Leading offshore drilling contractor, Seadrill Limited, will continue to be Bermuda domiciled after its impending take over of its former subsidiary, Aquadrill, the company has said.

The deal is expected to substantially improve Seadrill’s cashflow generation and earnings, with added business through the US Gulf of Mexico.

Aquadrill is also a debt-free company and analysts see the transaction bringing Seadrill into a net cash position.

The Bermudian-based offshore drilling company entered into a definitive merger agreement with London-headquartered Aquadrill LLC under which Seadrill will acquire Aquadrill in an all-stock transaction.

Upon completion of the transaction Seadrill shareholders and Aquadrill unit holders will own 62 per cent and 38 per cent, respectively, of the outstanding common shares in the company.

The transaction values Aquadrill at an implied equity value of approximately $958 million, based on Seadrill's 30-day volume-weighted average share price on the NYSE of $31.25 as of December 22.

The combination creates an industry-leading offshore drilling company, with a modern and high specification fleet and a streamlined cost structure.

The company said it will be well-placed to realise estimated annual run rate synergies of at least $70 million, and will also be well-positioned for further growth given its stronger credit and liquidity profile, and to provide attractive cash flows.

Simon Johnson, Seadrill's president and chief executive officer, said: "At Seadrill, we seek to deliver safe and effective operations as the bedrock for generating returns for our shareholders.

“Seadrill and Aquadrill have a long and rich strategic and operational management history. Our shared heritage will promote efficient integration of the two companies.

“I look forward to welcoming the Aquadrill fleet back into the Seadrill family."

Steven Newman, Aquadrill's chief executive officer, said: "We believe this combination will create the most value for our shareholders and will create an excellent platform for high quality service delivery to our customers."

The transaction has been approved by the boards of directors of both Seadrill and Aquadrill. The required approval of Aquadrill's unit holders has also been obtained. The transaction does not require Seadrill shareholder approval.

Julie Robertson and Mr Johnson will continue in their respective roles as chairwoman of the board of directors, and president and chief executive officer.

As of November 30, Seadrill and Aquadrill had a combined cash balance of approximately $628 million, including approximately $133 million of restricted cash, and a combined debt balance of approximately $521 million.