Seadrill LtdSDRL

Seadrill Ltd Fair Value Disclosure

10-KFiled Feb 26, 20262 min read
Fair value measurements
Fair value of financial instruments measured at amortized cost
The carrying values and estimated fair values of certain of our financial instruments as of December 31, 2025 and December 31, 2024 were as follows:
December 31, 2025December 31, 2024
(In $ millions)Fair
value		Carrying
value		Fair
value		Carrying
value
Liabilities
$575 million secured bond (Level 1)
598 563 587 560 
Unsecured senior convertible bond - debt component (Level 3)
56 50 56 50 
Financial instruments categorized as level 1
The fair value of the $575 million bond is based on market traded value.
Financial instruments categorized as level 3
The fair value attributed to the unsecured senior convertible bond was bifurcated into two elements: the straight debt component was derived through a discounted cash flow approach, and the conversion option was derived through an option pricing model. The conversion option was recorded in equity at the point the bond was issued and, therefore, has not been included in the table above.
Our cash and cash equivalents, restricted cash, accounts receivable, and accounts payable are by their nature short-term. As a result, the carrying values included in our Consolidated Balance Sheets approximate fair value.
Fair value of non-financial instruments
We review our long-lived assets for impairment whenever events or changes in circumstances indicate indicators of impairment exist. In these evaluations, we compare estimated undiscounted future net cash flows expected to be generated from the asset (or asset group), including eventual disposal. If the undiscounted future net cash flows are less than the carrying value of the asset (or asset group), we estimate the fair value of the asset (or asset group) to determine the impairment.
During the year ended December 31, 2025, indicators of impairment were present for the West Eclipse primarily related to a sustained lack of future utilization plans. We tested the recoverability of the drilling unit and determined the asset was impaired by $22 million. The remaining carrying amount of the drilling unit is not material.

About Fair Value Disclosures

Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.

Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.

Other Available Disclosures

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