these steps will provide us with a flexibility to emerge from the industry downturn in a stronger position. In November, we made the difficult decision to suspend the dividend. However, standing behind that decision is events that transpired since that time have made us more comfortable that the correct decision was made. On the funding side of the picture, Seadrill was able to secure roughly $10 billion in new financing agreements and create a more staggered maturity profile. Our balance sheet is strong and future funding requirements are manageable. Rune will go into more detail later in the call on this point. We have also taken preliminary steps to manage our delivery schedule to be more in line with demand requirements. At this point, we have delayed eight jack-ups, a total of 44 months and Sevan Developer up to 36 months with cancellation options. Today, Seadrill has limited exposure to the current dayrate environment. In the fourth quarter alone, we were able to sign five contracts and one extension, representing $1.3 billion in contract backlog. Seadrill along with the rest of the industry is encountering challenges to its contracted backlog, as some counterparties request relief to dayrate or seek early contract termination. The company is confident that its contract terms are enforceable. However, it may be willing to engage in discussions to modify such contracts, if there is a commercial agreement that has been official to both parties. In the event of early termination, for the customers' convenience, an early termination amount is typically payable to Seadrill. Although, I am pleased with Seadrill's performance and actions taken to weather the downturn, clearly, we are in a challenging market. Since our last quarter report in November, the Brent spot price has dropped by 23% or $17 per barrel. Oil companies continue to cut pockets and significant spare capacity for offshore drilling units is likely to materialize as 2015 progresses. It is expected that roughly four of the fleet will be available in 2015. Rig owners are bidding for available work extremely competitively with a focus on utilization over price, which will likely drive rates down too or even below cash breakeven levels. However, this is not all bad, if you take a longer-term view. The severity of this downturn is forcing the industry to make decisions, regarding cold stacking and scrapping of older units. This activity is expected to accelerate, likely to levels which have not been seen in two decades. Owners of older inefficient units face difficult decisions, as these units approach periodic classing activities and most seem to be opting not to invest the significant expenditures required, instead choosing to stack or scrap the unit. We believe scrapping will ultimately create a more healthy industry, as weaker players leave the business and old rigs are retired. Seadrill remains in the position to benefit from this rebalancing with a best-in-class fleet. The Seadrill Group on a combined basis or including Seadrill Partners from comparability purposes had another strong quarter and has grown EBITDA by 17% year-over-year. We expect first quarter results to be roughly $40 million lower than this figure. Expectations for this first quarter include approximately 130 days of downtime, offset by a full quarter of operation for the West Saturn, West Jupiter and West Neptune. Backlog for the Seadrill Group on a combined basis is $17 billion, following signing five new contracts and one extension, resulting in $1.3 billion of additions during the fourth quarter. Utilization for the fourth quarter was 94%. This is below our target utilization of 95% and we continue to work to achieve targeted uptime. In spite of operational challenges during the year, the benefits of a uniform, best-in-class fleet continue to be realized. We expect this to be more pronounced as time progresses. Now, Rune will take us through the financial items. So here we go, Rune. Rune Magnus Lundetræ: Thanks, Per. And thanks everybody for dialing in this morning or afternoon, wherever you are in the world. Starting with financial performance highlights, revenues for the fourth quarter was $1.261 billion compared to $1.293 billion in the third quarter. The decrease is primarily due to downtime on the West Phoenix and West Venture, and removal of the West Vela following the sale to Seadrill Partners in November. This was offset by commencement of operations on the West Saturn, Jupiter and Neptune, as Per mentioned earlier. Operating profit for the fourth quarter decreased slightly to $452 million compared to $461 million in the third quarter. Net financial and other items for the quarter show a loss of $251 million compared to a loss of $232 million in the previous quarter. The loss was primarily losses on derivative financial instruments, offset by foreign exchange gains. Finally, income taxes for the fourth quarter were $51 million, an increase of $12 million from the previous quarter, and this was primarily due to an increase of uncertain tax positions. Moving over to the balance sheet. No significant changes to the total current assets. Over the course of the quarter, total non-current assets decreased to approximately $23 billion from $24 billion in the third quarter, primarily due to the sale of the West Vela to Seadrill Partners, a decrease in the value of marketable securities and impairment of goodwill, and this was offset by an increase in investments in associated companies. Total current liabilities increased to $4.574 billion from $3.6 billion, primarily due to an increase in the current portion of long-term debt and unrealized losses on derivatives, offset by normal quarterly debt installments. Long-term external interest-bearing debt decreased to approximately $10.3 billion from $11.2 billion over the course of the quarter, and total net interest-bearing debt decreased to $11.7 billion from approximately $12.7 billion. The decrease was primarily due to the derecognition of the West Vela facility following the sale to Seadrill Partners, decrease in related party debt as a result of the West Polaris acquisition in December and an increase of the cash balance. Total equity decreased to approximately $10.4 billion from $10.9 billion as of December 31, 2014, and this was primarily driven by losses related to unrealized mark-to-market loss on marketable securities, offset by net income for the quarter. Looking at the EBITDA contribution and the change from Q3 to Q4 on a combined basis, we saw an increase from $842 million to $897 million. We had a very solid operation in the fourth quarter, both for the floating segment and the jack-ups. Although, we did see a slight decrease in the contributions from the floating segment due to BOP issue on the West Phoenix and also some downtime on the West Venture, but we had significant increase from the jack-up segment due to startup of a couple of contracts and also generally improved operations. On the funding requirements, during 2014 the Seadrill Group successfully accessed the U.S. equity market, the TLB market, we did U.S. bond, Swedish bond and also accessed the MLP market, resulting in a more balanced capital structure with staggered debt maturities. Nearly $10 billion in new financing commitments were completed, leaving the company well-positioned financially heading into a challenging 2015. Now, many markets have become unattractive, as the oil market fundamentals deteriorated during the second half of the year. For the most part, the only markets offering an attractive cost of funding in our view are the secured bank and ECA markets. The company's banking group remains very supportive with the Seadrill Group, given its fleet profile and strong track record in the credit market. In the fourth quarter alone, Seadrill was able to raise a total of $1.7 billion in secured bank funding. And we believe we have adequate headroom for secured funding going forward, should the capital markets remain unattractive. Today, we have $1.3 billion approximately in debt maturing in 2015 and 2016 combined, and a total of $2.4 billion in debt amortizations. In terms of yard installments, the company will be looking to fund a total of $3.5 billion over the next couple of years, making the total funding requirement through '16 approximately $4.8 billion, while in the same period debt is reduced by the $2.4 billion of amortization payments that I mentioned a moment ago. And I leave the work to Anton Dibowitz, Chief Commercial Officer

Thanks, Rune, and good morning and afternoon, everybody. Today I'm going to start off by addressing some of the recent developments around backlog, talk a bit about sanctity of contract. And lastly, add a few comments about the state of the market in general. During November 2014, we received notification from Petrobras of their approval of contract extensions for the West Taurus and the West Eminence, which was a material and disposable event. In the time between receiving the Petrobras approval and concluding the final contract with the BMS-9 and BMS-11 field consortiums, it became apparent to us that the timeframe for signing the contracts on commercial terms would not be in line with the guidance originally provided to the market, and consequently we made additional disclosure. Today, we continue to have commercial discussions with Petrobras on behalf of the consortium for the employment of both of these units. I would differentiate this from the case of West Tellus and Carina, which are now signed firm contracts. The rigs are mobilizing or will be eminently mobilizing to Brazil, and we continue to expect startup during the second quarter. These awards are prime examples of how our operational history in Brazil, relationship with Petrobras and being able to deliver premium assets as part of a total solution, which included managed pressure drilling technology, allowed us to secure key fixtures. In the case of the West Tellus, it also illustrates our ability to wait for the right opportunity to fix units on follow-up work, rather than having to chase suboptimal jobs to keep the rig working. With respect to contract renegotiations, we have indeed been approached by some of our customers, seeking price adjustments under existing contracts in light of the current oil price environment. To date, I would characterize these discussions as largely collaborative and in the context of deals, which create mutually beneficial outcomes for both Seadrill and our customers. With respect to contract cancellations, while we cannot predict the extent to which all companies will go in order to reduce their commitments, typically we have clauses in our contracts that require customers to pay a fee, typically a percentage of dayrate, in the event they choose to cancel for convenience. This fee is generally set at a level that protects all or significant portion of the contract margin. There have been some recent announcements regarding rate renegotiations and contract cancellations by PEMEX. We have not received any notices of termination written or verbal from PEMEX for any of our rigs. PEMEX has a clearly articulated strategy to high-grade its fleet, shedding older less capable units. In the case of the rigs we have working for PEMEX, the West Pegasus is a sixth-generation semi-submersible with best in PEMEX class safety and operational performances. Per referred to the four years without a loss time incident in his opening remarks. Further, the West Pegasus contract includes a periodic market rate adjustment mechanism, which creates little incentive for PEMEX to seek to renegotiate its terms. The five jack-ups we have working for PEMEX are also newer high specification units. Based on the language in our jack-up contracts and our excellent operational performance, we believe that the backlog in our jack-ups is secure. As far as the overall market is concerned, clearly the industry is facing considerable challenges. Overall, the market is now entering second year of downturn. And since our last earnings call in November, the offshore drilling market has continued to deteriorate. On the demand side, severely curtailed E&P budgets are resulting in subdued tendering and contracting activity. Exploration drilling programs, which had already been significantly cutback, are being reduced even further. New field development programs face delays and even drilling on producing fields is falling victim to E&P budget cuts. On the supply side, more than a dozen ultra-deepwater rigs are idle as we speak. Considering the number of uncontract new builds, contracted rollovers and available sublets, it is likely that a significant number of rigs will remain uncontracted by the end of this year, and further that fleet utilizations will be challenged well into the future. With multiple rigs competing for every job, and drilling contractors at times desperate to keep their assets utilized, dayrates are fast, being driven down to or below cash breakeven levels. In addition, oil companies are leveraging the highly competitive markets to weaken commercial terms in new contracts. The positive side of this severe downturn, such as the one we're currently experiencing is that it encourages the contract drilling industry to take the needed steps to rationalize the fleet. Approximately 20 floaters have already been removed from the actively marketed fleet, either by virtue of cold stacking or outright scrapping. With a significant number of rigs approaching the end of their useful lives, and/or acquiring significant capital investment in order to maintain class over the next few years, scrapping activity is likely to accelerate. These actions are needed to strengthen the industry for the long-term. Per?

Overall, we believe that the current downturn will ultimately result in a more healthy industry in the long run. Seadrill's business has been eye towards to generating returns to the cycle and has the capability to face today's challenges. We believe the company is well-positioned to take advantage of this downturn and to come out stronger. Finally, Seadrill's favorable positioning should allow the company to act as a consolidator when the time is right. Current evaluations do not yet justify acquiring companies, many of which have significant uncontracted rig capacity available. Seadrill's primary focus will continue to be on cash and commitment management, until we have a view on the shape of the recovery. Thank you.

Thanks, Per. And with that, I'd like to turn over the call to the operator to assemble the queue for questions. I would like to remind everyone to limit questions to one question and one follow-up given that the number of callers we have today. So over to you, Ann.

[Operator Instructions] We will now take our first question from Jacob Ng from Morgan Stanley.

Obviously, a lot of noise out of Brazil these days. Could you please shed some light on what's going on with [ph] Sanchez? And on the notice, progress on your three JV rigs still going as planned. I wonder if there could be an opportunity for you to step-in and substitute part of the intended three nine rig package through some of your delayed newbuilds, as we get to 2017.

Yes, I can comment a little bit on that one. As you know, we have committed together decided to build three drillships. We have 30% stake in these three drillships. And it's three times 15-year contracts. And we are building these drillships together with Jurong, we also make sure that they're actually being built and that is continuing as we speak. But always, obviously, we will see how it's going with contracting of our own units down there as well. But obviously, we are well-positioned to take further commitment together with Sanchez, because we are one of the few ones left there. And you could see a more units together with Sanchez going forward, based on where we have a stake in the units going forward and that could be some of the semis and some of the drillships, maybe being built down them.

Now, I also want to touch on the possibility of share buybacks in lieu of your suspended dividend. Would you be able to share a roadmap with some milestones that would dictate a go or no-go share repurchases down the road. Rune Magnus Lundetræ: I don't want to comment on the timeline. What we opened up for in Q3 was the possibility of that happening. I think the focus now is on preserving cash.

We will now take our next question from [ph] Andrew Bergland from Platou Markets.

Just a couple of question, first on Brazil and then on Mexico. Can you give some insight to where your negotiation for an extension on the Orion? And secondly, clarify something on the PEMEX contracts. Are you exposed to the 30-day cancellation at all on the jack-ups and also on the Pegasus?

I believe your first question was about Brazil. Petrobras is a very systematic process as they go through their extension discussions. They're rolling off contract first and engaging those discussions and we just simply not at a point with Petrobras discussing the Orion extension at this point. With regards to the question about PEMEX and termination rates, obviously all contracts are bound by confidentiality, so I'm not going to get into the specifics of discussing any particular contract. But I would point you to the comments that we put in the quarter, and also the comments in my prepared statements that based on the language that we have in our contracts with PEMEX, we are confident that those contracts and the backlog there is absolutely secure.

We will now take our next question from Mukhtar Garadaghi from Citi.

Just in terms of you delaying some of the new builds. Could you please discuss the four drillships you have due, which I understand you pushback to the middle of 2016. How much flexibility you have to pushback those even more? And does it coming any cost? And then I have one follow-up.

Well, as you know we are building two drillships at DSME and we are building a couple of drillships at Samsung. Of course, we are part of the Fredriksen Group and the Fredriksen Group of building a lot of units out in the Far East. And we are close dialog with the yards all the time in order to adjust this. I cannot give you a specific time, but I can tell you we will not go and deliver -- and take delivery of any units in 2015. And then we have to give another couple of quarters, before I can guide you more on when in '16 or in '17 you will take delivery. That is the closest I can do right now.

And just as a follow-up, I mean in terms of financing, your options on financing, if you were to take these rigs in 2016, could you please discuss your option to finance them if they are no contracts given your announcement expecting the weakness to last into '16? I think you've talked it about Carina. Can you just elaborate a bit more? Rune Magnus Lundetræ: So first of all, I'll just remind you that, we have paid down 30% and 20% respectively of these rigs, so the final installment is between $350 million and $400 million of this year. Secondly, I think you should expect those to structure the financing as we did with Carina and where you have steel element, meaning that there is a non-contractual element that would be expected to be between $350 million and $375 million per unit. That's the discussions we have with the banking group. And as we also said in our report, there is still great support from our main banks and they would be willing to look at structure like that. And then you would have stag or a step-up depending on what the comp tracks backlog and dayrate level you were able to obtain. So that would be the way to structure the funding in case you take delivery without contract.

Rune, just quickly, and the way the banks value these rigs, is it still likely sort of right around $600 million range or has that change in the last month? Rune Magnus Lundetræ: What we do is we have every six months we get to independent brokers to value our rigs. And it has decreased from June through December. And that decrease has been approximately 10% on the fleet in total.

That will conclude today's question-and-answer session. I would now like to hand back to Mr. John Roche for any closing remarks. End of Q&A

Thanks, Ann. And thank you for everyone on the call today. This concludes Seadrill's fourth quarter conference call. Thank you.

That will conclude today's call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.