Odfjell Drilling Ltd. · 2017. 2. 28. · 2016 and lower revenue for Deepsea Atlantic in 2016 compared to 2015. This is partly offset by full operations in 2016 for Deepsea Aberdeen

This interim report is unaudited and has been prepared in accordance with IAS 34 “Interim Financial Reporting”.

Odfjell Drilling Ltd.

Report for the 4

th quarter of 2016 and preliminary

results for 2016

2

Key figures for the Group

Please note that all financial figures related to 2015 mentioned in this report have been restated as a result of the

impairment write-down as reported in Q2 2016. For further information about the restated 2015 figures, please see

the Q2 2016 report.

Highlights Q4 2016 Odfjell Drilling Ltd. Group

• Operating revenue of USD 149 million compared to USD 179 million in Q4 2015.

• EBITDA of USD 78 million compared to USD 69 million in Q4 2015.

• EBITDA margin of 53% compared to an EBITDA margin of 38% in Q4 2015.

• The Group’s contract backlog is USD 2.8 billion, whereof USD 1.6 billion is firm backlog. The

comparable figure at the end of Q4 2015 was USD 3.9 billion, whereof USD 2.0 billion was firm

backlog.

Mobile Offshore Drilling Units segment


• EBITDA of USD 69 million compared to USD 43 million in Q4 2015.

• EBITDA margin of 64% compared to 40% in Q4 2015.

Drilling & Technology segment


• EBITDA of USD 3 million compared to an EBITDA of USD 8 million in Q4 2015.

• EBITDA margin of 14% compared to an EBITDA margin of 19% in Q4 2015.

All figures in USD million Restated Restated

Key figures Odfjell Dril l ing Ltd. Group Q4 16 Q4 15 FY 16 FY 15

Operating revenue…………………………………..………… 149 179 657 927

EBITDA………………………………………………………...……… 78 69 285 78

EBIT……………………………………….…………………...…………... (48) 33 34 (242)

Net (loss) profit………………………………………………………….. (75) 39 (64) (319)

EBITDA margin…………………………………………...………. 53% 38% 43% 8 %

Total assets……………………………………………………… 2 264 2 617

Net interest bearing debt………………………………... 1 231 1 395

Equity………………………………………………………………. 722 792

Equity ratio……………………………………………………… 32 % 30 %

3

Well Services segment


• EBITDA of USD 11 million, same as in Q4 2015.

• EBITDA margin of 44% compared to 38% in Q4 2015.

Participation in Deepsea Metro I financial restructuring

Golden Close Maritime Corp. Ltd. (“Golden”), the owner of the drillship Deepsea Metro I, has on 27

February 2017 undertaken to complete a restructuring plan of Golden. Odfjell Drilling has decided to

contribute to a solution whereby Odfjell Drilling will enter into a four year management contract with a

reduced management fee, in return of receiving USD 40 million in bonds to be issued by Golden. After

the restructuring has been completed, Odfjell Drilling will hold approximately 9 per cent of the senior

secured bonds and the convertible bonds issued by Golden. The restructuring is subject to approval

from the bondholders in the 9.00 per cent Golden Close Maritime Corp. Ltd. Senior Secured Callable

Bond expected to find place 17 March 2017.

Continuing operations on the Brage platform

Wintershall Norge AS awarded to Odfjell Drilling, on 13 December 2016, a 4 year contract for platform

drilling services on the Brage platform located on the Norwegian Continental Shelf. The contract came

into effect on 1 January 2017 and additionally contains 2+2 year options.

Secured additional work for Deepsea Bergen

Odfjell Drilling secured, on 23 December 2016, further employment for its 3rd generation semi-

submersible, Deepsea Bergen. This contract is for a one well plus one well option with Faroe Petroleum

Norge on the Norwegian Continental Shelf, with commencement scheduled to be back to back with the

expiry of the current contract with Statoil, which is expected to commence approximately mid July 2017.

Impairment write-down of Deepsea Atlantic and Deepsea Stavanger

Based on impairment tests performed, the mobile drilling units “Deepsea Atlantic” and “Deepsea

Stavanger” have been written-down as at 31 December 2016 by the total amount of USD 80 million. For

further details around the assumption for the impairment test, please see note 4 of Q4 2016 Condensed

Consolidated Financial Statements.

Financial review – operations (Comparable figures for last comparable period in brackets)

Consolidated group financials

Profit & loss Q4 2016

Operating revenue for Q4 2016 was USD 149 million (USD 179 million), a decrease of USD 30 million.

Operating revenue decreased this quarter due to a reduction in activity in all segments from Q4 15 to Q4

16. Drilling & Technology had a reduction of USD 24 million, due to the reduction in the number of

4

operated platforms and the reduction of engineering services in Q4 2016. Well Services are still facing a

challenging market producing reduced revenue compared to Q4 2015.

EBITDA in Q4 2016 was USD 78 million (USD 69 million), a net increase of USD 9 million. The Q4 2016

EBITDA was positively impacted by a pension effect of USD 4 million related to reduction in personnel.

The EBITDA margin in Q4 2016 was 53% (38%). The decrease in revenue from 2015 to 2016 was offset

by a reduced cost base, efficiency gains and reduced personnel expenses (including the pension effect).

EBIT in Q4 2016 was negative USD 48 million (USD 33 million), a decrease of USD 81 million. EBIT in Q4

2016 was negatively impacted by the impairment write-down of USD 80 million.

Net financial expenses in Q4 2016 amounted to USD 21 million compared to 20 million in Q4 2015.

In Q4 2016 the tax expense was USD 6 million (tax income of USD 37 million). Tax expense is mainly

related to profits in Norway and the UK, in addition to withholding taxes in other countries. The Q4 2015

tax income was impacted by USD 46 million as a result of the positive tax court verdict in the Norwegian

Supreme Court.

Net profit in Q4 2016 was negative USD 75 million (USD 39 million).

Profit & loss FY 2016

Operating revenue for FY 2016 was USD 657 million (USD 927 million), a decrease of USD 270 million.

Operating revenue decreased in 2016 due to a reduction in activity within all segments from FY 15 to FY

16. MODU had a revenue reduction of USD 183 million, mainly explained by the idle periods for Deepsea

Atlantic and Deepsea Stavanger in 2016, and lower day rates than in the previous year.

EBITDA FY 2016 was USD 285 million (USD 78 million), a net increase of USD 207 million mainly due to

the loss from the Deep Sea Metro Ltd. Group in 2015. The EBITDA margin was 43% FY 2016 compared to

8% FY 2015. Decrease in revenues from 2015 to 2016 was offset by a reduced cost base, efficiency gains

and reduced personnel expenses (including the pension effects).

EBIT FY 2016 was USD 34 million (negative USD 242 million), an increase of USD 276 million mainly due

to the loss from the Deep Sea Metro Ltd. Group and higher impairment write-down FY 2015 than in

2016.

Net financial expenses in FY 2016 amounted to USD 74 million (USD 64 million). The change is mainly

due to a lower gain from interest rate swaps in FY 2016 compared to FY 2015. In addition there was a

higher net currency loss during FY 2016 compared to FY 2015.

In the FY 2016 the tax expense was USD 25 million (tax income USD 16 million). Tax expense is mainly

related to profits in Norway and the UK, in addition to withholding taxes in other countries. The FY 2015

tax income was impacted by USD 46 million as a result of the positive tax court verdict in the Norwegian

Supreme Court

Net profit YTD 2016 was USD negative 64 million (negative USD 319 million).

5

Balance sheet

Total assets as at 31 December 2016 amounted to USD 2,264 million compared to USD 2,617 million as

at 31 December 2015, a decrease of USD 353 million.

Equity as at 31 December 2016 amounted to USD 722 million compared to USD 792 million as at 31

December 2015, a decrease of USD 70 million.

The equity ratio was 32% as at 31 December 2016 compared to 30% at year-end 2015.

Net interest bearing debt as at 31 December 2016 amounted to USD 1,231 million compared to USD

1,395 million as at 31 December 2015, a decrease of USD 164 million, mainly due to the net repayment

of interest bearing debt during the period.

Odfjell Rig II Ltd., and Odfjell Rig III Ltd., both subsidiaries of Odfjell Drilling Ltd., and also the respective

owners of the mobile drilling units Deepsea Bergen and Deepsea Aberdeen, did not comply with their

respective minimum value requirements as at 31 December 2016. The valuation short-fall will be

corrected through scheduled installments that take place within any applicable redemption period. No

reclassifications to short-term debt have been made as at 31 December 2016.

Cash flow

Net cash flow from operating activities in Q4 2016 was positive at USD 61 million. The Group paid USD

14 million in interest and USD 3 million in income taxes.

Net cash used in investing activities in Q4 2016 was USD 5 million, mainly related to capital expenditures.

USD 56 million was used for instalments on existing credit facilities in Q4 2016.

Net cash flow from operating activities FY 2016 was positive at USD 199million. In FY 2016 the Group

paid USD 59 million in interest. Net income taxes had a positive effect of USD 16 million as a result of

the positive tax court verdict in the Norwegian Supreme Court.

Net cash used for investing activities in FY 2016 was USD 22 million. USD 30 million was for capital

expenditures, while USD 8 million was received as repayment of paid in capital from Deep Sea Metro Ltd.

USD 194 million was used for instalments on existing credit facilities and refinancing fees in FY 2016.

At 31 December 2016 the cash and cash equivalents amounted to USD 182 million. There has been a

total negative net change in cash and cash equivalents of USD 20 million since 31 December 2015.

6

Segments

The Group's internal reporting is prepared according to Norwegian GAAP. This gives rise to differences

between the measurements of segment disclosures and comparable items disclosed in this report and in

particular the treatment of pension effects.

Mobile Offshore Drilling Units (MODU)

Operating revenue for the MODU segment in Q4 2016 was USD 108 million (USD 110 million), a

decrease of USD 2 million. The decrease in revenue is explained by the fact that Deepsea Stavanger

completed its contract with BP in Angola during Q4 2015, whereas the unit was idle in Q4 2016. This was

offset by Deepsea Atlantic being on the Johan Sverdrup contract in Q4 2016 while preparing for

operations in Q4 2015.

EBITDA for the MODU segment in Q4 2016 was USD 69 million (USD 43 million), an increase of USD 26

million. The EBITDA increase is mainly related to lower operating expenses and improved utilization

results on Deepsea Bergen and Deepsea Aberdeen.

EBIT for the MODU segment in Q4 2016 was negative USD 49 million (USD 18 million), a decrease of USD

67 million mainly related to the impairment write-down of USD 80 million in Q4 2016.

Operating revenue for the MODU segment in 2016 was USD 438 million (USD 621 million), a decrease of

USD 183 million. Lower revenue is mainly explained by Deepsea Stavanger being idle for large parts of

2016 and lower revenue for Deepsea Atlantic in 2016 compared to 2015. This is partly offset by full

operations in 2016 for Deepsea Aberdeen after its commencement during Q2 2015, and improved

performance on Deepsea Bergen in 2016 due to the yard-stay in 2015.

EBITDA for the MODU segment in 2016 was USD 226 million (USD 300 million), a decrease of USD 74

million. The EBITDA decrease relates mainly to the Deepsea Atlantic and Deepsea Stavanger drop in

revenues as outlined above and partly offset by the commencement and improved performance on the

Deepsea Aberdeen, improved performance on Deepsea Bergen and lower operating expenses.

EBIT for the MODU segment in 2016 was USD 10 million (USD 19 million), a decrease of USD 9 million,

affected by impairment write-downs in both 2015 and 2016.

All figures in USD million Restated Restated

Key figures MODU segment Q4 16 Q4 15 FY 16 FY 15


EBITDA………………………………………………………...……… 69 43 226 300

EBIT……………………………………….…………………...…………... (49) 18 10 19

EBITDA margin…………………………………………...………. 64% 40% 52% 48 %

7

MODU - Financial utilisation

The financial utilisation for each of the Group’s fully owned mobile offshore drilling units was as follows:

- Deepsea Stavanger commenced its contract with JX Nippon in the West of Shetland field on 10

May 2016, after being idle since November 2015. The rig completed this contract on 8 July 2016

and has been preparing for its next contract on the Maria field for the remaining part of 2016.

- Deepsea Atlantic has been operating for Statoil on the Johan Sverdrup field from 1 March 2016

after being idle since August 2015. In Q4 2016 the unit was affected by the strike on the

Norwegian Continental Shelf (NCS) resulting in a reduced compensation over 13 days.

- Deepsea Bergen has been operating for Statoil on the NCS in 2016. In Q4 2016 the unit was

affected by the strike on the NCS resulting in a reduced compensation over 9 days.

- Deepsea Aberdeen has been operating for BP West of Shetland in 2016.

Events in/after the reporting period

Participation in Deepsea Metro I financial restructuring

Golden Close Maritime Corp. Ltd. (“Golden”), the owner of the drillship Deepsea Metro I, has on 27

February 2017 undertaken to complete a restructuring plan of Golden. Odfjell Drilling has decided to

contribute to a solution whereby Odfjell Drilling will enter into a four year management contract with a

reduced management fee, in return of receiving USD 40 million in bonds to be issued by Golden. After

the restructuring has been completed, Odfjell Drilling will hold approximately 9 per cent of the senior

secured bonds and the convertible bonds issued by Golden. The restructuring is subject to approval

from the bondholders in the 9.00 per cent Golden Close Maritime Corp. Ltd. Senior Secured Callable

Bond expected to find place 17 March 2017.

Deepsea Bergen - secured additional work

Odfjell Drilling secured, on 23 December 2016, further employment for its 3rd generation semi-

submersible, Deepsea Bergen. The contract is for a one well plus one well option with Faroe Petroleum

Norge on the Norwegian Continental Shelf, with commencement scheduled to be back to back with the

expiry of the current contract with Statoil, which is expected to commence approximately mid July 2017.

Impairment write-down of Deepsea Atlantic and Deepsea Stavanger

Based on impairment tests performed, the mobile drilling units “Deepsea Atlantic” and “Deepsea

Stavanger” have been written-down as at 31 December 2016 by the total amount of USD 80 million. For

further details around the assumption for the impairment test, please see note 4 of Q4 2016 Condensed

Consolidated Financial Statements.

Financial Util ization - MODU Q4 16 Q4 15 FY 16 FY 15

Deepsea Stavanger………………………………………… n/a 98.8% 99.7% 98.8%

Deepsea Atlantic……………………………………………. 93.0% n/a 97.3% 99.0%

Deepsea Bergen……………………………………………… 92.4% 84.2% 96.4% 83.9%

Deepsea Aberdeen…………………………………………. 97.6% 95.2% 98.3% 97.2%

8


Operating revenue for the Drilling & Technology segment in Q4 2016 was USD 21 million (USD 45

million), a decrease of USD 24 million. The decrease in revenue reflects a reduction in the number of

operated platforms and the reduction of engineering services during the period.

EBITDA for the Drilling & Technology segment in Q4 2016 was USD 3 million (USD 8 million), a reduction

of USD 5 million. EBIT for the Drilling & Technology segment in Q4 2016 was USD 3 million (USD 7

million), a reduction of USD 4 million. The reduction in EBITDA and EBIT is mainly explained by the

decrease in revenue from platform drilling and reduced engineering activity.

Operating revenue for the Drilling & Technology segment in 2016 was USD 131 million (USD 197 million),

a decrease of USD 66 million. The decrease in revenue has the same reasons as explained above.

EBITDA for the Drilling & Technology segment in 2016 was USD 0 million (USD 4 million), a decrease of

USD 4 million. EBIT for the Drilling & Technology segment in 2016 was negative USD 4 million (negative

USD 1 million), a decrease of USD 3 million. The reduction in EBITDA and EBIT reflects the challenging

market conditions within the segment in the period.

Events in the reporting period

Reduced platform portfolio for Statoil on the NCS

As earlier reported, the contract for five of the platforms in the Statoil portfolio expired on 1 October

2016.

Continuing operations on the Brage platform

Wintershall Norge AS awarded to Odfjell Drilling, on 13 December, a 4 year contract for platform drilling

services on the Brage platform located on the Norwegian Continental Shelf. The contract came into

effect at 1 January 2017 and additionally contains 2+2 year options.

All figures in USD million

Key figures Dril l ing & Technology segment Q4 16 Q4 15 FY 16 FY 15


EBITDA………………………………………………………...……… 3 8 (0) 4

EBIT……………………………………….…………………...…………... 3 7 (4) (1)

EBITDA margin…………………………………………...………. 14% 19% (0%) 2 %

9


Operating revenue for the Well Services segment in Q4 2016 was USD 24 million (USD 29 million), a

decrease of USD 5 million. The revenue declined in Q4 2016 due to lower activity levels in all markets.

Lower activity within the well service area has led to lower utilization of equipment and general price

pressure in all service product lines.

EBITDA for the Well Services segment in Q4 2016 was USD 11 million (USD 11 million). EBITDA margin

for the Well Services segment in Q4 2016 was 44% compared to 38% for Q4 2015. The increase in

EBITDA margin is mainly attributable to the effect of cost and efficiency measures throughout 2016.

EBIT for the Well Services segment in Q4 2016 was USD 3 million (USD 2 million), an increase of USD 1

million.

Operating revenue for the Well Services segment in 2016 was USD 110 million (USD 138 million), a

decrease of USD 28 million. The decrease in 2016 revenue is explained by the same factors as for Q4

2016.

EBITDA for the Well Services segment in 2016 was USD 43 million (USD 55 million), a decrease of USD 12

million. EBITDA margin for the Well Services segment in 2016 was 39% compared to 40% in 2015. The

decrease in EBITDA was mainly attributable to the same reasons as the decrease in operating revenues

but partly offset by reduced costs as Well Services continued to reduce its cost base during 2016.

EBIT for the Well Services segment in 2016 was USD 11 million (USD 20 million), a decrease of USD 9

million.

All figures in USD million

Key figures Well Services segment Q4 16 Q4 15 FY 16 FY 15


EBITDA………………………………………………………...……… 11 11 43 55

EBIT……………………………………….…………………...…………... 3 2 11 20

EBITDA margin…………………………………………...………. 44% 38% 39% 40 %

10

Outlook

The drilling and oil service market remains weak, but there are however signs of market stabilization and

a modestly increasing number of enquiries. Due to the substantial supply of new build rigs in recent

years, especially in the UDW market, the gap between supply and demand is significant. The effect of

the efficiency programs carried out by the oil companies have led to a substantial cost reduction in field

development and production. This combined with an increased oil price is expected to lead to an

increased activity level in the medium to long term.

Within the next few years we believe the continued scrapping of older midwater and harsh environment

units in combination with required exploration and development drilling will bring the harsh

environment market back to balance and subsequent improved day rates.

Odfjell Drilling has a fleet of 6th

generation semi submersibles capable of working in harsh environments

and ultra-deep markets providing operational and geographical flexibility to meet future requirements.

Deepsea Stavanger is expected to commence the Maria six-well contract for Wintershall 1 April 2017.

The duration of the contract is estimated at 574 days. Deepsea Aberdeen is contracted until 2022 for BP

West of Shetland, Deepsea Atlantic is contracted to Statoil until 2019 on the Johan Sverdrup field and

Deepsea Bergen operates for Statoil until mid-2017. Odfjell Drilling has further secured a one well

contract for Deepsea Bergen back to back with its current contract.

In order to enhance the market improvement, Well Services is positioning itself for an increased activity

level outside the North Sea region. Well Services has faced increased competition and price pressure for

its services globally but has been able to partly compensate for the price pressure and lower volumes

through cost reductions and increased efficiency. Well Services has further reduced its capital

expenditures to enhance utilization of the equipment base.

The slowdown in the North Sea activity level has led to continued low activity level for development and

upgrade projects, however we have lately been engaged in increased tender activity for the Platform

Drilling business area. The Group has reduced the cost level substantially throughout the organisation

and is now in an improved position to compete in the current market environment.

Risks and uncertainties

Factors that, in the Group’s view, could cause actual results to differ materially from the outlook

contained in this report are the following: volatile oil and gas prices, competition within the oil and gas

services industry, changes in client’s spending budgets, the developments in the financial markets and

within the Group.

The substantial reduction in market capitalization for the oil and gas service providers has led the

financial institutions to focus on contract backlog as the major criteria for debt financing. The market for

rig financing is currently challenging and additional funding sources may not be available to the Group in

11

the future for refinancing existing facilities as they mature. The Deepsea Bergen facility matures in

August 2018, subject to a contract renewal satisfactory to the lenders after the current Statoil contract.

The uncertainties and volatility in today’s financial market represent a risk for the Group with respect to

funding, and hence the going concern principle, should these market conditions continue over time.

The market outlook and contract situation for the Group’s mobile offshore drilling units may also affect

covenant risk since reduced revenues from drilling operations directly affect the operating results and

cash flow from operations. The company monitors the total liquidity and will take measures if necessary.

The Group has, through the latest years, implemented cost reduction and efficiency improvement

programs and continued its focus on capital discipline in order to improve its competitiveness in a

challenging market.

With a volatile rig market and illiquid second-hand market, there is a risk that future broker valuations

may not meet the minimum value clauses agreed with lenders.

Quality, health, safety & environment (QHSE)

Hamilton, Bermuda

27 February 2017

Board of Directors of Odfjell Drilling Ltd.

Carl-Erik Haavaldsen, Chairman Helene Odfjell, Director Kirk L. Davis, Director

Bengt Lie Hansen, Director Henry H. Hamilton III, Director

Key figures QHSE FY 2016 FY 2015

Lost time incident frequency (as per 1 mill ion working hours)…………………………………………………………………………………..0.6 0.2

Total recordable incident frequency (as per 1 mill ion working hours)……………………………………..1.8 1.3

Sick leave (percentage)…………………...…………………………………………………………………………..……………………………………………3.1 3.5

Dropped objects frequency (as per 1 mill ion working hours)……………………………………………………………….4.5 3.5

Number of employees………………………………………………………………………………………………………………1 708 2 461

12

Appendix 1: Definitions of alternative performance measures

Financial utilization

Financial utilization is measured on a monthly basis and comprises the actual recognised revenue for all

hours in a month, expressed as a percentage of the full day rate for all hours in a month. Financial

utilization is only measured for periods on charter.

EBITDA margin

EBITDA/Operating revenue

EBIT margin

EBIT/Operating revenue

Net (loss) profit

Equal to Profit (loss) for the period after taxes

Equity ratio

Total equity/total equity and liabilities

Net interest-bearing debt

Non-current interest-bearing borrowings plus current interest-bearing borrowings less cash and cash

equivalents

Contract backlog

The Company’s fair estimation of revenue in firm contracts and relevant optional periods for MODU and

Platform Drilling measured in USD. Subject to variations in currency exchange rates.


Condensed Consolidated

Financial Statements

4th quarter of 2016 and

preliminary results for 2016

Unaudited

Odfjell Drilling Ltd.Condensed Consolidated Financial Statements for the period ended 31 December 2016

(All amounts are in USD thousands unless otherwise stated)

Condensed Consolidated Income Statement

Restated Restated

USD thousands Note Q4 16 Q4 15 FY 16 FY 15

Operating revenue 3 148 853 179 034 657 392 926 827

Other gains and losses 227 (1 691) 629 1

Share of profit (loss) from Deep Sea Metro Ltd. Group 3,8 - 7 900 20 (269 186)

Personnel expenses (38 382) (67 093) (232 561) (381 736)

Other operating expenses (32 353) (49 456) (140 663) (197 423)

EBITDA 78 344 68 693 284 817 78 482

Depreciation and impairment 4 (126 747) (35 786) (250 722) (320 806)

Operating profit (EBIT) (48 404) 32 906 34 094 (242 324)

Share of profit (loss) from other joint ventures 8 424 (11 880) 1 399 (28 405)

Net financial items 13 (21 145) (19 545) (74 046) (64 445)

Profit/(loss) before tax (69 124) 1 481 (38 553) (335 174)

Income taxes 10 (5 534) 37 413 (25 141) 15 741

Profit/(loss) for the period (74 658) 38 894 (63 694) (319 433)

Condensed Consolidated Statement of Comprehensive Income:Restated Restated

USD thousands Note Q4 16 Q4 15 FY 16 FY 15

Profit/(loss) for the period (74 658) 38 894 (63 694) (319 433)

Items that will not be reclassified to profit or loss:

Actuarial gain / (loss) on post employment benefit obligations 293 665 (4 526) 8 170

Total 293 665 (4 526) 8 170

Items that are or may be reclassified to profit or loss:

Cash flow hedges 142 166 470 (528)

Currency translation differences (7 851) 4 645 (1 689) (11 947)

Total (7 710) 4 811 (1 218) (12 475)

Total other comprehensive income, net of tax (7 417) 5 476 (5 744) (4 305)

Comprehensive income for the period (82 075) 44 370 (69 438) (323 739)

Earnings per share (USD)

Basic earnings per share 7 (0,38) 0,20 (0,32) (1,61)

Diluted earnings per share 7 (0,38) 0,20 (0,32) (1,61)

Preliminary and unaudited



Condensed Consolidated Statement of Financial Position

Restated

USD thousands Note 31.12.16 31.12.15

Assets

Deferred tax asset 2 498 8 397

Intangible assets 4 33 009 33 800

Property, plant and equipment 4 1 912 754 2 131 364

Financial fixed assets 2,8 8 739 15 165

Total non-current assets 1 957 000 2 188 726

Spare parts 1 782 2 818

Trade receivables 14 111 090 178 481

Other current assets 12 097 45 195

Cash and cash equivalents 181 623 201 626

Total current assets 306 591 428 120

Total assets 2 263 592 2 616 846

Equity and liabilities

Total paid-in capital 328 841 328 841

Other equity 393 245 462 683

Total equity 722 086 791 524

Non-current interest-bearing borrowings 9 1 208 180 878 664

Post-employment benefits 17 554 42 636

Deferred tax liability - -

Other non-current liabilities 2 1 623 3 816

Total non-current liabilites 1 227 358 925 116

Current interest-bearing borrowings 9 204 058 718 360

Trade payables 17 233 25 150

Other current liabilities 14 92 857 156 696

Total current liabilities 314 148 900 206

Total liabilities 1 541 506 1 825 322

Total equity and liabilities 2 263 592 2 616 846




Condensed Consolidated Statement of Changes in Equity

USD thousands Share capital

Other

contributed

capital

Other

reserves

Retained

earnings Total equity

Balance at 1 January 2015 2 000 329 809 (103 566) 887 631 1 115 874

Profit/(loss) for the period - - - (319 433) (319 433)

Other comprehensive income for the period - - (12 475) 8 170 (4 305)

Total comprehensive income for the period - - (12 475) (311 263) (323 739)

Purchase of own shares (612) (612)

Cancellation of own shares (13) (2 956) 2 969 - 0

Transactions with owners (13) (2 956) 2 357 - (612)

Restated balance at 31 December 2015 1 987 326 853 (113 685) 576 368 791 524

Profit/(loss) for the period - - - (63 694) (63 694)

Other comprehensive income for the period - - (1 218) (4 526) (5 744)

Total comprehensive income for the period - - (1 218) (68 220) (69 438)

Balance at 31 December 2016 1 987 326 853 (114 903) 508 148 722 086




Condensed Consolidated Statement of Cash Flows

Restated Restated

USD thousands Q4 16 Q4 15 FY 16 FY 15Cash flows from operating activities:

Profit/(loss) before tax (69 124) 1 481 (38 553) (335 174)

Adjustments for:

Depreciation and impairment 126 747 35 786 250 722 320 806

Unrealised (gain)/loss on interest rate swaps (1 320) (2 069) (660) (7 438)

Interest expense - net 16 436 14 603 60 359 59 791

Amortized borrowing cost 1 290 1 944 7 432 7 872

Share of (profit)/loss from joint ventures (424) 3 980 (1 419) 297 591

Net (gain)/loss on sale of tangible fixed assets (172) 1 019 (486) (1)

Post-employment benefit expenses less payments (1 521) (5 119) (32 873) (8 071)

Net currency (gain)/loss not related to operating activities (3 541) 20 391 (4 115) 5 137

Net effect acquisition of shares in joint venture - - - (2 974)

Changes in working capital:

Spare parts 1 363 25 1 079 610

Trade receivables 11 479 10 084 58 446 39 947

Trade payables (2 960) (6 039) (11 177) (4 184)

Other accruals (116) (4 884) (47 724) 612

Cash generated from operations 78 136 71 202 241 032 374 524

Interest paid (14 377) (19 335) (58 802) (69 390)

Net income tax refunded (paid) (2 789) (7 026) 16 443 (34 267)

Net cash generated from operating activities 60 970 44 841 198 673 270 867

Cash flows from investing activities:

Purchase of property, plant and equipment (5 697) (39 024) (31 229) (147 044)

Proceeds from sale of property, plant and equipment 283 - 1 464 3 661

Loans granted to employees - 94 - 147

Subordinated loan to related parties - - - (1 355)

Other long term receivables 18 - 67 -

Purchase of shares incl. joint ventures (0) - 0 (3 162)

Proceeds from shares incl. joint ventures - - 7 920 -

Net cash used in investing activities (5 397) (38 931) (21 778) (147 754)

Cash flows from financing activities:

Net proceeds from debt to financial institutions - - 519 226 110 000

Repayments of debt to financial institutions (56 000) (77 000) (713 000) (224 000)

Purchase of own shares - 141 - (612)

Net cash from financing activities (56 000) (76 859) (193 774) (114 612)

-

Net change in cash and cash equivalents (427) (70 949) (16 879) 8 502

Cash and cash equivalents at beginning of period 189 351 273 035 201 626 191 201

Effects of exchange rate changes on cash and cash equivalents (7 302) (459) (3 125) 1 922

Cash and cash equivalents at period end 181 622 201 626 181 622 201 626




Note 1 | Accounting Principles

Accounting principles The accounting principles adopted are consistent with those of the previous financial year except that income tax expense is recognised in each interim period using the expected weighted average annual income tax rate for the full financial year. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss. Use of estimates The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these interim financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation were the same as those that applied to the consolidated financial statements for the year ended 31 December 2015. There will always be uncertainty related to judgement and assumptions related to accounting estimates. Reference is made to Note 5 Tangible and intangible assets, where assumptions and sensitivity analysis for goodwill and mobile drilling units are presented. Income tax expense and deferred income tax liability is calculated by applying the tax rate for each individual jurisdiction to measures of income for each jurisdiction. When accounting for uncertain tax positions, the company applies the general measurement principles in IAS 12. Under IAS 12, uncertain tax positions (whether assets or liabilities) are reflected at the amount expected to be recovered from or paid to the taxation authorities. The amount expected to be paid is calculated by using the single best estimate of the most likely outcome. A change in estimate is recognized in the period when new information occurs. Where an entity has paid more than the amount it believes is payable under the relevant tax legislation, it will estimate the recovery of a tax asset. Correction to previous financial statements Financial statements for Q4 2015 and fiscal year 2015 has been restated to reflect impairment as at 30 September 2015. Please refer to Q2 report 2016 for further information about the restatement.

General information Odfjell Drilling Ltd. ('the Company') and its subsidiaries (together 'the Group') operate mobile offshore drilling units in addition to providing well services and engineering services. Odfjell Drilling Ltd., is incorporated and domiciled in Bermuda. The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. These condensed interim financial statements were approved by the Board of Directors for issue on 27 February 2017 and have not been audited. Basis for preparation These condensed interim financial statements for the twelve months period ended 31 December 2016 have been prepared in accordance with IAS 34, 'Interim financial reporting'. These condensed consolidated interim financial statements does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2015 and any public announcements made by OdfjellDrilling Ltd during the interim reporting period.. Going concern The Group has adopted the going concern basis in preparing its consolidated financial statements. When assessing the going concern assumption, the Directors and management have considered cash flow forecasts, funding requirements and order back-log. The substantial reduction in market capitalization for the oil and gas service providers has led the financial institutions to focus on contract backlog as the major criteria for debt financing. The market for rig financing is currently challenging and additional funding sources may not be available to the Group in the future for refinancing existing facilities as they mature. The uncertainties and volatility in today’s financial market represent a risk for the Group with respect to funding, and hence the going concern principle, should these market conditions continue over time. Taking all relevant risk factors into consideration, management has a reasonable expectation that the Group has adequate resources to continue its operational existence for the

foreseeable future.




Note 2 | Financial risk management and Financial instruments

Assets at Level 31.12.16 31.12.15

Derivatives held as hedge instrument

- Other non current assets 2 235 386

Total assets 235 386

Liabilities at Level 31.12.16 31.12.15

Derivatives held at fair value through profit or loss

- Other non current liabilities 2 101 760

Derivatives held as hedge instrument

- Other non current liabilities 2 - 1 395

- Other current liabilities 2 774 -

Total liabilities 875 2 156

Financial risk factors The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group's refinancing risk is diversified with each loan facility maturing at different times until November 2021. Successful refinancing of each facility may be dependent on contract backlog, asset values and overall financial market conditions. The Deepsea Bergen facility matures in August 2018, subject to a contract renewal satisfactory to the lenders before expiry of the current Statoil contract. The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; consequently they should be read in conjunction with the Group's annual audited financial statements as at 31 December 2015. There are no material changes compared to the description in the year-end financial statements. Calculation of the Group’s sensitivity to interest rate fluctuations showed that the effect of an increase in interest rates by one percentage point (e.g. from 4.0% to 5.0%) was approx. USD 11.4 million for FY 2016 including interest rate swaps. Liquidity risk Compared to year end, there was no material change in the contractual undiscounted cash out flows for financial liabilities, except changes in non-current liabilities disclosed in note 9. Fair value estimation The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) - 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 2) - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). For short term assets and liabilities at level 3, the value is approximately equal to the carrying amount.




Note 2 | Financial risk management and Financial instruments - cont.

31.12.16 31.12.15

Non-current 1 208 180 878 664

Current 204 058 718 360

Total 1 412 239 1 597 023

The fair value of the following financial assets and liabilities approximate their carrying amount: - Trade and other receivables - Other current financial assets - Cash and cash equivalents (excluding bank overdrafts) - Trade and other payables

Valuation techniques used to derive Level 2 fair values Level 2 derivatives held at fair value through profit or loss and hedging derivatives comprise interest rate swaps and foreign exchange agreements. Interest rate swaps are fair valued using forward interest rates extracted from observable yield curves. Interest rate swaps and foreign exchange agreements are recognised according to mark to market reports from external financial institutions. The effects of discounting are generally insignificant for Level 2 derivatives. Fair value of financial liabilities measured at amortised cost The fair value of borrowings are as follows:




Note 3 | Segment summary

Q4 16

Restated

Q4 15 Q4 16 Q4 15 Q4 16 Q4 15 Q4 16 Q4 15 Q4 16

Restated

Q4 15

External segment revenue 107 627 107 802 20 083 40 321 19 377 26 079 1 767 4 832 148 853 179 034

Inter segment revenue 528 1 803 1 045 4 367 4 534 2 887 (6 107) (9 057) - -

Total revenue 108 155 109 605 21 128 44 687 23 910 28 966 (4 340) (4 225) 148 853 179 034

EBITDA 68 849 43 348 3 020 8 450 10 504 10 942 (4 030) 5 952 78 344 68 693

Depreciation and impairment (118 340) (25 439) (379) (1 031) (7 689) (8 513) (339) (803) (126 747) (35 786)

EBIT (49 491) 17 909 2 641 7 418 2 815 2 430 (4 369) 5 149 (48 404) 32 906

Mobile Offshore

Drilling Units

Drilling &

Technology Well Services

Corporate /

Eliminations Consolidated

The Group provides drilling and related services to the offshore oil and gas industry and has three main business areas; the operation of mobile drilling units, drilling & technology and well services. The Board is the Group's chief operating decision maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. Mobile Offshore Drilling Units business segment (MODU), Drilling & Technology business segment (D&T) and Odfjell Well Services business segment (OWS) have been determined as the operating segments. The Group's internal reporting is prepared according to Norwegian GAAP. This gives rise to differences between the measurements of segment disclosures and comparable items disclosed in this financial report. Such differences are identified and reconciled in the tables below. - Mobile Offshore Drilling Units (MODU): In the MODU segment, the Group operates drilling units owned by the Group and by third parties. The MODU segment also offers management services to other owners of semisubmersibles, drillships and jack-ups; mainly operational management, management of regulatory requirements, marketing, contract negotiations and client relations, preparations for operation and mobilisation. - Drilling & Technology (D&T): Within the Drilling & Technology segment, the Platform Drilling business area provides integrated drilling and maintenance services for fixed platform drilling rigs in the North Sea. The Technology business area offers engineering services, including design, project management and operation and support. - Well Services (OWS): The Well Services segment provides casing and tubular running services, wellbore cleaning as well as drilling tool and tubular rental services both for exploration wells and for production purposes.




Note 3 | Segment summary - cont.

FY 16

Restated

FY 15 FY 16 FY 15 FY 16 FY 15 FY 16 FY 15 FY 16

Restated

FY 15

External segment revenue 433 756 614 342 124 273 172 840 87 530 121 196 11 833 18 450 657 392 926 827

Inter segment revenue 4 149 6 283 7 056 24 444 22 574 17 199 (33 779) (47 927) - -

Total revenue 437 905 620 625 131 329 197 284 110 103 138 395 (21 946) (29 477) 657 392 926 827

EBITDA 226 399 300 460 (24) 4 423 43 145 54 774 15 296 (281 175) 284 817 78 482

Depreciation and impairment (216 285) (281 174) (4 061) (5 201) (32 303) (34 979) 1 927 547 (250 722) (320 806)

EBIT 10 113 19 286 (4 085) (778) 10 842 19 795 17 223 (280 628) 34 094 (242 324)

Restated Restated

Reconciliations: Q4 16 Q4 15 FY 16 FY 15

Total EBIT for reportable segments (44 034) 27 757 16 871 38 304

Corporate / Eliminations (4 442) (4 045) (14 787) (13 527)

Share of profit from DSM Ltd. Group - 7 900 20 (269 186)

Accounting differences 73 1 294 31 990 2 085

EBIT Total Group (48 404) 32 906 34 094 (242 324)

Share of profit from other joint ventures 424 (11 880) 1 399 (28 405)

Net financial items (21 145) (19 545) (74 046) (64 445)

Profit before tax Group (69 124) 1 481 (38 553) (335 174)

Consolidated

Corporate /

EliminationsWell Services

Drilling &

Technology

Mobile Offshore

Drilling Units




Note 4 | Tangible and intangible fixed assets

USD thousands

Mobile

drilling units

Periodic

maintenance

Construction

in progress

Well

Services

equipment

Machinery &

equipment

Total fixed

assets

Twelve months ended 31 December 2016

Restated net book amount as at 1 January 2016 1 841 007 158 235 - 128 578 3 544 2 131 364

Additions 11 214 10 585 - 8 243 115 30 157

Disposals (425) - - (533) (20) (979) Depreciation and amortisation (91 107) (43 929) - (31 343) (1 701) (168 079)

Impairment (80 000) - - - - (80 000)

Currency translation differences 277 - - 83 (69) 291

Closing net book amount as at 31 Dec 2016 1 680 965 124 892 - 105 027 1 870 1 912 754


Opening net book amount as at 1 January 2015 1 391 942 73 017 694 031 147 785 5 438 2 312 214

Additions 5 739 75 921 40 590 18 407 2 002 142 659

Disposals (20) - - (2 073) 11 (2 081)

Depreciation and amortisation (88 794) (33 468) - (34 956) (3 280) (160 498)

Impairment (158 536) - - - - (158 536)

Reclassification 692 705 41 916 (734 622) - - -

Currency translation differences (2 029) 849 - (586) (627) (2 394)

Restated net book amount as at 31 Dec 2015 1 841 007 158 235 0 128 578 3 544 2 131 364

Useful lifetime 5 - 35 years 5 years - 3 - 10 years 3 - 5 years

Depreciation schedule Straight line Straight line - Straight line Straight line

Restatement

Construction in progress

Impairment tests mobile drilling units

In the sensitivity analysis, rig broker estimates of fair value in a hypothetical transaction between a willing buyer and a willing seller is used

as a basis for fair value less cost to sell. The estimated impairment in the different scenarios is based on the assumption that the asset will

be written down to the highest of value in use and fair value less costs to sell.

Construction in progress as of 1 January 2015 relates to the construction of the drilling unit Deepsea Aberdeen, which was delivered from

the yard in November 2014 and commenced drilling in the UK's West of Shetland region under a contract with BP on 21 April 2015. In Q2

2015 the rig was reclassified to the asset class Mobile drilling units .

Net book amount as at 31 December 2015 has been restated. Please refer to Q2 report 2016 for further information.

Odfjell Drilling performs impairment tests on a regular basis. When evaluating the potential impairment of its mobile offshore drilling units,

the Group has assessed each unit's recoverable amount. The Group acknowledges that there may be both macroeconomic and industry

specific challenges when looking at a longer period of time, which a rig’s lifetime is. Estimated cash flows may for these reasons vary over

time and different scenarios have therefore been accounted for. The Group has in its calculations accounted for different scenarios when it

comes to assumptions related to day rate, operating expenses, financial utilisation and market recovery.

Based on impairment tests performed as at 31 December 2016, the Group identified impairment related to the 6G rigs Deepsea Atlantic

and Deepsea Stavanger, and subsequently booked an impairment write-down of total USD 80 million.




Note 4 | Tangible and intangible fixed assets - cont

The following key assumptions have been used when conducting impairment tests for mobile drilling units:

Key assumptions 6G semi's 3G semi

Weighted Average Cost of Capital (WACC) 10.45% 9.71%Firm contract day rates 295-450 330 Future normative base case day rates - at full market recovery - 6G units 435 -

Future normative base case day rates - at full market recovery - 3G unit - 225 Financial utilisation in normative period 95% 95%

Sensitivity analysis mobile drilling units

WACC increased by 1 ppt 2 ppts

Estimated impairment write-off all 6G and 3G mobile drilling units 91 000 214 000

Day rate level decreased by 5 % 10 %


Normative opex level increased by 5 % 10 %


Financial utilisation in normative period decreased by 1 ppt 2 ppts 3 ppts

Estimated impairment write-off all 6G and 3G mobile drilling units 7 000 24 000 40 000

USD thousands Goodwill Software

Total

intangible

assets


Opening net book amount as at 1 January 2016 18 383 15 417 33 800

Additions - 1 072 1 072

Depreciation and amortisation - (2 643) (2 643)

Impairment - - -

Currency translation differences 403 377 780

Closing net book amount as at 31 Dec 2016 18 786 14 223 33 009


Opening net book amount as at 1 January 2015 21 785 15 211 36 996

Additions - 4 592 4 592

Depreciation and amortisation - (1 771) (1 771)

Impairment - - -

Currency translation differences (3 402) (2 614) (6 017)

Closing net book amount as at 31 Dec 2015 18 383 15 417 33 800

*Additions of software in 2016 and 2015 relates to new ERP software system.




Note 4 | Tangible and intangible fixed assets - cont

Impairment tests for goodwill

The key assumptions used for value-in-use calculations as per Q4 2016 are as follows:

Drilling & Technology

Well

Services

EBITDA margin in prognosis period 2.5% - 8% 40% - 43%

Growth rate year 6 and forward 0.0% 0.0%

Weighted Average Cost of Capital (WACC) 7.5% 7.9%

Sensitivity analysis for goodwill impairment test


Sensitivity analysis changes in operating income

Operating income reduced by 1 % 5 % 10 %

Impairment of goodwill - - -

Sensitivity analysis changes in EBITDA margin

EBITDA margin reduced by 1 ppt 5 ppts 10 ppts

Impairment of goodwill - 7 900 14 500


Sensitivity analysis changes in operating income

Operating income reduced by 1 % 5 % 10 %


Sensitivity analysis changes in EBITDA margin

EBITDA margin reduced by 1 ppt 5 ppts 10 ppts


The recoverable amount of all Cash Generating Units (CGUs) has been determined based on value-in-use calculations. These calculations

use pre-tax cash flow projections based on prognoses made by management covering a five-year period. The terminal value is calculated

using the fifth year prognosed cash flow multiplied by five.

Goodwill is monitored by management at the operating segment level. The following is a summary of goodwill allocations for each

operating segment:

These assumptions have been used for the analysis of each CGU within the operating segment. Impairment tests performed for goodwill

within respective CGU's do not indicate any impairment requirement as at 31.12.2016.

The prognosis for the EBITDA margin in 2016 and the following years is based on past performance and expectations of market

development. The company has also taken into consideration short-term effects from loss of drilling contracts and planned downsizing. The

weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and

reflect specific risks relating to the relevant operating segments.




Note 5 | Commitments

USD thousands 31.12.16 31.12.15

Global Standard - New ERP solution - 500

Rig investments* 16 310 20 330

Rental and casing equipment, due in 1 year 1 953 3 176

Total 18 263 24 006

Note 6 | Paid dividends and acquisition of own shares

Note 7 | Earnings per share

Earnings per share is based on the issued number of shares in Odfjell Drilling Ltd., which were 198 736 900 shares as at 31 December

2016. Comparative figures (EPS) are presented retrospectively based on the number of issued shares as at 31 December 2016.

Capital expenditure other than new buildings contracted for at the end of the reporting period but not yet incurred is as follows:

*Rig investments as per 31.12.16 is mainly for Deepsea Stavanger investments before start-up of Wintershall contract in 2017.

The Group has not paid dividends in the interim period ending 31 December 2016.




Note 8 | Financial fixed assets

USD thousands 31.12.16 31.12.15

Investment in joint ventures 8 217 14 419

Investment in financial instruments 235 386

Other long term receivables 287 360

Total financial fixed assets 8 739 15 165

The Group's change in total investments in joint ventures is specified as follows:

USD thousands 31.12.16 31.12.15

Opening net book amount as at beginning of the period 14 419 306 763

Investments / Acquisitions during the year - 25 525

Repayment of capital (7 920) -

Share of profits 1 418 (245 969)

Share of OCI result - 172

Impairment write-off of investment in joint venture - (60 331)

Other changes - (8 709)

Currency translation differences 299 (3 032)

Closing net book amount as at end of period 8 217 14 419

The Group's change in investment in Deep Sea Metro Group Ltd., is specified as follows:

USD thousands 31.12.16 31.12.15


Repayment of capital (7 920) -

Share of profits 20 (242 066)



Currency translation differences - 12

Closing net book amount as at end of period - 7 900




Note 8 | Financial fixed assets - cont.

The Group's change in investments in other joint ventures is specified as follows:

USD thousands 31.12.16 31.12.15


Investments / Acquisitions during the year - 25 525

Divestments during the year - (8 709)

Share of profits 1 398 (3 903)



Currency translation differences 299 (3 044)

Closing net book amount as at end of period 8 217 6 519

The Group`s book value of other joint ventures:

Guarapari

Drilling BV

Siri Drilling

BV

Itaoca

Drilling BV

Robotic

Drilling

Systems AS Total

Book value at 31 December 2016 - - - 8 217 8 217

Share of profit or loss from other joint ventures are presented below EBIT due to not being a part of the Group's core operational

activities, but recognised as financial investments.




Note 9 | Interest-bearing borrowings

USD thousands 31.12.16 31.12.15

Non-current 1 208 180 878 664

Current 204 058 718 360

Total 1 412 239 1 597 024

Movements in non-current borrowings are analysed as follows: FY 16 FY 15

Opening amount as at 1 January 2016 878 664 1 470 723

New bank loan raised 525 000 110 000

Reclassified to current portion of non current borrowings (194 000) (713 000)

Change in transaction cost, unamortised (1 484) 10 941

Closing amount as at 31 December 1 208 180 878 664

Repayment bank loan year to date 31.12.16 31.12.15

Repayment of non-current portion bank loan - -

Repayment of current portion bank loan 713 000 224 000

Total repayment bank loan year to date 713 000 224 000

Repayment schedule for interest-bearing borrowings Q1 17 Q2 17 Q3 17 Q4 17Bank borrowings 26 500 69 500 26 500 71 500

Total as at 31.12.2016 26 500 69 500 26 500 71 500

Repayment schedule for interest-bearing borrowings 2018 2019 2020 2021 =>Bank borrowings 193 000 747 000 52 000 237 000

Total as at 31.12.2016 193 000 747 000 52 000 237 000

Covenants

The group has no available undrawn facilities as per 31 December 2016.

The Odfjell Drilling Group is compliant with all other financial covenants as per 31 December 2016.

In Q4 2016 Odfjell Drilling agreed with its lenders to reduce the book equity requirement from USD 750 million to USD 600 million

applicable to the Odfjell Drilling group across all its credit facilities.

Odfjell Rig II Ltd., and Odfjell Rig III Ltd., both subsidiaries of Odfjell Drilling Ltd., and also the respective owners of the mobile drilling units

Deepsea Bergen and Deepsea Aberdeen, did not comply with their respective minimum value requirements as at 31 December 2016. The

valuation short-fall will be corrected through scheduled installments that take place within any applicable remedy period. No

reclassifications to short term debt have been made as at 31 December 2016.

Please refer to the Q3 16 report for information about amended covenants in relation to the refinancing.




Note 10 | Income taxes

Income tax expense is recognised based on management's estimate of the weighted average annual income tax rate

expected for the full financial year.

USD thousands Q4 16 Q4 15 FY 16 FY 15

Withholding tax, ordinary taxation (428) (2 190) (2 386) (14 639)

Tax payable, ordinary taxation (5 092) (11 364) (14 904) (19 790)

Change in deferred tax, ordinary taxation (14) 4 894 (7 852) 4 096

Total tax expense current year items (5 534) (8 661) (25 141) (30 333)

Estimated average annual tax rate (8%) 585% (65%) (9%)

Tax payable prior years, tax court verdict - 30 537 - 30 537

Change in deferred tax, tax court verdict - 15 537 - 15 537

Total tax income / (expense) (5 534) 37 413 (25 141) 15 741

Average tax rate (8%) (2526%) (65%) 5%

Note 11 | Contingencies

There are no material contingencies to be disclosed as per 31 December 2016.

Tax payable, ordinary taxation is the best estimate of tax payable based on ordinary profit and loss in the respective jurisdictions with

applicable tax rates.

Change in average tax rate from 2015 to 2016 is mainly affected by higher impairment-writedown in Q3 2015 than in Q4 2016 related to

assets in companies located in jurisdictions with tax exemptions.

The decrease in withholding tax from 2015 to 2016 is mainly due to no revenue in 2016 from the drilling contract in Angola, which ended in

November 2015.




Note 12 | Equity & shareholder information

Largest shareholders at 31 December 2016 Holding % of total

Odfjell Partners Ltd. 142 000 000 71.45 %

Fidelity Select Portfolios: Energy 6 663 192 3.35 %

Deutsche Bank AG 6 450 000 3.25 %

J.P.Morgan Chase Bank N.A. London 5 863 322 2.95 %

State Street Bank and Trust Co. 3 239 743 1.63 %

RBC Investor Services Trust 2 000 000 1.01 %

State Street Bank and Trust Co. 1 454 375 0.73 %

Fidelity Select Portfolios: Energy 1 434 080 0.72 %

Skeie Technology AS 1 350 000 0.68 %

Eika Norge 1 321 398 0.66 %VPF Nordea Kapital 967 321 0.49 %

Lieungh, Simen 952 381 0.48 %Credit Suisse (Luxembourg) S.A. 932 328 0.47 %Skeie Capital Investment AS 900 000 0.45 %

Danske Bank AS 804 177 0.40 %

FSP - Natural Resources 696 800 0.35 %

Citibank, N.A. S/A FHIIIF Fundhost 647 701 0.33 %VPF Nordea Avkastning 637 449 0.32 %

Fidelity Advisor Natural Resources 564 256 0.28 %Ulsmo Finans AS 515 500 0.26 %Total 20 largest shareholders 179 394 023 90.27 %

Other shareholders 19 342 877 9.73 %

Total shareholders 198 736 900 100.00 %

Helene Odfjell controls, through Odfjell Partners Ltd., 71.45% of the shares and the CEO controls 0.48% of the shares in Odfjell Drilling

Ltd.

The Chairman of the board of directors, Carl-Erik Haavaldsen, has a significant ownership in Cenor Ltd., which owns 19 047 shares in





Note 13 | Net financial items


Interest income 257 1 415 819 2 428

Interest income from related parties - (8) - 67

Interest expense (16 693) (16 008) (61 177) (62 284)

Other borrowing expenses (1 569) (1 944) (7 877) (7 872)

Gain/(loss) on interest rate swaps 1 320 2 069 660 7 438

Net currency gain/(loss) (4 239) (4 097) (4 926) (855)

Other financial items (220) (973) (1 544) (3 367)

Net financial items (21 145) (19 545) (74 046) (64 445)

Note 14 | Related-party transactions

The Group had the following material transactions with related parties:


Sales of services:

- Robotic Drilling System AS 12 - 33 -

- Deep Sea Metro Ltd. Group 3 708 3 017 30 487 41 186

Total 3 720 3 017 30 520 41 186

Operating expenses:

- Kokstad Holding AS group (related to main share holder) 1 981 308 6 293 1 614

- Robotic Drilling System AS 67 - 91 -

Total 2 048 308 6 384 1 614

The Group had the following receivables and liabilities with related parties:

USD thousands 31.12.16 31.12.15

Current receivables:

- Robotic Drilling System AS 4 -

- Deep Sea Metro Ltd. Group 1 840 3 490

Total 1 844 3 490

Current liabilities:

- Robotic Drilling System AS 65 -

- Deep Sea Metro Ltd. Group 11 875 8 568

Total 11 940 8 568

Odfjell Drilling Ltd., is controlled by Odfjell Partners Ltd., which owns 71.45% of the shares. Helene Odfjell controls Odfjell Partners Ltd.

Simen Lieungh (CEO & President) controls 0.48% of the shares in the company as per 31 December 2016.




Note 15 - Important events occurring after the reporting period

There have been no other events after the balance date with material effect for the quarterly financial statements ended 31 December

2016.


Odfjell Drilling Ltd. · 2017. 2. 28. · 2016 and lower revenue for Deepsea Atlantic in 2016 compared to 2015. This is partly offset by full operations in 2016 for Deepsea Aberdeen

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