UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20222023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-13926
DIAMOND OFFSHORE DRILLING, INC.
(Exact name of registrant as specified in its charter)
Delaware | 76-0321760 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
15415 Katy Freeway
Houston, Texas
77094
(Address of principal executive offices)
(Zip Code)
(281) 492-5300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, $0.0001 par value per share | DO | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | |||
|
| Smaller reporting company | ☐ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 7, 20223, 2023 Common stock, $0.0001 par value per share 101,524,384102,322,002 sharesshares.
DIAMOND OFFSHORE DRILLING, INC.
TABLE OF CONTENTS FOR FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 20222023
PAGE NO. | ||||
1 | ||||
2 | ||||
3 | ||||
3 | ||||
3 | ||||
4 | ||||
Condensed Consolidated Statements of Comprehensive (Loss) Income | 6 | |||
Condensed Consolidated Statements of Stockholders’ Equity |
| |||
| ||||
Notes to Unaudited Condensed Consolidated Financial Statements |
| |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| |||
| ||||
| ||||
| ||||
| ||||
| ||||
40 | ||||
| ||||
40 | ||||
| ||||
|
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value amounts)
|
| Successor |
| |||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 22,650 |
|
| $ | 38,388 |
|
Restricted cash |
|
| 38,592 |
|
|
| 24,341 |
|
Accounts receivable |
|
| 185,539 |
|
|
| 151,917 |
|
Less: allowance for credit losses |
|
| (5,629 | ) |
|
| (5,582 | ) |
Accounts receivable, net |
|
| 179,910 |
|
|
| 146,335 |
|
Prepaid expenses and other current assets |
|
| 59,585 |
|
|
| 61,440 |
|
Asset held for sale |
|
| — |
|
|
| 1,000 |
|
Total current assets |
|
| 300,737 |
|
|
| 271,504 |
|
Drilling and other property and equipment, net of |
|
|
|
|
|
| ||
accumulated depreciation |
|
| 1,143,268 |
|
|
| 1,175,895 |
|
Other assets |
|
| 79,714 |
|
|
| 84,041 |
|
Total assets |
| $ | 1,523,719 |
|
| $ | 1,531,440 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 39,521 |
|
| $ | 38,661 |
|
Accrued liabilities |
|
| 150,153 |
|
|
| 143,736 |
|
Taxes payable |
|
| 25,115 |
|
|
| 34,500 |
|
Current finance lease liabilities |
|
| 16,681 |
|
|
| 15,865 |
|
Total current liabilities |
|
| 231,470 |
|
|
| 232,762 |
|
Long-term debt |
|
| 335,540 |
|
|
| 266,241 |
|
Noncurrent finance lease liabilities |
|
| 135,777 |
|
|
| 148,358 |
|
Deferred tax liability |
|
| 1,838 |
|
|
| 1,626 |
|
Other liabilities |
|
| 88,905 |
|
|
| 114,748 |
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
| ||
Total liabilities |
|
| 793,530 |
|
|
| 763,735 |
|
Stockholders’ equity: |
|
|
|
|
|
| ||
Preferred stock (par value $0.0001, 50,000 shares authorized, none issued and outstanding at September 30, 2022 and December 31, 2021) |
|
| — |
|
|
| — |
|
Common stock (par value $0.0001, 750,000 shares authorized; 101,630 shares issued and 101,166 shares outstanding at September 30, 2022 and 100,075 shares issued and outstanding at December 31, 2021) |
|
| 10 |
|
|
| 10 |
|
Additional paid-in capital |
|
| 961,510 |
|
|
| 945,039 |
|
Treasury stock |
|
| (3,214 | ) |
|
| — |
|
Accumulated deficit |
|
| (228,117 | ) |
|
| (177,344 | ) |
Total stockholders’ equity |
|
| 730,189 |
|
|
| 767,705 |
|
Total liabilities and stockholders’ equity |
| $ | 1,523,719 |
|
| $ | 1,531,440 |
|
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 146,826 |
|
| $ | 63,041 |
|
Restricted cash |
|
| 25,556 |
|
|
| 34,293 |
|
Accounts receivable |
|
| 177,123 |
|
|
| 177,675 |
|
Less: allowance for credit losses |
|
| (5,698 | ) |
|
| (5,622 | ) |
Accounts receivable, net |
|
| 171,425 |
|
|
| 172,053 |
|
Prepaid expenses and other current assets |
|
| 136,211 |
|
|
| 48,695 |
|
Asset held for sale |
|
| 1,000 |
|
|
| — |
|
Total current assets |
|
| 481,018 |
|
|
| 318,082 |
|
Drilling and other property and equipment, net of |
|
|
|
|
|
| ||
accumulated depreciation |
|
| 1,157,337 |
|
|
| 1,141,908 |
|
Other assets |
|
| 167,453 |
|
|
| 67,966 |
|
Total assets |
| $ | 1,805,808 |
|
| $ | 1,527,956 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 54,927 |
|
| $ | 47,647 |
|
Accrued liabilities |
|
| 163,412 |
|
|
| 166,785 |
|
Taxes payable |
|
| 27,491 |
|
|
| 30,264 |
|
Current finance lease liabilities |
|
| 15,655 |
|
|
| 16,965 |
|
Total current liabilities |
|
| 261,485 |
|
|
| 261,661 |
|
Long-term debt |
|
| 535,194 |
|
|
| 360,644 |
|
Noncurrent finance lease liabilities |
|
| 117,889 |
|
|
| 131,393 |
|
Deferred tax liability |
|
| 702 |
|
|
| 700 |
|
Other liabilities |
|
| 103,377 |
|
|
| 93,888 |
|
Commitments and contingencies (Note 7) |
|
|
|
|
|
| ||
Total liabilities |
|
| 1,018,647 |
|
|
| 848,286 |
|
Stockholders’ equity: |
|
|
|
|
|
| ||
Preferred stock (par value $0.0001, 50,000 shares authorized, none issued and outstanding at September 30, 2023 and December 31, 2022) |
|
| — |
|
|
| — |
|
Common stock (par value $0.0001, 750,000 shares authorized; 103,189 shares issued and 102,322 shares outstanding at September 30, 2023 and 101,884 shares issued and 101,320 shares outstanding at December 31, 2022) |
|
| 10 |
|
|
| 10 |
|
Additional paid-in capital |
|
| 975,177 |
|
|
| 964,467 |
|
Treasury stock |
|
| (8,493 | ) |
|
| (4,252 | ) |
Accumulated deficit |
|
| (179,559 | ) |
|
| (280,555 | ) |
Accumulated other comprehensive income |
|
| 26 |
|
|
| — |
|
Total stockholders’ equity |
|
| 787,161 |
|
|
| 679,670 |
|
Total liabilities and stockholders’ equity |
| $ | 1,805,808 |
|
| $ | 1,527,956 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
|
| Successor |
|
| |||||||||||||
|
| Three Months |
|
| Three Months |
|
| ||||||||||
|
| Ended |
|
| Ended |
|
|
| Three Months Ended September 30, |
| |||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
|
| 2023 |
|
| 2022 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contract drilling |
| $ | 189,861 |
|
| $ | 183,156 |
|
|
| $ | 224,929 |
|
| $ | 189,861 |
|
Revenues related to reimbursable expenses |
|
| 36,212 |
|
|
| 30,721 |
|
|
|
| 20,029 |
|
|
| 36,212 |
|
Total revenues |
|
| 226,073 |
|
|
| 213,877 |
|
|
|
| 244,958 |
|
|
| 226,073 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contract drilling, excluding depreciation |
|
| 155,567 |
|
|
| 135,181 |
|
|
|
| 181,954 |
|
|
| 155,567 |
|
Reimbursable expenses |
|
| 35,765 |
|
|
| 30,073 |
|
|
|
| 18,662 |
|
|
| 35,765 |
|
Depreciation |
|
| 26,069 |
|
|
| 25,150 |
|
|
|
| 27,785 |
|
|
| 26,069 |
|
General and administrative |
|
| 16,320 |
|
|
| 20,976 |
|
|
|
| 16,649 |
|
|
| 16,320 |
|
Gain on disposition of assets |
|
| (73 | ) |
|
| (767 | ) |
|
|
| (955 | ) |
|
| (73 | ) |
Total operating expenses |
|
| 233,648 |
|
|
| 210,613 |
|
|
|
| 244,095 |
|
|
| 233,648 |
|
Operating (loss) income |
|
| (7,575 | ) |
|
| 3,264 |
|
| ||||||||
Operating income (loss) |
|
| 863 |
|
|
| (7,575 | ) | |||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
| 11 |
|
|
| 2 |
|
|
|
| 161 |
|
|
| 11 |
|
Interest expense, net of amounts capitalized |
|
| (10,364 | ) |
|
| (9,777 | ) |
|
|
| (13,774 | ) |
|
| (10,364 | ) |
Foreign currency transaction gain |
|
| 237 |
|
|
| 1,173 |
|
|
|
| 184 |
|
|
| 237 |
|
Reorganization items, net |
|
| — |
|
|
| (1,916 | ) |
| ||||||||
Loss on extinguishment of long-term debt |
|
| (6,529 | ) |
|
| — |
| |||||||||
Other, net |
|
| 172 |
|
|
| (14 | ) |
|
|
| (485 | ) |
|
| 172 |
|
Loss before income tax benefit |
|
| (17,519 | ) |
|
| (7,268 | ) |
| ||||||||
Income tax benefit |
|
| 23,029 |
|
|
| 2,086 |
|
| ||||||||
Net income (loss) |
| $ | 5,510 |
|
| $ | (5,182 | ) |
| ||||||||
Income (loss) per share, Basic and Diluted |
| $ | 0.05 |
|
| $ | (0.05 | ) |
| ||||||||
Weighted-average shares outstanding, Basic |
|
| 100,875 |
|
|
| 100,075 |
|
| ||||||||
Weighted-average shares outstanding, Diluted |
|
| 102,273 |
|
|
| 100,075 |
|
| ||||||||
Loss before income tax (expense) benefit |
|
| (19,580 | ) |
|
| (17,519 | ) | |||||||||
Income tax (expense) benefit |
|
| (125,436 | ) |
|
| 23,029 |
| |||||||||
Net (loss) income |
| $ | (145,016 | ) |
| $ | 5,510 |
| |||||||||
(Loss) earnings per share |
|
|
|
|
|
| |||||||||||
Basic |
| $ | (1.42 | ) |
| $ | 0.05 |
| |||||||||
Diluted |
| $ | (1.42 | ) |
| $ | 0.05 |
| |||||||||
Weighted-average shares outstanding |
|
|
|
|
|
| |||||||||||
Basic |
|
| 102,215 |
|
|
| 100,875 |
| |||||||||
Diluted |
|
| 102,215 |
|
|
| 102,273 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
|
| Successor |
|
|
| Predecessor |
|
| ||||||||||||||
|
|
|
| Period from |
|
|
| Period from |
|
| ||||||||||||
|
| Nine Months |
|
| April 24, 2021 |
|
|
| January 1, 2021 |
|
| |||||||||||
|
| Ended |
|
| through |
|
|
| through |
|
|
| Nine Months Ended September 30, |
| ||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
|
| April 23, 2021 |
|
|
| 2023 |
|
| 2022 |
| |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Contract drilling |
| $ | 516,992 |
|
| $ | 281,189 |
|
|
| $ | 153,364 |
|
|
| $ | 704,302 |
|
| $ | 516,992 |
|
Revenues related to reimbursable expenses |
|
| 101,022 |
|
|
| 47,599 |
|
|
|
| 16,015 |
|
|
|
| 54,240 |
|
|
| 101,022 |
|
Total revenues |
|
| 618,014 |
|
|
| 328,788 |
|
|
|
| 169,379 |
|
|
|
| 758,542 |
|
|
| 618,014 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Contract drilling, excluding depreciation |
|
| 442,619 |
|
|
| 225,892 |
|
|
|
| 181,626 |
|
|
|
| 568,390 |
|
|
| 442,619 |
|
Reimbursable expenses |
|
| 99,932 |
|
|
| 46,645 |
|
|
|
| 15,477 |
|
|
|
| 51,454 |
|
|
| 99,932 |
|
Depreciation |
|
| 78,714 |
|
|
| 43,885 |
|
|
|
| 92,758 |
|
|
|
| 83,596 |
|
|
| 78,714 |
|
General and administrative |
|
| 52,805 |
|
|
| 37,193 |
|
|
|
| 15,036 |
|
|
|
| 53,058 |
|
|
| 52,805 |
|
Impairment of assets |
|
| — |
|
|
| — |
|
|
|
| 197,027 |
|
| ||||||||
Gain on disposition of assets |
|
| (4,802 | ) |
|
| (943 | ) |
|
|
| (5,486 | ) |
|
|
| (4,102 | ) |
|
| (4,802 | ) |
Total operating expenses |
|
| 669,268 |
|
|
| 352,672 |
|
|
|
| 496,438 |
|
|
|
| 752,396 |
|
|
| 669,268 |
|
Operating loss |
|
| (51,254 | ) |
|
| (23,884 | ) |
|
|
| (327,059 | ) |
| ||||||||
Operating income (loss) |
|
| 6,146 |
|
|
| (51,254 | ) | ||||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income |
|
| 12 |
|
|
| 3 |
|
|
|
| 30 |
|
|
|
| 173 |
|
|
| 12 |
|
Interest expense, net of amounts capitalized (excludes $35,390 of contractual interest expense on debt subject to compromise for the period from January 1, 2021 through April 23, 2021) |
|
| (28,792 | ) |
|
| (16,874 | ) |
|
|
| (34,827 | ) |
| ||||||||
Foreign currency transaction (loss) gain |
|
| (285 | ) |
|
| 259 |
|
|
|
| (172 | ) |
| ||||||||
Reorganization items, net |
|
| — |
|
|
| (7,454 | ) |
|
|
| (1,639,763 | ) |
| ||||||||
Interest expense, net of amounts capitalized |
|
| (38,569 | ) |
|
| (28,792 | ) | ||||||||||||||
Foreign currency transaction loss |
|
| (3,057 | ) |
|
| (285 | ) | ||||||||||||||
Loss on extinguishment of long-term debt |
|
| (6,529 | ) |
|
| — |
| ||||||||||||||
Other, net |
|
| 1,487 |
|
|
| 10,692 |
|
|
|
| 398 |
|
|
|
| (502 | ) |
|
| 1,487 |
|
Loss before income tax benefit (expense) |
|
| (78,832 | ) |
|
| (37,258 | ) |
|
|
| (2,001,393 | ) |
| ||||||||
Income tax benefit (expense) |
|
| 28,059 |
|
|
| (15,217 | ) |
|
|
| 39,404 |
|
| ||||||||
Net loss |
| $ | (50,773 | ) |
| $ | (52,475 | ) |
|
| $ | (1,961,989 | ) |
| ||||||||
Loss per share, Basic and Diluted |
| $ | (0.51 | ) |
| $ | (0.52 | ) |
|
| $ | (14.21 | ) |
| ||||||||
Weighted-average shares outstanding, Basic and Diluted |
|
| 100,356 |
|
|
| 100,068 |
|
|
|
| 138,054 |
|
| ||||||||
Loss before income tax benefit |
|
| (42,338 | ) |
|
| (78,832 | ) | ||||||||||||||
Income tax benefit |
|
| 143,334 |
|
|
| 28,059 |
| ||||||||||||||
Net income (loss) |
| $ | 100,996 |
|
| $ | (50,773 | ) | ||||||||||||||
Earnings (loss) per share |
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.99 |
|
| $ | (0.51 | ) | ||||||||||||||
Diluted |
| $ | 0.97 |
|
| $ | (0.51 | ) | ||||||||||||||
Weighted-average shares outstanding |
|
|
|
|
|
| ||||||||||||||||
Basic |
|
| 101,681 |
|
|
| 100,356 |
| ||||||||||||||
Diluted |
|
| 104,256 |
|
|
| 100,356 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(In thousands)
|
| Three Months Ended September 30, |
|
| |||||
|
| 2023 |
|
| 2022 |
|
| ||
Net (loss) income |
| $ | (145,016 | ) |
| $ | 5,510 |
|
|
Other comprehensive income, net |
|
|
|
|
|
|
| ||
Unrealized gain on marketable securities (net of tax of $3) |
|
| 26 |
|
|
| — |
|
|
Comprehensive (loss) income |
| $ | (144,990 | ) |
| $ | 5,510 |
|
|
|
| Nine Months Ended September 30, |
|
| |||||
|
| 2023 |
|
| 2022 |
|
| ||
Net income (loss) |
| $ | 100,996 |
|
| $ | (50,773 | ) |
|
Other comprehensive income, net |
|
|
|
|
|
|
| ||
Unrealized gain on marketable securities (net of tax of $3) |
|
| 26 |
|
|
| — |
|
|
Comprehensive income (loss) |
| $ | 101,022 |
|
| $ | (50,773 | ) |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
|
| Three Months Ended September 30, 2023 |
| |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Other |
|
|
|
|
|
|
|
| Total |
| ||||||||
|
| Common Stock |
|
| Paid-In |
|
| Accumulated |
|
| Comprehensive |
|
| Treasury Stock |
|
| Stockholders’ |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income |
|
| Shares |
|
| Amount |
|
| Equity |
| ||||||||
July 1, 2023 |
|
| 101,667 |
|
| $ | 10 |
|
| $ | 972,445 |
|
| $ | (34,543 | ) |
| $ | — |
|
|
| 627 |
|
| $ | (4,986 | ) |
| $ | 932,926 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (145,016 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (145,016 | ) |
Stock-based compensation, net of tax |
|
| 655 |
|
|
| — |
|
|
| 2,732 |
|
|
| — |
|
|
| — |
|
|
| 240 |
|
|
| (3,507 | ) |
|
| (775 | ) |
Unrealized gain on marketable securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
September 30, 2023 |
|
| 102,322 |
|
| $ | 10 |
|
| $ | 975,177 |
|
| $ | (179,559 | ) |
| $ | 26 |
|
|
| 867 |
|
| $ | (8,493 | ) |
| $ | 787,161 |
|
|
| Nine Months Ended September 30, 2023 |
| |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Other |
|
|
|
|
|
|
|
| Total |
| ||||||||
|
| Common Stock |
|
| Paid-In |
|
| Accumulated |
|
| Comprehensive |
|
| Treasury Stock |
|
| Stockholders’ |
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income |
|
| Shares |
|
| Amount |
|
| Equity |
| ||||||||
January 1, 2023 |
|
| 101,320 |
|
| $ | 10 |
|
| $ | 964,467 |
|
| $ | (280,555 | ) |
| $ | — |
|
|
| 564 |
|
| $ | (4,252 | ) |
| $ | 679,670 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 100,996 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 100,996 |
|
Stock-based compensation, net of tax |
|
| 1,002 |
|
|
| — |
|
|
| 10,710 |
|
|
| — |
|
|
| — |
|
|
| 303 |
|
|
| (4,241 | ) |
|
| 6,469 |
|
Unrealized gain on marketable securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
September 30, 2023 |
|
| 102,322 |
|
| $ | 10 |
|
| $ | 975,177 |
|
| $ | (179,559 | ) |
| $ | 26 |
|
|
| 867 |
|
| $ | (8,493 | ) |
| $ | 787,161 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
7
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
|
| Three Months Ended September 30, 2022 |
|
| Three Months Ended September 30, 2022 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
| Common Stock |
|
| Paid-In |
|
| Accumulated |
| Treasury Stock |
|
| Stockholders’ |
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Total |
| |||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Equity |
|
| Common Stock |
|
| Paid-In |
|
| Accumulated |
|
| Treasury Stock |
|
| Stockholders’ |
| ||||||||||||||||||||
July 1, 2022 (Successor) |
|
| 100,131 |
|
| $ | 10 |
|
| $ | 957,608 |
|
| $ | (233,627 | ) |
|
| 18 |
|
| $ | (139 | ) |
| $ | 723,852 |
| ||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Equity |
| |||||||||||||||||||||||||||||||||||
July 1, 2022 |
|
| 100,131 |
|
| $ | 10 |
|
| $ | 957,608 |
|
| $ | (233,627 | ) |
|
| 18 |
|
| $ | (139 | ) |
| $ | 723,852 |
| ||||||||||||||||||||||||||||
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,510 |
|
|
| — |
|
|
| — |
|
|
| 5,510 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,510 |
|
|
| — |
|
|
| — |
|
|
| 5,510 |
|
Stock-based compensation, net of tax |
|
| 1,035 |
|
|
| — |
|
|
| 3,902 |
|
|
| — |
|
|
| 446 |
|
|
| (3,075 | ) |
|
| 827 |
|
|
| 1,035 |
|
|
| — |
|
|
| 3,902 |
|
|
| — |
|
|
| 446 |
|
|
| (3,075 | ) |
|
| 827 |
|
September 30, 2022 (Successor) |
|
| 101,166 |
|
| $ | 10 |
|
| $ | 961,510 |
|
| $ | (228,117 | ) |
|
| 464 |
|
| $ | (3,214 | ) |
| $ | 730,189 |
| ||||||||||||||||||||||||||||
September 30, 2022 |
|
| 101,166 |
|
| $ | 10 |
|
| $ | 961,510 |
|
| $ | (228,117 | ) |
|
| 464 |
|
| $ | (3,214 | ) |
| $ | 730,189 |
|
|
| Nine Months Ended September 30, 2022 |
|
| Nine Months Ended September 30, 2022 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Common Stock |
|
| Paid-In |
|
| Accumulated |
|
| Treasury Stock |
|
| Stockholders’ |
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Total |
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Equity |
|
| Common Stock |
|
| Paid-In |
|
| Accumulated |
|
| Treasury Stock |
|
| Stockholders’ |
| ||||||||||||||||||||
January 1, 2022 (Successor) |
|
| 100,075 |
|
| $ | 10 |
|
| $ | 945,039 |
|
| $ | (177,344 | ) |
|
| — |
|
| $ | — |
|
| $ | 767,705 |
| ||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Equity |
| |||||||||||||||||||||||||||||||||||
January 1, 2022 |
|
| 100,075 |
|
| $ | 10 |
|
| $ | 945,039 |
|
| $ | (177,344 | ) |
|
| — |
|
| $ | — |
|
| $ | 767,705 |
| ||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50,773 | ) |
|
| — |
|
|
| — |
|
|
| (50,773 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50,773 | ) |
|
| — |
|
|
| — |
|
|
| (50,773 | ) |
Stock-based compensation, net of tax |
|
| 1,091 |
|
|
| — |
|
|
| 16,471 |
|
|
| — |
|
|
| 464 |
|
|
| (3,214 | ) |
|
| 13,257 |
|
|
| 1,091 |
|
|
| — |
|
|
| 16,471 |
|
|
| — |
|
|
| 464 |
|
|
| (3,214 | ) |
|
| 13,257 |
|
September 30, 2022 (Successor) |
|
| 101,166 |
|
| $ | 10 |
|
| $ | 961,510 |
|
| $ | (228,117 | ) |
|
| 464 |
|
| $ | (3,214 | ) |
| $ | 730,189 |
| ||||||||||||||||||||||||||||
September 30, 2022 |
|
| 101,166 |
|
| $ | 10 |
|
| $ | 961,510 |
|
| $ | (228,117 | ) |
|
| 464 |
|
| $ | (3,214 | ) |
| $ | 730,189 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
68
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
|
| Three Months Ended September 30, 2021 |
|
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
|
| Total |
|
| |||||||
|
| Common Stock |
|
| Paid-In |
|
| Accumulated |
|
| Treasury Stock |
|
| Stockholders’ |
|
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Equity |
|
| |||||||
July 1, 2021 (Successor) |
|
| 100,075 |
|
| $ | 10 |
|
| $ | 935,792 |
|
| $ | (47,293 | ) |
|
| — |
|
| $ | — |
|
| $ | 888,509 |
|
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,182 | ) |
|
| — |
|
|
| — |
|
|
| (5,182 | ) |
|
Stock-based compensation, net of tax |
|
| — |
|
|
| — |
|
|
| 4,494 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,494 |
|
|
September 30, 2021 (Successor) |
|
| 100,075 |
|
| $ | 10 |
|
| $ | 940,286 |
|
| $ | (52,475 | ) |
|
| — |
|
| $ | — |
|
| $ | 887,821 |
|
|
|
| Nine Months Ended September 30, 2021 |
| |||||||||||||||||||||||||
|
|
|
|
|
|
|
| Additional |
|
| Retained Earnings |
|
|
|
|
|
|
|
| Total |
| |||||||
|
| Common Stock |
|
| Paid-In |
|
| (Accumulated |
|
| Treasury Stock |
|
| Stockholders’ |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit) |
|
| Shares |
|
| Amount |
|
| Equity |
| |||||||
January 1, 2021 (Predecessor) |
|
| 145,264 |
|
| $ | 1,453 |
|
| $ | 2,029,979 |
|
| $ | 157,297 |
|
|
| 7,210 |
|
| $ | (206,163 | ) |
| $ | 1,982,566 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,961,989 | ) |
|
| — |
|
|
| — |
|
|
| (1,961,989 | ) |
Cancellation of Predecessor equity |
|
| (145,264 | ) |
|
| (1,453 | ) |
|
| (2,029,979 | ) |
|
| 1,804,692 |
|
|
| (7,210 | ) |
|
| 206,163 |
|
|
| (20,577 | ) |
April 23, 2021 (Predecessor) |
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Issuance of Successor equity |
|
| 100,000 |
|
|
| 10 |
|
|
| 934,800 |
|
|
|
|
|
|
|
|
|
|
|
| 934,810 |
| |||
April 24, 2021 (Successor) |
|
| 100,000 |
|
| $ | 10 |
|
| $ | 934,800 |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 934,810 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (52,475 | ) |
|
| — |
|
|
| — |
|
|
| (52,475 | ) |
Stock-based compensation, net of tax |
|
| 75 |
|
|
| — |
|
|
| 5,486 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,486 |
|
September 30, 2021 (Successor) |
|
| 100,075 |
|
| $ | 10 |
|
| $ | 940,286 |
|
| $ | (52,475 | ) |
|
| — |
|
| $ | — |
|
| $ | 887,821 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
7
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
| Successor |
|
|
| Predecessor |
| ||||||||||||||
|
|
|
| Period from |
|
|
| Period from |
| ||||||||||||
|
| Nine Months Ended |
| April 24, 2021 |
|
|
| January 1, 2021 |
| ||||||||||||
|
| September 30, |
| through |
|
|
| through |
|
| Nine Months Ended |
| |||||||||
|
| 2022 |
|
| September 30, 2021 |
|
|
| April 23, 2021 |
|
| 2023 |
|
| 2022 |
| |||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net loss |
| $ | (50,773 | ) |
| $ | (52,475 | ) |
|
| $ | (1,961,989 | ) | ||||||||
Adjustments to reconcile net loss to net cash used in |
|
|
|
|
|
|
|
|
| ||||||||||||
Net income (loss) |
| $ | 100,996 |
|
| $ | (50,773 | ) | |||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) |
|
|
|
|
|
| |||||||||||||||
Depreciation |
|
| 78,714 |
|
|
| 43,885 |
|
|
|
| 92,758 |
|
|
| 83,596 |
|
|
| 78,714 |
|
Loss on impairment of assets |
|
| — |
|
|
| — |
|
|
|
| 197,027 |
| ||||||||
Reorganization items, net |
|
| — |
|
|
| — |
|
|
|
| 1,587,392 |
| ||||||||
Gain on disposition of assets |
|
| (4,802 | ) |
|
| (943 | ) |
|
|
| (5,486 | ) |
|
| (4,102 | ) |
|
| (4,802 | ) |
Loss on extinguishment of long-term debt |
|
| 6,529 |
|
|
| — |
| |||||||||||||
Deferred tax provision |
|
| (7,961 | ) |
|
| 9,122 |
|
|
|
| (35,894 | ) |
|
| (110,651 | ) |
|
| (27,162 | ) |
Stock-based compensation expense |
|
| 16,471 |
|
|
| 5,822 |
|
|
|
| — |
|
|
| 10,941 |
|
|
| 16,471 |
|
Contract liabilities, net |
|
| (19,725 | ) |
|
| 51,275 |
|
|
|
| 10,617 |
| ||||||||
Contract assets, net |
|
| 1,330 |
|
|
| (974 | ) |
|
|
| (742 | ) | ||||||||
Contract liabilities |
|
| (7,111 | ) |
|
| (19,725 | ) | |||||||||||||
Contract assets |
|
| (4,183 | ) |
|
| 1,330 |
| |||||||||||||
Deferred contract costs, net |
|
| (4,193 | ) |
|
| (14,971 | ) |
|
|
| (12,034 | ) |
|
| (4,576 | ) |
|
| (4,193 | ) |
Collateral deposits |
|
| 17,479 |
|
|
| 4,939 |
|
|
|
| — |
|
|
| (16,773 | ) |
|
| 17,479 |
|
Other assets, noncurrent |
|
| (547 | ) |
|
| (72 | ) |
|
|
| 2,685 |
|
|
| 3,489 |
|
|
| (547 | ) |
Other liabilities, noncurrent |
|
| (160 | ) |
|
| (1,354 | ) |
|
|
| (371 | ) |
|
| 12,581 |
|
|
| (160 | ) |
Other |
|
| 1,275 |
|
|
| 1,129 |
|
|
|
| 3,158 |
|
|
| 2,089 |
|
|
| 1,275 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts receivable |
|
| (33,575 | ) |
|
| (40,668 | ) |
|
|
| 2,108 |
|
|
| 3,659 |
|
|
| (33,575 | ) |
Prepaid expenses and other current assets |
|
| (979 | ) |
|
| 2 |
|
|
|
| (2,791 | ) |
|
| (29,259 | ) |
|
| (979 | ) |
Current income tax assets |
|
| (49,664 | ) |
|
| — |
| |||||||||||||
Accounts payable and accrued liabilities |
|
| 20,884 |
|
|
| (54,447 | ) |
|
|
| 29,302 |
|
|
| 9,902 |
|
|
| 20,884 |
|
Taxes payable |
|
| (35,368 | ) |
|
| 8,759 |
|
|
|
| (5,804 | ) |
|
| 12,742 |
|
|
| (16,167 | ) |
Net cash used in operating activities |
|
| (21,930 | ) |
|
| (40,971 | ) |
|
|
| (100,064 | ) | ||||||||
Net cash provided by (used in) operating activities |
|
| 20,205 |
|
|
| (21,930 | ) | |||||||||||||
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital expenditures |
|
| (42,653 | ) |
|
| (37,845 | ) |
|
|
| (49,119 | ) |
|
| (99,878 | ) |
|
| (42,653 | ) |
Proceeds from disposition of assets, net of disposal costs |
|
| 5,861 |
|
|
| 960 |
|
|
|
| 7,484 |
|
|
| 857 |
|
|
| 5,861 |
|
Net cash used in investing activities |
|
| (36,792 | ) |
|
| (36,885 | ) |
|
|
| (41,635 | ) |
|
| (99,021 | ) |
|
| (36,792 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Repayment of borrowings under revolving credit facility |
|
| — |
|
|
| — |
|
|
|
| (442,034 | ) | ||||||||
Borrowings on exit facilities |
|
| 69,000 |
|
|
| 50,000 |
|
|
|
| 200,000 |
| ||||||||
Repayments on exit facilities |
|
| — |
|
|
| (30,000 | ) |
|
|
| — |
| ||||||||
Issuance of exit notes |
|
| — |
|
|
| — |
|
|
|
| 75,000 |
| ||||||||
Principal payments of finance lease liabilities |
|
| (11,765 | ) |
|
| (6,011 | ) |
|
|
| — |
| ||||||||
Proceeds from issuance of second lien notes |
|
| 550,000 |
|
|
| — |
| |||||||||||||
Borrowings under exit facilities |
|
| 40,000 |
|
|
| 69,000 |
| |||||||||||||
Extinguishment of long-term debt |
|
| (192,182 | ) |
|
| — |
| |||||||||||||
Repayments of exit facilities |
|
| (214,000 | ) |
|
| — |
| |||||||||||||
Debt issuance costs and arrangement fees |
|
| — |
|
|
| — |
|
|
|
| (6,218 | ) |
|
| (15,140 | ) |
|
| — |
|
Net cash provided by (used in) financing activities |
|
| 57,235 |
|
|
| 13,989 |
|
|
|
| (173,252 | ) | ||||||||
Principal payment of finance leases |
|
| (14,814 | ) |
|
| (11,765 | ) | |||||||||||||
Net cash provided by financing activities |
|
| 153,864 |
|
|
| 57,235 |
| |||||||||||||
Net change in cash, cash equivalents and restricted cash |
|
| (1,487 | ) |
|
| (63,867 | ) |
|
|
| (314,951 | ) |
|
| 75,048 |
|
|
| (1,487 | ) |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 62,729 |
|
|
| 115,429 |
|
|
|
| 430,380 |
|
|
| 97,334 |
|
|
| 62,729 |
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 61,242 |
|
| $ | 51,562 |
|
|
| $ | 115,429 |
|
| $ | 172,382 |
|
| $ | 61,242 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
89
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General Information
The unaudited condensed consolidated financial statements of Diamond Offshore Drilling, Inc. and subsidiaries, which we refer to as “Diamond Offshore,” “Company,” “we,” “us” or “our,” should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A (File No. 1-13926). To facilitate our financial statement presentations, we refer to the post-emergence reorganized company in these unaudited condensed consolidated financial statements and footnotes as the “Successor” for periods subsequent to April 23, 2021 and to the pre-emergence company as the “Predecessor” for periods on or prior to April 23, 2021. This delineation between Predecessor periods and Successor periods is shown in the unaudited condensed consolidated financial statements, certain tables within the footnotes to the unaudited condensed consolidated financial statements and other parts of this Quarterly Report on Form 10-Q through the use of a black line, calling out the lack of comparability between periods.2022.
Interim Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (or GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, pursuant to such rules and regulations, they do not include all disclosures required by GAAP for annual financial statements. The condensed consolidated financial information has not been audited but, in the opinion of management, includes all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of Diamond Offshore’s condensed consolidated balance sheets, statements of operations, statements of comprehensive (loss) income, statements of stockholders’ equity and statements of cash flows at the dates and for the periods indicated. Results of operations for interim periods are not necessarily indicative of results of operations for the respective full years.
Fresh Start Accounting
Upon our emergence from bankruptcy on April 23, 2021 (or the Effective Date), we met the criteria for and were requiredCertain reclassifications have been made to adopt fresh start accounting in accordance with the Financial Accounting Standards Board (or FASB) Accounting Standards Codification Topic No. 852 – Reorganizations, which on the Effective Date resulted in a new entity, the Successor, for financial reporting purposes, with no beginning retained earnings or deficit as of the fresh start reporting date.
Fresh start accounting requires that new fair values be established for the Company’s assets, liabilities, and equity as of the Effective Date. The Effective Date fair values of the Successor’s assets and liabilities differ materially from their recorded values as reflected on the historical balance sheets of the Predecessor. In addition, as a result of the application of fresh start accounting and the effects of the implementation of our restructuring plan, the financial statements for periods after April 23, 2021 will not be comparable with the financial statements prior period amounts to and including April 23, 2021. References to “Successor” referconform to the Company and itscurrent period presentation. These reclassifications did not have a material effect on our unaudited condensed consolidated financial position and results of operations after the Effective Date (including December 31, 2021, September 30, 2022, the three-month and nine-month periods ended September 30, 2022 and the period from April 24, 2021 through September 30, 2021). References to “Predecessor” refer to the Company and its financial position and results of operations on or before the Effective Date (including the period from January 1, 2021 through April 23, 2021 and the period from April 1, 2021 through April 23, 2021).statements.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated.
9
Restricted Cash
We maintain a restricted cash bank account which is subject to restrictions pursuant to a management and marketing services agreement with an offshore drilling company. See Note 2 “Revenue from Contracts with Customers.”
We classify such restricted cash accounts in current assets if the restrictions are expected to expire or otherwise be resolved within one year or if such funds are considered to offset current liabilities. At September 30, 20222023 and December 31, 2021,2022, our restricted cash was considered to be current and was recorded in “Restricted cash” in our unaudited Condensed Consolidated Balance Sheets.
Asset Held for Sale
We reported the $1.0 million carrying value of the Ocean Monarch as “Asset held for sale” in our unaudited Condensed Consolidated Balance Sheet at September 30, 2023. A broker has been engaged to assist in marketing the rig for sale.
10
2. Revenue from Contracts with Customers
The activities that primarily drive the revenue earned from our contract drilling services include (i) providing a drilling rig and the crew and supplies necessary to operate the rig, (ii) mobilizing and demobilizing the rig to and from the drill site and (iii) performing rig preparation activities and/or modifications required for the contract. Consideration received for performing these activities may consist of dayrate drilling revenue, mobilization and demobilization revenue, contract preparation revenue and reimbursement revenue. We account for these integrated services provided within our drilling contracts as a single performance obligation satisfied over time and comprised of a series of distinct time increments in which we provide drilling services.
Consideration for activities that are not distinct within the context of our contracts and do not correspond to a distinct time increment within the contract term are allocated across the single performance obligation and recognized ratably over the initial term of the contract (which is the period we estimate to be benefited from the corresponding activities and generally ranges from two to 60 months). Such consideration may include mobilization, demobilization, contract preparation and capital modification revenue that is stipulated in our drilling contracts. Consideration for activities that correspond to a distinct time increment within the contract term is recognized in the period when the services are performed. The total transaction price is determined for each individual contract by estimating both fixed and variable consideration expected to be earned over the term of the contract.
Revenues Related to Managed Rigs
In May 2021, we entered intoWe are participants in an arrangement with Aquadrill LLC, an offshore drilling company for us towhereby we provide management and marketing services (or the MMSA)MSA) for threecertain of its rigs. In July 2022, we received notice of termination of the MMSA for one of these rigs, the Capricorn and no longer perform management services for that rig.
Per the MMSA,MSA, for stacked rigs we earn a daily service fee and are entitled to reimbursement of direct costs incurred in accordance with the agreement. For rigs operating under a drilling contract, in addition to the service fee and reimbursement of direct costs, we are entitled to a gross margin bonus, as adjusted pursuant to the MMSA, and a commission. The daily service fee revenue is recognized in line with the contractual rate billed for the services provided and is reported in “Contract drilling”drilling revenue” in our unaudited Condensed Consolidated Statements of Operations. We record the revenue relating to reimbursed expenses at the gross amount incurred and billed to the rig owner, as “Revenues related to reimbursable expenses” in our unaudited Condensed Consolidated Statements of Operations. In April 2023, we received notice of termination of the marketing arrangement for the managed rigs, which will be effective in the third quarter of 2023. However, termination of the marketing arrangement does not impact the management services that we provide under the MSA.
In March 2022, theThe managed rig,rigs West Auriga began a one-year contractand West Vela commenced operations in the U.S. Gulf of Mexico. Mexico (or GOM) in 2022. Both rigs are currently under contract; however, we expect each rig to complete their respective contracts in 2024.
Upon commencement of drilling operations, the MMSAMSA for the Aurigaboth rigs was suspended and replaced by a charter agreement for the duration of the drilling contract.contracts. We entered into the drilling contract directly with the customer and receive and recognize revenue under the terms of the contract. We report such revenue as “Contract drilling”drilling revenue” in our unaudited Condensed Consolidated Statements of Operations. In addition, we have determined that the charter arrangement is an operating lease, and the related charter fee has been reported as lease expense within “Contract"Contract drilling, excluding depreciation”depreciation" in our unaudited Condensed Consolidated Statements of Operations.
1011
Contract Balances
The following table provides information about receivables, contract assets and contract liabilities related to our contracts with customers (in thousands):
|
| Successor |
| |||||||||||||
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Trade receivables |
| $ | 167,570 |
|
| $ | 130,021 |
|
| $ | 170,596 |
|
| $ | 155,956 |
|
Current contract assets (1) |
|
| 505 |
|
|
| 1,835 |
|
|
| 4,324 |
|
|
| 141 |
|
Current contract liabilities (deferred revenue) (1) |
|
| (25,833 | ) |
|
| (38,506 | ) |
|
| (4,888 | ) |
|
| (11,513 | ) |
Noncurrent contract liabilities (deferred revenue) (1) |
|
| (2,734 | ) |
|
| (9,787 | ) |
|
| — |
|
|
| (487 | ) |
Changes in the contract assets and the contract liabilities balances during the period are as follows (in thousands):
|
| Successor |
| |
|
| Net Contract |
| |
|
| Balances |
| |
Contract assets at January 1, 2022 |
| $ | 1,835 |
|
Contract liabilities at January 1, 2022 |
|
| (48,293 | ) |
Net balance at January 1, 2022 |
|
| (46,458 | ) |
Decrease due to amortization of revenue included in the beginning contract liability balance |
|
| 25,052 |
|
Increase due to cash received, excluding amounts recognized as revenue during the period |
|
| (5,326 | ) |
Increase due to revenue recognized during the period but contingent on future performance |
|
| 6,205 |
|
Decrease due to transfer to receivables during the period |
|
| (7,535 | ) |
Net balance at September 30, 2022 |
| $ | (28,062 | ) |
Contract assets at September 30, 2022 |
| $ | 505 |
|
Contract liabilities at September 30, 2022 |
|
| (28,567 | ) |
|
| Contract |
|
| Contract |
| ||
|
| Assets |
|
| Liabilities |
| ||
Balance as of December 31, 2022 |
| $ | 141 |
|
| $ | (12,000 | ) |
Decrease due to amortization of revenue included in the beginning contract liability balance |
|
| — |
|
|
| 9,266 |
|
Increase due to cash received, excluding amounts recognized as revenue during the period |
|
| — |
|
|
| (2,154 | ) |
Increase due to revenue recognized during the period but contingent on future performance |
|
| 6,551 |
|
|
| — |
|
Decrease due to transfer to receivables during the period |
|
| (2,368 | ) |
|
| — |
|
Balance as of September 30, 2023 |
| $ | 4,324 |
|
| $ | (4,888 | ) |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
Transaction Price Allocated to Remaining Performance Obligations
The following table reflects the specified types of revenue expected to be recognized in the future related to unsatisfied performance obligations as of September 30, 20222023 (in thousands):
|
| For the Years Ending December 31, |
|
| For the Years Ending December 31, |
| ||||||||||||||||||||||
|
| 2022 (1) |
|
| 2023 |
|
| 2024 |
|
| Total |
|
| 2023 (1) |
|
| 2024 |
|
| Total |
| |||||||
Mobilization and contract preparation revenue |
| $ | 2,280 |
|
| $ | 6,344 |
|
| $ | 225 |
|
| $ | 8,849 |
|
| $ | (633 | ) |
| $ | (933 | ) |
| $ | (1,566 | ) |
Capital modification revenue |
|
| 1,593 |
|
|
| 5,137 |
|
|
| 287 |
|
|
| 7,017 |
|
|
| (1,673 | ) |
|
| (1,649 | ) |
|
| (3,322 | ) |
Demobilization and other deferred revenue |
|
| 12,672 |
|
|
| (79 | ) |
|
| — |
|
|
| 12,593 |
| ||||||||||||
Total |
| $ | 16,545 |
|
| $ | 11,402 |
|
| $ | 512 |
|
| $ | 28,459 |
|
| $ | (2,306 | ) |
| $ | (2,582 | ) |
| $ | (4,888 | ) |
11
The revenue included above consists of expected fixed mobilization and upgrade revenue for both wholly and partially unsatisfied performance obligations, as well as expected variable mobilization and upgrade revenue for partially unsatisfied performance obligations, which has been estimated for purposes of allocating across the entire corresponding performance obligations. The amounts are derived from the specific terms within drilling contracts that contain such provisions, and the expected timing for recognition of such revenue is based on the estimated start date and duration of each respective contract based on information known at September 30, 2022. The actual timing of recognition of such amounts may vary due to factors outside of our control. We have applied thecertain disclosure practical expedient in FASB Accounting Standards Update (or ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606)expedients and, its related amendments, andaccordingly, have not includedexcluded estimated variable consideration related to wholly unsatisfied performance obligations or to distinct future time increments within our contracts, including dayrate revenue.
12
3. Impairment of Assets
2021 Impairment. During the first quarter of 2021, we identified indicators that the carrying amounts of certain of our assets may not be recoverable and evaluated three of our drilling rigs with indicators of impairment. Based on our assumptions and analysis at that time, we determined that the carrying value of one of these rigs, for which we had concerns regarding future opportunities, was impaired (or the 2021 Impaired Rig). We estimated the fair value of the 2021 Impaired Rig using an income approach, whereby the fair value of the rig was estimated based on a calculation of the rig’s future net cash flows. These calculations utilized significant unobservable inputs, including management’s assumptions related to estimated dayrate revenue, rig utilization, estimated capital expenditures, repair and regulatory survey costs, as well as estimated proceeds that may be received on ultimate disposition of the rig. Our fair value estimate was representative of a Level 3 fair value measurement due to the significant level of estimation involved and the lack of transparency as to the inputs used. We recorded asset impairments aggregating $197.0 million for the Predecessor period from January 1, 2021 through April 23, 2021.
No asset impairments were recorded in the Successor three-month or nine-month periods ended September 30, 2022 or the period from April 24, 2021 through September 30, 2021.
4. Supplemental Financial Information
Unaudited Condensed Consolidated Balance Sheets Information
Accounts receivable, net of allowance for credit losses, consist of the following (in thousands):
|
| Successor |
| |||||||||||||
|
| September 30, |
|
| December 31, |
|
| September 30, |
|
| December 31, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Trade receivables |
| $ | 167,570 |
|
| $ | 130,021 |
|
| $ | 170,596 |
|
| $ | 155,956 |
|
Federal income tax receivables |
|
| 9,374 |
|
|
| 9,278 |
| ||||||||
Value added tax receivables |
|
| 5,293 |
|
|
| 9,729 |
|
|
| 5,560 |
|
|
| 6,075 |
|
Related party receivables |
|
| 69 |
|
|
| 66 |
|
|
| 42 |
|
|
| 73 |
|
Federal income tax receivables |
|
| — |
|
|
| 9,450 |
| ||||||||
Other |
|
| 3,233 |
|
|
| 2,823 |
|
|
| 925 |
|
|
| 6,121 |
|
|
|
| 185,539 |
|
|
| 151,917 |
|
|
| 177,123 |
|
|
| 177,675 |
|
Allowance for credit losses |
|
| (5,629 | ) |
|
| (5,582 | ) | ||||||||
Allowance for bad debts |
|
| (5,698 | ) |
|
| (5,622 | ) | ||||||||
Total |
| $ | 179,910 |
|
| $ | 146,335 |
|
| $ | 171,425 |
|
| $ | 172,053 |
|
The allowance for credit losses at September 30, 20222023 and December 31, 20212022 represents our estimate of credit losses associated with our “Trade receivables” and “Current contract assets.” See Note 54 “Financial Instruments and Fair Value Disclosures” for a discussion of our concentrations of credit risk and allowance for credit losses.
12
Prepaid expenses and other current assets consist of the following (in thousands):
|
| Successor |
|
| September 30, |
| December 31, |
| ||||||||
|
| September 30, |
| December 31, |
|
| 2023 |
|
| 2022 |
| |||||
|
| 2022 |
|
| 2021 |
| ||||||||||
Current income tax asset |
| $ | 49,664 |
|
| $ | — |
| ||||||||
Prepaid taxes |
| $ | 23,526 |
|
| $ | 16,163 |
|
|
| 21,918 |
|
|
| 16,922 |
|
Deferred contract costs |
|
| 15,582 |
|
|
| 7,267 |
|
|
| 17,525 |
|
|
| 14,373 |
|
Collateral deposit |
|
| 16,773 |
|
|
| — |
| ||||||||
Rig spare parts and supplies |
|
| 5,089 |
|
|
| 3,716 |
|
|
| 10,824 |
|
|
| 5,091 |
|
Prepaid insurance |
|
| 5,025 |
|
|
| 3,436 |
|
|
| 4,457 |
|
|
| 3,022 |
|
Current contract assets |
|
| 4,324 |
|
|
| 141 |
| ||||||||
Prepaid rig costs |
|
| 4,102 |
|
|
| 4,048 |
|
|
| 4,185 |
|
|
| 4,001 |
|
Current contract assets |
|
| 505 |
|
|
| 1,835 |
| ||||||||
Collateral deposits |
|
| — |
|
|
| 17,480 |
| ||||||||
Software maintenance agreements and subscriptions |
|
| 1,560 |
|
|
| 1,212 |
| ||||||||
Deferred survey costs |
|
| 1,240 |
|
|
| 838 |
| ||||||||
Other |
|
| 5,756 |
|
|
| 7,495 |
|
|
| 3,741 |
|
|
| 3,095 |
|
Total |
| $ | 59,585 |
|
| $ | 61,440 |
|
| $ | 136,211 |
|
| $ | 48,695 |
|
Accrued liabilities consist of the following (in thousands):
|
| Successor |
|
| September 30, |
| December 31, |
| ||||||||
|
| September 30, |
| December 31, |
|
| 2023 |
|
| 2022 |
| |||||
|
| 2022 |
|
| 2021 |
| ||||||||||
Contract advances |
| $ | 52,414 |
| $ | 52,743 |
| |||||||||
Rig operating costs |
| $ | 39,479 |
|
| $ | 42,532 |
|
|
| 36,692 |
|
| 39,288 |
| |
Payroll and benefits |
|
| 29,651 |
|
|
| 29,268 |
|
|
| 33,211 |
|
| 29,408 |
| |
Accrued capital project/upgrade costs |
|
| 13,764 |
|
|
| 8,419 |
| ||||||||
Personal injury and other claims |
|
| 6,198 |
|
| 3,738 |
| |||||||||
Shorebase and administrative costs |
|
| 5,457 |
|
|
| 4,365 |
| ||||||||
Current operating lease liability |
|
| 4,905 |
|
| 13,480 |
| |||||||||
Deferred revenue |
|
| 25,833 |
|
|
| 38,506 |
|
|
| 4,888 |
|
| 11,513 |
| |
Contract advances |
|
| 20,880 |
|
|
| — |
| ||||||||
Current operating lease liability |
|
| 15,991 |
|
|
| 15,998 |
| ||||||||
Interest payable |
|
| 4,331 |
|
|
| 2,986 |
|
|
| 1,334 |
|
|
| 1,897 |
|
Shorebase and administrative costs |
|
| 4,265 |
|
|
| 5,776 |
| ||||||||
Personal injury and other claims |
|
| 3,960 |
|
|
| 5,598 |
| ||||||||
Accrued capital project/upgrade costs |
|
| 2,226 |
|
|
| 2,219 |
| ||||||||
Deposit for equipment sale |
|
| 1,207 |
|
| 1,670 |
| |||||||||
Other |
|
| 3,537 |
|
|
| 853 |
|
|
| 3,342 |
|
| 264 |
| |
Total |
| $ | 150,153 |
|
| $ | 143,736 |
|
| $ | 163,412 |
|
| $ | 166,785 |
|
13
Other assets consist of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Noncurrent deferred tax assets | $ | 121,264 |
|
| $ | 10,612 |
| |
Operating lease right of use assets |
|
| 18,810 |
|
|
| 30,332 |
|
Noncurrent receivables |
| 8,677 |
|
|
| 13,030 |
| |
Noncurrent milestone payments |
|
| 5,804 |
|
|
| 856 |
|
Deferred debt arrangement fees |
| 4,188 |
|
|
| 6,716 |
| |
Deferred inspection costs, noncurrent |
|
| 3,829 |
|
|
| 2,489 |
|
Noncurrent deposits |
| 1,461 |
|
|
| 1,531 |
| |
Other |
|
| 3,420 |
|
|
| 2,400 |
|
Total |
| $ | 167,453 |
|
| $ | 67,966 |
|
Unaudited Condensed Consolidated Statements of Cash Flows Information
Noncash operating, investing and financing activities excluded from the unaudited Condensed Consolidated Statements of Cash Flows and other supplemental cash flow information are as follows (in thousands):
|
| Successor |
|
|
| Predecessor |
| ||||||||||||||
|
|
|
|
| Period from |
|
|
| Period from |
| |||||||||||
|
| Nine Months |
|
| April 24, 2021 |
|
|
| January 1, 2021 |
| |||||||||||
|
| Ended |
|
| through |
|
|
| through |
| |||||||||||
|
| September 30, |
|
| September 30, |
|
|
| April 23, |
|
| Nine Months Ended |
| ||||||||
|
| 2022 |
|
| 2021 |
|
|
| 2021 |
|
| 2023 |
|
| 2022 |
| |||||
Accrued but unpaid capital expenditures at period end |
| $ | 2,226 |
|
| $ | 3,096 |
|
|
| $ | 18,617 |
|
| $ | 13,764 |
|
| $ | 2,226 |
|
Accrued but unpaid debt issuance costs and arrangement fees (1) |
|
| — |
|
|
| — |
|
|
|
| 7,588 |
| ||||||||
Common stock withheld for payroll tax obligations (2) |
|
| 3,214 |
|
|
| — |
|
|
|
| — |
| ||||||||
Common stock withheld for payroll tax obligations (1) |
|
| 4,241 |
|
|
| 3,214 |
| |||||||||||||
Cash interest payments |
|
| 17,718 |
|
|
| 5,431 |
|
|
|
| 37,593 |
|
|
| 30,552 |
|
|
| 17,718 |
|
Cash paid for reorganization items, net |
|
| — |
|
|
| 35,398 |
|
|
|
| 37,566 |
| ||||||||
Cash income taxes paid, net of (refunds): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Foreign |
|
| 12,187 |
|
|
| 1,464 |
|
|
|
| 3,460 |
|
|
| 5,603 |
|
|
| 12,187 |
|
U.S. Federal |
|
| 2,855 |
|
|
| 468 |
|
|
|
| — |
|
|
| (5,019 | ) |
|
| 2,855 |
|
State |
|
| — |
|
|
| — |
|
|
|
| (34 | ) |
|
| 1 |
|
|
| — |
|
13
5.4. Financial Instruments and Fair Value Disclosures
Concentrations of Credit Risk and Allowance for Credit Losses
Our credit risk corresponds primarily to trade receivables. Since theThe market for our services is the offshore oil and gas industry, and our customer base consists primarily of major and independent oil and gas companies, as well as government-owned oil companies. At September 30, 2022,2023, we believed that we had potentially significant concentrations of credit risk due to the number of rigs we had contracted and our limited number of customers, as some of our customers which hadhave contracted for multiple rigs.
In general, before working for a customer with whom we have not had a prior business relationship and/or whose financial stability may be uncertain, we perform a credit review on that customer, including a review of its credit ratings and financial statements. Based on our credit review, we may require that the customer have a bank issue a letter of credit on its behalf, prepay for the services in advance or provide other credit enhancements. At September 31, 2022,30, 2023, we had not required any credit enhancements by our customers or required any to pay for services in advance. We have historically used the specific identification method to identify and reserve for uncollectible accounts. The amounts reserved for uncollectible accounts in previous periods have not been significant, individually or in comparison to our total revenues. At September 30, 2022,2023, $8.36.6 million in trade receivables were considered past due by 30 days or more, of which $7.55.5 million have been fully reserved. The remaining $1.1 million were fully reserved for in previous yearsless than a year past due. We are working with our customers to resolve any billing issues and $expect that the outstanding receivables will be collected or resolved.0.1
million of the remaining $
0.814
million were more than 90 days past due.
Pursuant to FASB ASUFinancial Accounting Standards Board (or FASB) Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and its related amendments (or collectively, CECL), we have reviewed our historical credit loss experience over a look-back period of ten years, which we deem to be representative of both up-turns and down-cycles in the offshore drilling industry. Based on this review, we developed a credit loss factor using a weighted-average ratio of our actual credit losses to revenues during the look-back period. In addition, we also considered current and future anticipated economic conditions in determining our credit loss factor, including crude oil prices and liquidity of credit markets. In applying the requirements of CECL, we segregated our trade receivables into three credit loss risk pools based on customer credit ratings, each of which represents a tier of increasing credit risk. We calculated a credit loss factor based on historical loss rate information and then applied a multiple of our credit loss factor to each of these risk pools, considering the impact of current and future economic information and the level of risk associated with these pools, to calculate our current estimate of credit losses. Trade receivables that are fully covered by allowances for credit losses are excluded from these risk pools for purposes of calculating our current estimate of credit losses.
For purposes of calculating our current estimate of credit losses at September 30, 20222023 and December 31, 2021,2022, all trade receivables were deemed to be in a single risk pool based on their credit ratings at each respective period. Our current estimate of credit losses under CECL was $0.10.2 million at both September 30, 20222023 and December 31, 2021.2022. Our total allowance for credit losses was $5.7 million and $5.6 million at both September 30, 20222023 and December 31, 2021.2022, respectively. See Note 43 “Supplemental Financial Information.”
Fair Values
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by GAAP requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
There are three levels of inputs that may be used to measure fair value:
14
Level 1 | Quoted prices for identical instruments in active markets. |
Level 2 | Quoted market prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
Level 3 | Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Level 3 assets and liabilities generally include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation or for which there is a lack of transparency as to the inputs used. |
15
Certain of our assets and liabilities are required to be measured at fair value on a recurring basis in accordance with GAAP. In addition, certain assets and liabilities may be recorded at fair value on a nonrecurring basis. Generally, we record assets at fair value on a nonrecurring basis as a result of impairment charges.
Assets and liabilities measured at fair value are summarized below (in thousands).
|
| Successor |
|
| |||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2022 |
|
|
| September 30, 2023 |
| ||||||||||||||||||||||||||||||||||||||
|
| Fair Value Measurements Using |
|
| Total (Loss) Gain |
|
|
| Fair Value Measurements Using |
|
|
|
| ||||||||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Liabilities at |
|
| Three Months Ended (1) |
|
| Nine Months Ended (1) |
|
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Assets (Liabilities) |
|
| Total Losses for |
| |||||||||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Short-term investments (1) |
| $ | 109,880 |
|
| $ | — |
|
| $ | — |
|
| $ | 109,880 |
|
| $ | — |
| |||||||||||||||||||||||||
Liability-classified Director restricted stock units |
| $ | 719 |
|
| $ | — |
|
| $ | — |
|
| $ | 719 |
|
| $ | (80 | ) |
| $ | 229 |
|
|
|
| (1,417 | ) |
|
| — |
|
|
| — |
|
|
| (1,417 | ) |
|
| (413 | ) |
|
| Successor |
| |||||||||||||
|
| December 31, 2021 |
| |||||||||||||
|
| Fair Value Measurements Using |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Assets at |
| ||||
Nonrecurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Impaired assets (1) |
| $ | — |
|
| $ | — |
|
| $ | 77,900 |
|
| $ | 77,900 |
|
|
| December 31, 2022 |
| |||||||||||||||||
|
| Fair Value Measurements Using |
|
|
|
| ||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Liabilities at |
|
| Total Losses for Year Ended (1) |
| |||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Liability-classified Director restricted stock units |
| $ | (1,258 | ) |
| $ | — |
|
| $ | — |
|
| $ | (1,258 | ) |
| $ | (230 | ) |
We believe that the carrying amounts of our other financial assets and liabilities (excluding our Second Lien Notes, Exit Term Loans and First Lien Notes (each as defined below in Note 7 “Successor Long-Term6 “Long-Term Debt”)), which are not measured at fair value in our unaudited Condensed Consolidated Balance Sheets, approximate fair value based on the following assumptions:
15
16
Our long-term debt is not measured at fair value on a recurring basis; however, under the GAAP fair value hierarchy, our long-term debt would be considered Level 2 liabilities. The fair value of these instruments was derived using valuation specialists at September 30, 20222023 and December 31, 2021.2022.
Fair values and related carrying values of our long-term debt are shown below (in millions).
|
| Successor |
| |||||||||||||
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
| ||||
Exit Term Loans |
| $ | 90.9 |
|
| $ | 100.0 |
|
| $ | 100.0 |
|
| $ | 100.0 |
|
First Lien Notes |
|
| 79.6 |
|
|
| 86.0 |
|
|
| 86.2 |
|
|
| 86.1 |
|
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||||||||||
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
| ||||
Second Lien Notes |
| $ | 550.4 |
|
| $ | 550.0 |
|
| $ | — |
|
| $ | — |
|
Exit Term Loans |
|
| — |
|
|
| — |
|
|
| 91.1 |
|
|
| 100.0 |
|
First Lien Notes |
|
| — |
|
|
| — |
|
|
| 78.3 |
|
|
| 85.3 |
|
We have estimated the fair value amounts by using appropriate valuation methodologies and information available to management. Considerable judgment is required in developing these estimates, and accordingly, no assurance can be given that the estimated values are indicative of the amounts that would be realized in a free market exchange.
6.5. Drilling and Other Property and Equipment
Cost and accumulated depreciation of drilling and other property and equipment are summarized as follows (in thousands):
|
| Successor |
| |||||||||||||
|
| September 30, |
| December 31, |
|
| September 30, |
| December 31, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Drilling rigs and equipment |
| $ | 1,103,454 |
|
| $ | 1,057,739 |
|
| $ | 1,219,768 |
|
| $ | 1,126,793 |
|
Finance lease right of use asset |
|
| 174,571 |
|
|
| 174,571 |
|
| 174,571 |
|
|
| 174,571 |
| |
Land and buildings |
|
| 10,001 |
|
|
| 9,823 |
|
| 10,034 |
|
| 10,001 |
| ||
Office equipment and other |
|
| 2,452 |
|
|
| 2,264 |
|
|
| 3,492 |
|
|
| 2,515 |
|
Cost |
|
| 1,290,478 |
|
|
| 1,244,397 |
|
|
| 1,407,865 |
|
|
| 1,313,880 |
|
Less: accumulated depreciation |
|
| (147,210 | ) |
|
| (68,502 | ) |
| (250,528 | ) |
| (171,972 | ) | ||
Drilling and other property and equipment, net |
| $ | 1,143,268 |
|
| $ | 1,175,895 |
|
| $ | 1,157,337 |
|
| $ | 1,141,908 |
|
7. Successor6. Long-Term Debt
Exit Revolving Credit Agreement
On the Effective Date, we entered into a senior secured revolving credit agreement (or the Exit Revolving Credit Agreement), which provides for a $400.0 million senior secured revolving credit facility and also originally provided for a $100.0 million sublimit for the issuance of letters of credit thereunder (or the Exit RCF). Effective September 30, 2022, the aggregate amount of the commitments of the Issuing Lenders (as defined in the Exit Revolving Credit Agreement) to issue letters of credit under the Exit RCF was reduced to $75.0 million due to the resignation of one of the Issuing Lenders. Our total capacity for borrowings under the Exit RCF was not impacted by the resignation of the Issuing Lender and remains at $400 million. The Exit RCF is scheduled to mature on April 22, 2026.
Borrowings under the Exit RCF may be used to finance capital expenditures, for working capital and other general corporate purposes. Availability of borrowings under the Exit RCF is subject to the satisfaction of certain conditions, including restrictions on borrowings, as provided in the Exit Revolving Credit Agreement. At September 30, 2022, we had borrowings outstanding of $152.5 million under the Exit RCF, including $3.5 million in payment-in-kind loans, and $18.0 million had been utilized for the issuance of letters of credit. The weighted average interest rate on the combined borrowings outstanding under the Exit RCF at September 30, 2022 was 7.31%.
At November 7, 2022, we had borrowings of $152.5 million outstanding under the Exit RCF and had utilized $37.3 million for the issuance of letters of credit. As of November 7, 2022, approximately $213.7 million was available for borrowings or the issuance of letters of credit under the Exit RCF, subject to its terms and conditions.
On the Effective Date, we also entered into a senior secured term loan credit agreement (or the Exit Term Loan Credit Agreement), which provides for a $100.0 million senior secured term loan credit facility scheduled to mature
16
on April 22, 2027, under which $100.0 million was drawn on the Effective Date (or the Exit Term Loans). The interest rate applicable to borrowings outstanding under the Exit Term Loan Credit Agreement was 9.11% at September 30, 2022.
Exit Debt
At September 30, 2023 and December 31, 2022, the carrying value of the Successorour long-term debt, (or Exit Debt), net of unamortized discount, premium and debt issuance costs, was comprised as follows (in thousands):
|
| Successor |
|
| September 30, |
| December 31, |
| |||
|
| September 30, |
|
| 2023 |
| 2022 |
| |||
$550 Million Senior Secured Second Lien Notes due 2030 |
| $ | 535,194 |
| $ | — |
| ||||
|
| 2022 |
|
|
|
|
|
| |||
Exit Debt |
|
|
|
|
| ||||||
Borrowings under Exit RCF |
| $ | 152,478 |
|
|
| — |
| 177,478 |
| |
Exit Term Loans |
|
| 99,151 |
| |||||||
First Lien Notes |
|
| 83,911 |
| |||||||
$100.0 Million Exit Term Loan |
|
| — |
| 99,190 |
| |||||
9.00%/11.00%/13.00% Senior Secured First Lien PIK Toggle Notes due 2027 |
|
| — |
|
| 83,976 |
| ||||
Total Exit Debt, net |
| $ | 335,540 |
|
|
| — |
|
| 360,644 |
|
Total long-term debt, net |
| $ | 535,194 |
| $ | 360,644 |
|
17
The borrower under the Exit RCF and Exit Term Loan Credit Agreement (or, collectively, the Credit Facilities) isSecond Lien Notes
On September 21, 2023, Diamond Foreign Asset Company (or DFAC), a wholly owned subsidiary of Diamond Offshore Drilling, Inc. (or DODI), and Diamond Finance, LLC, a wholly owned subsidiary of DFAC (or, together with DFAC, the Borrower)Issuers), issued $550.0 million aggregate principal amount of 8.5% Senior Secured Second Lien Notes due 2030 (or Second Lien Notes) in a private placement (or Notes Offering) conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The Second Lien Notes were issued at par for net proceeds of approximately $540 million after deduction of certain estimated offering expenses. The Second Lien Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by DODI and each of its existing restricted subsidiaries (other than the Issuers) and by certain of DODI’s future restricted subsidiaries (other than the Issuers) that guarantee any debt of the Issuers or any guarantor under any syndicated credit facility or capital markets debt in an aggregate principal amount in excess of a certain amount (or, collectively, the Subsidiary Guarantors and, together with DODI, the Guarantors). The Second Lien Notes and the co-issuersrelated guarantees are secured on a second-priority basis, subject to certain permitted liens, by substantially all the assets of, and equity interests in, the Issuers and the Subsidiary Guarantors.
The Second Lien Notes are governed by an Indenture, dated as of September 21, 2023 (or Indenture), entered into among the Issuers, DODI and certain of its subsidiaries named therein and HSBC Bank USA, National Association (or HSBC), as trustee (or Trustee) and collateral agent (or Collateral Agent). The Second Lien Notes will mature on October 1, 2030. Interest on the Second Lien Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2024. The Second Lien Notes are fully and unconditionally guaranteed, jointly and severally, by the Guarantors and by each of DODI’s existing restricted subsidiaries (other than the Issuers) that is a borrower under or a guarantor of our revolving credit facility (see “– Amended Revolving Credit Agreement”) and certain future subsidiaries.
On or after October 1, 2026, the Issuers may, at their option, redeem all or any portion of the Second Lien Notes from time to time upon not less than 10 days nor more than 60 days prior notice, at the redemption prices set forth below, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.The following prices are for Second Lien Notes redeemed during the 12-month period commencing on October 1 of the years set forth below, and are expressed as percentages of principal amount:
Redemption Year |
| Price |
| |
2026 |
|
| 104.250 | % |
2027 |
|
| 102.125 | % |
2028 and thereafter |
|
| 100.000 | % |
At any time and from time to time, prior to October 1, 2026, the Issuers may, on any one or more occasions, redeem up to 35% of the aggregate principal amount of the Second Lien Notes issued under the Indenture (including any additional Second Lien Notes, if any) with an amount equal to or less than the net cash proceeds of one or more equity offerings, at a redemption price equal to 108.500% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to but excluding, the redemption date provided, however, that immediately after giving effect to any such redemption, at least 65% of the original aggregate principal amount of Second Lien Notes issued on the issue date (excluding Second Lien Notes held by DODI or its subsidiaries) remains outstanding.
In addition, at any time prior to October 1, 2026, the Issuers may redeem up to 10% of the original aggregate principal amount of the Second Lien Notes issued under the Indenture (including additional Second Lien Notes, if any) during any twelve-month period at a redemption price equal to 103.000% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
At any time prior to October 1, 2026, the Issuers may redeem some or all of the Second Lien Notes at a price equal to 100% of the principal amount of the Second Lien Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” premium.
18
The Indenture contains covenants that, among other things, restrict DODI’s ability and the ability of certain of its subsidiaries to: (i) incur additional debt and issue certain preferred stock; (ii) incur or create liens; (iii) make certain dividends, distributions, investments and other restricted payments; (iv) sell or otherwise dispose of certain assets; (v) engage in certain transactions with affiliates; and (vi) merge, consolidate, amalgamate or sell, transfer, lease or otherwise dispose of all or substantially all of the DODI’s assets. These covenants are subject to important exceptions and qualifications. In addition, many of these covenants will be suspended with respect to the Second Lien Notes during any time that the Second Lien Notes have investment grade ratings from at least two rating agencies and no default with respect to the Second Lien Notes has occurred and is continuing.
Upon the occurrence of certain Change of Control Triggering Event (as defined in the Indenture), the Issuers may be required to make an offer to repurchase all of the Second Lien Notes then outstanding at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
We used a portion of the net proceeds from the Notes Offering to fully repay outstanding borrowings and terminate our Exit Term Loan Credit Facility (as defined below), redeem in full our 9.00%/11.00%/13.00% Senior Secured First Lien PIK Toggle Notes due 2027 (or the First Lien Notes) are DFAC and Diamond Finance, LLC, a wholly-owned subsidiary of DFAC that was newly formed in connection with our emergence from bankruptcy. repay all amounts outstanding under the Exit RCF (as defined below). We intend to use the remaining net proceeds for general corporate purposes.
The Credit Facilities and the FirstSecond Lien Notes were valued at par and are unconditionally guaranteed, on a joint and several basis, bypresented net of debt issuance costs of $14.8 million, which are being amortized as interest expense over the Borrower and certain of its direct and indirect subsidiaries (or, collectively with the Borrower, the Credit Parties and each, a Credit Party) and secured by senior priority liens on substantially allstated maturity of the assetsnotes using the effective interest method. At September 30, 2023, the effective interest rate on the Second Lien Notes was 9.02%.
Amended Revolving Credit Agreement
On April 23, 2021, we entered into a senior secured revolving credit agreement (or the Exit Revolving Credit Agreement), which provided for a $400.0 million senior secured revolving credit facility and also provided for certain lenders (or the LC Lenders) to issue up to $100.0 million of andletters of credit thereunder (or the equity interests in, each Credit Party, including all rigs owned by the Company asExit RCF). As a result of the Effective Date or acquired thereafter and certain assets related thereto, in each case, subject to certain exceptions and limitations described inresignation of two LC Lenders since entering into the Credit Facilities and the indenture governing the First Lien Notes.
The Exit Revolving Credit Agreement, obligates the Borroweraggregate amount of the commitments of the LC Lenders to issue letters of credit under the Exit RCF was reduced from $100.0 million to $75.0 million effective September 30, 2022, and further reduced to $50.0 million effective March 23, 2023.
On June 13, 2023, Wells Fargo Bank, National Association (or Wells Fargo) gave notice of its restricted subsidiaries to comply with certain financial maintenance covenantsresignation as Collateral Agent, Administrative Agent and Issuing Lender (as such terms are defined in the Exit Revolving Credit Agreement) under the Exit Revolving Credit Agreement. TheAnd on August 10, 2023, DODI entered into an Agency Assignment Agreement and Master Assignment of Liens (or Agency Assignment Agreement) pursuant to which HSBC was appointed (i) as successor administrative agent under the Exit Revolving Credit Agreement and our $100,000,000 Term Loan Agreement, dated as of April 23, 2021 (or the Exit Term Loan Agreement), and (ii) as collateral agent under the Company’s Collateral Agency and Intercreditor Agreement, dated as of April 23, 2021 (or Intercreditor Agreement). Other than as modified by the Agency Assignment Agreement, each of the Exit Revolving Credit Agreement, the Exit Term Loan Agreement and the Intercreditor Agreement remained in full force and effect. In connection with this change, Wells Fargo, as resigning administrative agent under the Exit Revolving Credit Agreement and Exit Term Loan Agreement and as resigning collateral agent under the indenture governingIntercreditor Agreement, assigned to HSBC, and HSBC assumed, all of the First Lien Notes contain negative covenants that limit,rights and obligations of Wells Fargo in such capacities under the Exit Revolving Credit Agreement, the Exit Term Loan Agreement and the Intercreditor Agreement, respectively.
19
Wells Fargo continues to have all of the rights and obligations of an Issuing Lender under the Exit RCF with respect to letters of credit issued by it prior to its resignation but, after the effective date of its resignation, is not required to issue additional letters of credit or extend, renew or increase the outstanding letters of credit. Wells Fargo had previously committed to issue up to $25.0 million in letters of credit under the Exit RCF. The LC Lenders, including Wells Fargo, have committed to issue letters of credit under the Exit RCF up to $50.0 million in total. As a result of the resignation of Wells Fargo, the aggregate amount of the commitments of the LC Lenders to issue letters of credit under the Exit RCF is $25.0 million. Wells Fargo had previously issued letters of credit under the Exit RCF aggregating $16.9 million and $1.9 million, which would have expired in October 2023 and May 2024, respectively. The $16.9 million letter of credit was subsequently called by the holder upon replacement of Wells Fargo as Collateral Agent, Administrative Agent and Issuing Lender. We have since cash collateralized the performance bond placed by a third party (see Note 7 “Commitments and Contingencies”). Upon expiration of the letter of credit, Wells Fargo will have no further obligation as an Issuing Lender with respect to letters of credit.
On September 12, 2023, DFAC, as borrower, DODI, as parent, certain of the lenders party thereto, and HSBC, as administrative agent and collateral agent, entered into an amendment (or Credit Agreement Amendment) to the Exit Revolving Credit Agreement. The Credit Agreement Amendment amended the Exit RCF (or, as amended, the Amended RCF) to, among other things, (i) reduce the Borrower’s abilityaggregate commitment of the lenders thereunder from $400.0 million to $300.0 million, (ii) permit the Notes Offering and (iii) provide for obligations in respect of letters of credit in an aggregate principal amount not to exceed $50.0 million. The Credit Agreement Amendment became effective concurrently with the abilityconsummation of the Notes Offering, which was conditioned on the Credit Agreement Amendment becoming effective.
On October 24, 2023, Barclays Bank PLC (or Barclays), gave notice of its restricted subsidiaries to: (i) incur, assume or guaranteeresignation as an LC Lender under the Amended RCF. Barclays’ resignation will become effective on November 23, 2023, at which time our capacity for the issuance of additional indebtedness; (ii) create, incur or assume liens; (iii) make investments; (iv) merge or consolidate with or into any other person or undergo certain other fundamental changes; (v) transfer or sell assets; (vi) pay dividends or distributions on capital stock or redeem or repurchase capital stock; (vii) enter into transactions with certain affiliates; (viii) repay, redeem or amend certain indebtedness; (ix) sell stockletters of its subsidiaries; or (x) enter into certain burdensome agreements. These negative covenants are subjectcredit under the Amended RCF will be reduced to a number of important limitations and exceptions.zero.
Additionally, these agreements containBorrowings under the Amended RCF may be used to finance capital expenditures, for working capital and other covenants, representationsgeneral corporate purposes. Availability of borrowings under the Amended RCF is subject to the satisfaction of certain conditions, including restrictions on borrowings, as provided in the Credit Agreement Amendment.
On September 21, 2023, we repaid the aggregate principal amount of borrowings outstanding under the Amended RCF of approximately $189.0 million plus accrued and warrantiesunpaid interest thereon through the repayment date in full with a portion of the proceeds of the Notes Offering. In addition, we wrote off a pro rata portion of unamortized deferred debt arrangement fees related to the reduction in borrowing capacity under the Amended RCF. We reported the $1.3 million write-off of fees as “Loss on extinguishment of long-term debt” in our unaudited Condensed Consolidated Statements of Operations for the three and events of default that are customary for a financing of this type. nine months ended September 30, 2023.
At September 30, 2022,2023 and November 6, 2023, we had no borrowings outstanding under the Amended RCF and had utilized $1.9 million for the issuance of letters of credit. The outstanding letter of credit will expire on maturity in May 2024, unless replaced. At November 6, 2023, we had no borrowings outstanding under the Amended RCF. As of November 6, 2023, approximately $298.1 million was available for borrowings under the Amended RCF subject to its terms and conditions. There was no capacity to issue additional letters of credit under the Amended RCF.
At September 30, 2023, we were in compliance with all covenants under the Second Lien Notes and Amended RCF.
$100.0 Million Exit RevolvingTerm Loan
Our Exit Term Loan Agreement provided for a $100.0 million senior secured term loan credit facility (or the Exit Term Loan Credit Agreement.Facility) which was to mature on April 22, 2027. A portion of the proceeds of the Notes Offering was used to repay $100.0 million in borrowings (or the Exit Term Loans) under the Exit Term Loan Facility and accrued and unpaid interest thereon through the redemption date. As a result of the repayment of the Exit Term Loans, we wrote off $0.7 million in unamortized deferred arrangement fees as “Loss on extinguishment of long-term debt” in our unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023.
20
9.00%/11.00%/13.00% Senior Secured First Lien PIK Toggle Notes due 2027
We repaid our First Lien Notes in the aggregate principal amount of $85.3 million in full, including accrued and unpaid interest thereon through the end of the period at 104% in accordance with the associated indenture with a portion of the proceeds of the Notes Offering. The $3.4 million call premium paid on retirement of the First Lien Notes, in addition to the write-off of $(0.6) million and $1.7 million of unamortized premium and deferred arrangement fees, respectively, have been reported as “Loss on extinguishment of long-term debt” in our unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023.
Upon retirement of the First Lien Notes, unfunded delayed draw commitments aggregating $39.7 million under the indenture governing the First Lien Notes also terminated.
Collateral Agency Agreement
On September 21, 2023, DODI, the Issuers and the Subsidiary Guarantors that are also grantors of collateral entered into an amended and restated collateral agency and intercreditor agreement with the Trustee, the Collateral Agent and HSBC, as administrative agent under the Amended RCF (or Collateral Agency Agreement). The Collateral Agency Agreement, among other things, sets forth the terms on which the Collateral Agent will receive, hold, administer, maintain, enforce and distribute the proceeds of all liens upon any property of the Issuers and the Guarantors at any time held by it, for the benefit of the current and future holders of First Lien Obligations and Junior Lien Obligations (each as defined in the Collateral Agency Agreement) as well as establishing the priority of the liens on the collateral as between the First Lien Obligations and Junior Lien Obligations.
8.7. Commitments and Contingencies
Various claims have been filed against us in the ordinary course of business, including claims by offshore workers alleging personal injuries. With respect to each claim or exposure, we have made an assessment, in accordance with GAAP, of the probability that the resolution of the matter would ultimately result in a loss. When we determine that an unfavorable resolution of a matter is probable and such amount of loss can be determined, we record a liability for the amount of the estimated loss at the time that both of these criteria are met. Our management believes that we have recorded adequate accruals for any liabilities that may reasonably be expected to result from these claims.
Non-Income Tax and Related Claims. We have received assessments related to, or otherwise have exposure to, non-income tax items such as sales and-usesales-and-use tax, value-added tax, ad valorem tax, custom duties, and other similar taxes in various taxing jurisdictions. We have determined that we have a probable loss for certain of these taxes and the related penalties and interest and, accordingly, have recorded a $13.9 million and $13.712.4 million liability at September 30, 20222023 and December 31, 2021,2022, respectively, in “Other liabilities” in our unaudited Condensed
17
Consolidated Balance Sheets. We intend to defend these matters vigorously; however, the ultimate outcome of these assessments and exposures could result in additional taxes, interest and penalties for which the fully assessed amounts would have a material adverse effect on our financial condition, results of operations orand cash flows.
Other Litigation. We have been named in various other claims, lawsuits or threatened actions that are incidental to the ordinary course of our business, including a claim by one of our customers in Brazil, Petróleo Brasileiro S.A. (or Petrobras), that it will seek to recover from its contractors, including us, any taxes, penalties, interest and fees that it must pay to the Brazilian tax authorities for our applicable portion of withholding taxes related to Petrobras’ charter agreements with its contractors. We intend to defend these matters vigorously; however, litigation is inherently unpredictable, and the ultimate outcome or effect of any claim, lawsuit or action cannot be predicted with certainty. As a result, there can be no assurance as to the ultimate outcome of any litigation matter. Any claims against us, whether meritorious or not, could cause us to incur significant costs and expenses and require significant amounts of management and operational time and resources. In the opinion of our management, no such pending or known threatened claims, actions or proceedings against us are expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.
21
Personal Injury Claims. Under our current insurance policies, we generally self-insure $1.0 million to $5.0 million per occurrence, depending on jurisdiction, with respect to personal injury claims not related to named windstorms in the U.S. Gulf of Mexico, which primarily result from Jones Act liability in the U.S. Gulf of Mexico. Depending on the nature, severity, and frequency of claims that might arise during athe policy year, if the aggregate level of claims exceed certain thresholds, we may self-insure up to $100.0 million for each subsequent occurrence. For personal injury claims arising due to named windstorms in the U.S. Gulf of Mexico, we self-insure $10.0 million for the first occurrence and, if the aggregate level of claims exceed certain thresholds, we self-insure up to $100.0 million for each subsequent occurrence, depending on the nature, severity and frequency of claims that might arise during the policy year.
The Jones Act is a federal law that permits seamen to seek compensation for certain injuries during the course of their employment on a vessel and governs the liability of vessel operators and marine employers for the work-related injury or death of an employee. We engage outside consultants to assist us in estimating our aggregate liability for personal injury claims based on our historical losses and utilizing various actuarial models. We allocate a portion of the aggregate liability to “Accrued liabilities” based on an estimate of claims expected to be paid within the next twelve months with the residual recorded as “Other liabilities.” At September 30, 2022,2023, our estimated liability for personal injury claims was $17.016.1 million, of which $4.06.2 million and $13.09.9 million were recorded in “Accrued liabilities” and “Other liabilities,” respectively, in our Successor unaudited Condensed Consolidated Balance Sheets. At December 31, 2021,2022, our estimated liability for personal injury claims was $13.518.3 million, of which $5.43.7 million and $8.114.6 million were recorded in “Accrued liabilities” and “Other liabilities,” respectively, in our unaudited Condensed Consolidated Balance Sheets. The eventual settlement or adjudication of these claims could differ materially from our estimated amounts due to uncertainties such as:
Purchase Obligations. At September 30, 2022,2023, we had no purchase obligations for major rig upgrades or any other significant obligations, except for those related to our direct rig operations, which arise during the normal course of business.
Services Agreement. In February 2016, we entered into a ten-year agreement with a subsidiary of Baker Hughes Company (formerly named Baker Hughes, a GE company) to provide services with respect to certain blowout preventer and related well control equipment (or Well Control Equipment) on our drillships. Such services include management of maintenance, certification and reliability with respect to such equipment. Future commitmentsCommitments under the contractual services agreements are estimated to be approximately $24.0 million per year or an estimated $118.727.0 million in the aggregate over the remaining term of the agreements.2023.
In addition, we lease Well Control Equipment for our drillships under ten-year finance leases.leases that commenced in 2016 that also include an option to purchase the leased equipment at the end of the respective lease term.
Letters of Credit and Other. We were contingently liableAs of September 30, 2023, an aggregate of $18.8 million in bonds and letters of credit had been issued on our behalf in connection with certain customs, tax assessment and tenant security deposit requirements. Of this amount, approximately $16.8 million had been cash collateralized as of September 30, 2022 in connection with approximately2023. An additional $18.01.9 million in certain tax, supersedeas, VAT and customs bonds that have been issued on our behalf.
18
Thewas collateralized by a letter of credit collateralizing these bonds was issued under the Exitour Amended RCF, andwhich cannot require additional collateral except in events of default.default, or until its maturity in May 2024, if not replaced.
9.8. Income Taxes
We currently claim benefits provided under an existing tax treaty between the United Kingdom and the Republic of Senegal that allowsaccount for income taxes in interim periods in accordance with FASB Accounting Standards Codification Topic No. 740, Income Taxes, which requires us to claim a reducedestimate our annual effective tax rate (or AETR) for continuing operations by considering our forecasted pre-tax income or loss for the full year in each of the various jurisdictions in which we operate. The AETR is then applied to our current pre-tax income or loss, as adjusted, when estimating our income tax withholdingbenefit or expense for the interim period. We exclude discrete tax adjustments from the computation of the AETR and record such adjustments in the quarter in which they occur.
We recorded a net income tax expense of $125.4 million and income tax benefit of $143.3 million for the three-month and nine-month periods ended September 30, 2023, respectively, inclusive of a net $14.5 million additional tax expense with respect to certain bareboat charter revenue from Senegalese sources. On May 10, 2022,prior years’ operations in Egypt upon final judgment by the Egyptian tax court. The Republic of Senegal deposited its instrument of ratification foreffective tax rates are the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (or the MLI), which will alter certain provisionsresult of the existing United Kingdom-Senegal Tax Treaty, effective for periods beginning on or after January 1, 2023. We are currently analyzingmix of pre-tax income and loss across jurisdictions, including significant losses in jurisdictions with zero percent tax rates resulting in no benefit. The impact is compounded by the impact that the Republicamount of Senegal’s ratification of the MLI will have on our tax position and, consequently, our consolidated financial position, results of operations and cash flows.
On August 16, 2022, the United States (or U.S.) enacted the Inflation Reduction Act (or IRA). Among other provisions, IRA (i) imposes a year-to-date pre-tax loss.15% corporate alternative minimum tax (or Corporate AMT) for tax years beginning after December 31, 2022, (ii) imposes a 1% excise tax on corporate stock repurchases after December 31, 2022, and (iii) provides tax incentives to promote various energy efficient initiatives. We are evaluating the potential impact of the Corporate AMT on our current income tax expense and income taxes payable; however, we do not currently believe that this will have a material impact on our income taxes payable in the 2023 tax year.
22
10.9. (Loss) Earnings (Loss) Per Share
We compute basic earnings (loss) per share by dividing net (loss) income (loss) available to holders of our common stock by the weighted-average number of shares of our common stock outstanding during the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue our common stock (common stock equivalents) were exercised or converted into common stock. Basic and diluted earnings per share (or EPS) for the Successor periods including the three-month and nine-month periods ended September 30, 2022 and the period from April 24, 2021 through September 30, 2021 and the Predecessor period from January 1, 2021 through April 23 2021 was calculated in accordance with the treasury stock method, and includes all potentially dilutive stock equivalents, including warrants, restricted stock awards, restricted stock unit awards and performance stock unit awards.
For periods in which a net loss available to holders of our common stock exists, no amounts are allocated to non-vested share awards, as the inclusion of such amounts would be antidilutive.
A reconciliation of the numerators and denominators of our basic and diluted EPS computations are summarized as follows (in thousands).
|
| Successor |
|
| Three Months Ended |
| ||||||||||
|
| Three Months Ended |
|
| 2023 |
|
| 2022 |
| |||||||
|
| 2022 |
|
| 2021 |
| ||||||||||
Net income (loss) – basic and diluted numerator |
| $ | 5,510 |
|
| $ | (5,182 | ) | ||||||||
Net (loss) income – basic and diluted numerator |
| $ | (145,016 | ) |
| $ | 5,510 |
| ||||||||
Weighted average shares – basic (denominator): |
|
| 100,875 |
|
|
| 100,075 |
|
|
| 102,215 |
|
|
| 100,875 |
|
Dilutive effect of stock-based awards |
|
| 1,398 |
|
|
| — |
|
|
| — |
|
|
| 1,398 |
|
Weighted average shares including conversions – diluted (denominator) |
|
| 102,273 |
|
|
| 100,075 |
|
|
| 102,215 |
|
|
| 102,273 |
|
|
| Nine Months Ended |
|
| |||||
|
| 2023 |
|
| 2022 |
|
| ||
Net income (loss) – basic and diluted numerator |
| $ | 100,996 |
|
| $ | (50,773 | ) |
|
Weighted average shares – basic (denominator): |
|
| 101,681 |
|
|
| 100,356 |
|
|
Dilutive effect of stock-based awards |
|
| 2,575 |
|
|
| — |
|
|
Weighted average shares including conversions – diluted (denominator) |
|
| 104,256 |
|
|
| 100,356 |
|
|
No amounts are allocated to non-vested share awards for the periods with a net loss position, as the inclusion of such amounts would have been antidilutive to earnings per share.
19The computation of EPS for the nine-month period ended September 30, 2023 and the three-month period ended September 30, 2022 excluded non-vested stock-based awards of 166 shares and 103,939 shares, respectively, as the inclusion of such would have been antidilutive for the periods.
|
| Successor |
|
|
| Predecessor |
| ||||||
|
|
|
|
| Period from |
|
|
| Period from |
| |||
|
| Nine Months |
|
| April 24, 2021 |
|
|
| January 1, 2021 |
| |||
|
| Ended |
|
| through |
|
|
| through |
| |||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
|
| April 23, 2021 |
| |||
Net loss – basic and diluted numerator |
| $ | (50,773 | ) |
| $ | (52,475 | ) |
|
| $ | (1,961,989 | ) |
Weighted average shares – basic (denominator): |
|
| 100,356 |
|
|
| 100,068 |
|
|
|
| 138,054 |
|
Dilutive effect of stock-based awards |
|
| — |
|
|
| — |
|
|
|
| — |
|
Weighted average shares including conversions – diluted (denominator) |
|
| 100,356 |
|
|
| 100,068 |
|
|
|
| 138,054 |
|
As of September 30, 2022,2023, we had 7,530,2337.5 million stock warrants outstanding (or Warrants) to purchase shares of our common stock that were exercisable for one share of common stock per Warrantwarrant at an exercise price of $29.22. The Warrants are exercisable until they expire onApril 23, 2026. The presumed exercise of these Warrants into shares of our common stock would have an antidilutive effect as the exercise price per warrant exceeded the average price of our common stock and they have been excluded from the computation of EPS for all Successor periods presented.
The computation of EPS for the Successor nine-month period ended September 30, 2022 and the period from April 24, 2021 through September 30, 2021, excludes non-vested stock-based awards of 3,768,207 shares and 2,222,116 shares, respectively, as the inclusion of such would have been antidilutive for the periods.
11.10. Segments and Geographic Area Analysis
We provide contract drilling services with different types of offshore drilling rigs and also provide such services in many geographic locations. However, we have aggregated these operations into one reportable segment based on the similarity of economic characteristics due to the nature of the revenue-earning process as it relates to the offshore drilling industry over the operating lives of our drilling rigs and other qualitative factors such as (i) the nature of services provided (contract drilling), (ii) similarity in operations (interchangeable rig crews and shared management and marketing, engineering, marine and maintenance support), (iii) similar regulatory environment (depending on customer and/or location) and (iv) similar contractual arrangements with customers.
23
Our drilling rigs are highly mobile and may be moved to other markets throughout the world in response to market conditions or customer needs. At September 30, 2022,2023, our active drilling rigs were located offshore four countries in addition to the U.S.United States. Revenues by geographic area are presented by attributing revenues to the individual country where the services were performed during the periods presented, which may not be indicative of where the rigs are currently located.
The following tables provide information about disaggregated revenue by country (in thousands):
|
| Successor |
| |||||||||||||||||||||
|
| Three Months Ended September 30, 2022 |
|
| Three Months Ended September 30, 2023 |
| ||||||||||||||||||
|
| Total |
|
| Revenues |
|
| Total |
|
| Total |
|
| Revenues |
|
| Total |
| ||||||
United States |
| $ | 70,970 |
|
| $ | 26,917 |
|
| $ | 97,887 |
|
| $ | 123,140 |
|
| $ | 8,885 |
|
| $ | 132,025 |
|
United Kingdom |
|
| 36,207 |
|
|
| 4,839 |
|
|
| 41,046 |
| ||||||||||||
Senegal |
|
| 46,274 |
|
|
| 2,603 |
|
|
| 48,877 |
|
|
| 29,365 |
|
|
| 3,539 |
|
|
| 32,904 |
|
Brazil |
|
| 18,982 |
|
|
| — |
|
|
| 18,982 |
| ||||||||||||
Australia |
|
| 24,616 |
|
|
| 4,049 |
|
|
| 28,665 |
|
|
| 17,235 |
|
|
| 2,766 |
|
|
| 20,001 |
|
United Kingdom |
|
| 26,111 |
|
|
| 2,520 |
|
|
| 28,631 |
| ||||||||||||
Brazil |
|
| 21,564 |
|
|
| — |
|
|
| 21,564 |
| ||||||||||||
Myanmar |
|
| 326 |
|
|
| 123 |
|
|
| 449 |
| ||||||||||||
Total |
| $ | 189,861 |
|
| $ | 36,212 |
|
| $ | 226,073 |
|
| $ | 224,929 |
|
| $ | 20,029 |
|
| $ | 244,958 |
|
20
|
| Successor |
| |||||||||
|
| Nine Months Ended September 30, 2022 |
| |||||||||
|
| Total |
|
| Revenues |
|
| Total |
| |||
United States |
| $ | 226,425 |
|
| $ | 69,121 |
|
| $ | 295,546 |
|
Senegal |
|
| 100,094 |
|
|
| 8,451 |
|
|
| 108,545 |
|
Australia |
|
| 72,475 |
|
|
| 10,095 |
|
|
| 82,570 |
|
United Kingdom |
|
| 47,506 |
|
|
| 6,407 |
|
|
| 53,913 |
|
Brazil |
|
| 60,583 |
|
|
| — |
|
|
| 60,583 |
|
Myanmar |
|
| 9,909 |
|
|
| 6,948 |
|
|
| 16,857 |
|
Total |
| $ | 516,992 |
|
| $ | 101,022 |
|
| $ | 618,014 |
|
|
| Nine Months Ended September 30, 2023 |
| |||||||||
|
| Total |
|
| Revenues |
|
| Total |
| |||
United States |
| $ | 357,650 |
|
| $ | 29,974 |
|
| $ | 387,624 |
|
United Kingdom |
|
| 113,750 |
|
|
| 10,491 |
|
|
| 124,241 |
|
Senegal |
|
| 135,360 |
|
|
| 9,247 |
|
|
| 144,607 |
|
Brazil |
|
| 60,710 |
|
|
| — |
|
|
| 60,710 |
|
Australia |
|
| 36,832 |
|
|
| 4,528 |
|
|
| 41,360 |
|
Total |
| $ | 704,302 |
|
| $ | 54,240 |
|
| $ | 758,542 |
|
|
| Successor |
| |||||||||
|
| Three Months Ended September 30, 2021 |
| |||||||||
|
| Total |
|
| Revenues |
|
| Total |
| |||
United States |
| $ | 71,954 |
|
| $ | 17,075 |
|
| $ | 89,029 |
|
Senegal |
|
| 23,223 |
|
|
| 6,679 |
|
|
| 29,902 |
|
Australia |
|
| 34,671 |
|
|
| 3,530 |
|
|
| 38,201 |
|
United Kingdom |
|
| 22,271 |
|
|
| 1,576 |
|
|
| 23,847 |
|
Brazil |
|
| 20,511 |
|
|
| — |
|
|
| 20,511 |
|
Myanmar |
|
| 10,526 |
|
|
| 1,861 |
|
|
| 12,387 |
|
Total |
| $ | 183,156 |
|
| $ | 30,721 |
|
| $ | 213,877 |
|
|
| Successor |
| |||||||||
|
| Period from April 24, 2021 through September 30, 2021 |
| |||||||||
|
| Total |
|
| Revenues |
|
| Total |
| |||
United States |
| $ | 122,732 |
|
| $ | 25,806 |
|
| $ | 148,538 |
|
Senegal |
|
| 23,223 |
|
|
| 6,671 |
|
|
| 29,894 |
|
Australia |
|
| 58,620 |
|
|
| 8,810 |
|
|
| 67,430 |
|
United Kingdom |
|
| 35,186 |
|
|
| 2,529 |
|
|
| 37,715 |
|
Brazil |
|
| 23,735 |
|
|
| — |
|
|
| 23,735 |
|
Myanmar |
|
| 17,693 |
|
|
| 3,783 |
|
|
| 21,476 |
|
Total |
| $ | 281,189 |
|
| $ | 47,599 |
|
| $ | 328,788 |
|
|
| Predecessor |
| |||||||||||||||||||||
|
| Period from January 1, 2021 through April 23, 2021 |
|
| Three Months Ended September 30, 2022 |
| ||||||||||||||||||
|
| Total |
|
| Revenues |
|
| Total |
|
| Total |
|
| Revenues |
|
| Total |
| ||||||
United States |
| $ | 93,215 |
|
| $ | 7,048 |
|
| $ | 100,263 |
|
| $ | 70,970 |
|
| $ | 26,917 |
|
| $ | 97,887 |
|
United Kingdom |
|
| 26,111 |
|
|
| 2,520 |
|
|
| 28,631 |
| ||||||||||||
Senegal |
|
| 46,274 |
|
|
| 2,603 |
|
|
| 48,877 |
| ||||||||||||
Brazil |
|
| 21,564 |
|
|
| — |
|
|
| 21,564 |
| ||||||||||||
Australia |
|
| 17,031 |
|
|
| 4,697 |
|
|
| 21,728 |
|
|
| 24,616 |
|
|
| 4,049 |
|
|
| 28,665 |
|
United Kingdom |
|
| 27,967 |
|
|
| 2,300 |
|
|
| 30,267 |
| ||||||||||||
Brazil |
|
| 3,421 |
|
|
| — |
|
|
| 3,421 |
| ||||||||||||
Myanmar |
|
| 11,730 |
|
|
| 1,970 |
|
|
| 13,700 |
|
|
| 326 |
|
|
| 123 |
|
|
| 449 |
|
Total |
| $ | 153,364 |
|
| $ | 16,015 |
|
| $ | 169,379 |
|
| $ | 189,861 |
|
| $ | 36,212 |
|
| $ | 226,073 |
|
2124
|
| Nine Months Ended September 30, 2022 |
| |||||||||
|
| Total |
|
| Revenues |
|
| Total |
| |||
United States |
| $ | 226,425 |
|
| $ | 69,121 |
|
| $ | 295,546 |
|
United Kingdom |
|
| 47,506 |
|
|
| 6,407 |
|
|
| 53,913 |
|
Senegal |
|
| 100,094 |
|
|
| 8,451 |
|
|
| 108,545 |
|
Brazil |
|
| 60,583 |
|
|
| — |
|
|
| 60,583 |
|
Australia |
|
| 72,475 |
|
|
| 10,095 |
|
|
| 82,570 |
|
Myanmar |
|
| 9,909 |
|
|
| 6,948 |
|
|
| 16,857 |
|
Total |
| $ | 516,992 |
|
| $ | 101,022 |
|
| $ | 618,014 |
|
25
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements (including the notes thereto) included in Item 1 of Part I of this report Item 1A, “Risk Factors” included in Part II of this report and Item 1A, “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A.2022. References to “Diamond Offshore,” “Company,” “we,” “us” or “our” mean Diamond Offshore Drilling, Inc., a Delaware corporation, and its subsidiaries.
We provide contract drilling services to the energy industry around the globe with a fleet of 14 floater rigs (four owned drillships, eight owned semisubmersibles and two managed rigs). See “– Market Overview.”
Fresh Start Accounting
Upon emergence from bankruptcy on April 23, 2021 (or the Effective Date), we met the criteria for and were required to adopt fresh start accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic No. 852 – Reorganizations. As a result of the application of fresh start accounting and the effects of the implementation of our restructuring plan, the financial statements for the period after April 23, 2021 will not be comparable with the financial statements prior to and including April 23, 2021. References to “Successor” refer to the Company and its financial position and results of operations after the Effective Date (including December 31, 2021, September 30, 2022, the three-month and nine-month periods ended September 30, 2022, and the period from April 24, 2021 through September 30, 2021). References to “Predecessor” refer to the Company and its financial position and results of operations on or before the Effective Date (including the period from January 1, 2021 through April 23, 2021). See Note 1 “General Information” to our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report.
Market Overview
Energy industry fundamentals continue to support the evolution of a global growth cycle in our business. The strong commodity price environment continues to positively impactCommodity prices rose substantially during the demand for offshore drilling servicesthird quarter of 2023, as the focus on energy security and recent OPEC+ actions interactinteracted with tightening commodity supply.strong oil demand. Brent crude oil prices averagedincreased approximately $9629% during the quarter, closing in the mid-$90 per barrel range. Potential further upside in commodity prices remains, as significant draws in both U.S. and OECD inventories have driven global inventories of petroleum and other liquids stocks to their lowest levels in 20 years, according to industry reports. An expansion of conflict in the Middle East may result in oil supply disruptions and cause further volatility in commodity prices. According to industry data, approximately 25 percent of oil production in the third quarter of 2022, down slightly2023 came from the previous quarter. Full year 2022 Brent oil prices are anticipated to average approximately $102 per barrel, which is approximately 44% higher compared to the 2021 average according to the October 2022 Short Term Energy Outlook report by the U.S. Energy Information Administration (or EIA). In addition, the EIA expects full year 2022 natural gas prices in the U.S. to be approximately 76% higher than the 2021 average. These elevatedMiddle East. Against this backdrop of robust commodity prices, continue to generate significant cash flow for many of our potential customers, and we anticipateindustry experts believe that further capital investments by oil and gas companies will be required to mitigate the cumulative impact from the prolonged period of underinvestment in the oil and gas industry.industry is staged for a meaningful increase of approximately 30% in greenfield capital commitments in 2023 versus 2022, with current projections estimating approximately $171 billion in 2023 greenfield upstream projects, of which 60% is attributable to offshore projects. With approximately $90 billion sanctioned thus far, 95% of the remaining $9 billion to be sanctioned has a breakeven oil price of less than $40 per barrel.
DemandThe positive dynamics of increased offshore spending and the push for diversity of commodity supply continue to drive improving demand for floating offshore drilling rigs remains strong, with utilization averaging over 80%as demonstrated in the increased volume of incoming tenders for floating rigs. According to S&P Global, incoming floating rig tenders for the fourth consecutive quarterfirst nine months of 2023 as measured in rig-years of demand represent the highest levels since 2012. This increase in recent tendering activity continues to build visibility for deepwater rig demand, supported by the increased duration and exceeding pre-pandemic levels, based on industry reports. The numberlead times from contract award to commencement of tendering opportunities and forecasts from certain industry analysts indicate that spendingservice for offshore drilling services is likely to continue to increasefloater contracts signed so far in 2023, as comparedoperators become more willing to 2022. Thesecommit to longer periods for deepwater drilling capacity. According to industry analysts, predict that the total offshore greenfield project commitments will be approximately $138 billionlead times and duration for drillship contracts signed in 2023 comparedyear to $72 billiondate were 0.8 years and 1.5 years, respectively, which represent levels not seen since 2013. Several multi-year multi-rig tenders have come to market for the Golden Triangle (a common reference for the deepwater and ultra-deepwater regions of the Gulf of Mexico, southeast Brazil and West Africa) with commencement dates in 2022, representing a 92%2025 and 2026, which will further increase year over year. Muchthe average lead time and duration of thiscontracts booked once these tenders are concluded.
The strong demand growth is projectedfor deepwater drilling rigs continues to be driven by growth in South Americasupport increasing rates and the United States, where we currently have operations. Additional activity is expectedutilization for ultra-deepwater drilling rigs, with current dayrates in the North Sea sector as energy security concernsmid $400,000 per day range, and supportive regulatory actionmarketed utilization approaching 95%. Combined with the longer duration and lead times of recent tenders, these factors have resulted in compelling economics for rig reactivations, with idle capacity continuing to enter the market. The return of idle capacity to the market may encourageadversely affect utilization and dayrates. While there is a possibility for additional spending by our potential customers. As dayrates continuestranded rigs to improve, however, it may become economic for drillers to reactivateenter the market, the remaining inventory of idle rig capacity or deliver newbuilds, limiting market upside or potentially placing downward pressure on utilizationhas decreased significantly and dayrates.
Despite the upward trendsowners of this capacity have exhibited capital discipline as it relates to reactivations. The anticipated growth in our general market,upstream capital spending continues to drive further increases in rig demand and may mitigate the long-term impact of future rig reactivations. Further, supply chain constraints and inflationary pressures persist, driving some increases in our operating expense; however,could limit the pace at which these same forces may constrain rig supply in the near term as they could delay the timing and increase the cost of idle capacity returningadditional rigs return to the market.market, with some analysts estimating the average time for rig reactivations of approximately 12 to 18 months at costs approaching $100 million and $350 million for stacked and stranded assets, respectively, as of the date of this report. Despite policy tightening by major central banks and a moderating pace of world economic expansion, inflationary pressures remain elevated, which may result in continued upward pressure on operating expenses for offshore drillers.
22
26
Customer
In addition to market factors, customer capital allocation decisions will continue to affect demand for our services. InvestmentCustomer investment mixes over time, coupled with energy demand and regulatory measures, could lead to reducedadversely impact demand for offshore drilling services in the long term. Notwithstanding this possibility, global energy demand continues to grow whilebe strong and energy supply growth remains constrained, and weconstrained. We expect increased investment in both traditional and renewable sources of energy to be required for years to come,in the future, much of which we expect to be invested in finding and producing hydrocarbons in the offshore segment. Industry experts continue to expect oil and gas to remain the largest sources of global energy in the foreseeable future.
See “– Contract Drilling Backlog” for future commitments of our rigs during the remainder of 20222023 through 2025.2027.
2327
Contract Drilling Backlog
We believe that our contract drilling backlog provides a useful indicator of our future revenue-earning opportunities. Our contract drilling backlog, as presented below, includes only firm commitments (typically represented by signed contracts) and is calculated by multiplying the contracted operating dayrate by the firm contract period. The contract period is based on the number of stated days for fixed-term contracts or an estimated duration (in days) for contracts based on a fixed number of wells. Our calculation also assumes full utilization of our drilling equipment for the contract period (excluding scheduled shipyard and survey days); however, the amount of actual revenue earned and the actual periods during which revenues are earned may be different than the amounts and periods shown in the tables below due to various factors. Our utilization rates, which generally have been in the range of 92-98% during contracted periods, can be adversely impacted due to various operating factors including unscheduled repairs and maintenance, weather conditions, the effects of COVID-19 and other factors. Contract drilling backlog excludes revenues for mobilization, demobilization, contract preparation and customer reimbursables. Revenue is generally not earned during periods of downtime for regulatory surveys; however, certain contracts may provide for reduced revenue during the survey period. Changes in our contract drilling backlog between periods are generally a function of the performance of work on term contracts, as well as the extension or modification of existing term contracts and the execution of additional contracts. In addition, under certain circumstances, our customers may seek to terminate or renegotiate our contracts, which could adversely affect our reported backlog.
The backlog information presented below does not, nor is it intended to, align with the disclosures regarding revenue expected to be recognized in the future related to unsatisfied performance obligations, which are presented in Note 2 “Revenue from Contracts with Customers” to our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report. Contract drilling backlog includes only future dayrate revenue as described above, while the disclosure in Note 2 “Revenue from Contracts with Customers” excludes dayrate revenue and reflects expected future revenue for mobilization, demobilization and capital modifications to our rigs, which are related to non-distinct promises within our signed contracts. See “– Important Factors That May Impact Our Operating Results, Financial Condition or Cash Flows.”
The following table reflects our contract drilling backlog as of October 1, 2022 (and does not include any contracts signed after October 1, 2022 but prior to the date of this report)2023 (based on information available at that time), January 1, 20222023 (the date reported in our Annual Report on Form 10-K for the year ended December 31, 2021)2022), and October 1, 20212022 (the date reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021)2022) (in millions).
|
| October 1, |
|
| January 1, |
|
| October 1, |
| |||
Contract Drilling Backlog |
| $ | 1,596 |
|
| $ | 1,191 |
|
| $ | 1,034 |
|
|
| October 1, |
|
| January 1, |
|
| October 1, |
| |||
Contract Drilling Backlog |
| $ | 1,406 |
|
| $ | 1,788 |
|
| $ | 1,596 |
|
2428
The following table reflects the amount of revenue related to our contract drilling backlog by year as of October 1, 20222023 (in millions).
| For the Years Ending December 31, |
| |||||||||||||
| Total |
| 2022 (1) |
| 2023 |
| 2024 |
| 2025 |
| |||||
Contract Drilling Backlog (2) | $ | 1,596 |
| $ | 206 |
| $ | 948 |
| $ | 419 |
| $ | 23 |
|
| For the Years Ending December 31, |
| ||||||||||||||||
| Total |
| 2023 (1) |
| 2024 |
| 2025 |
| 2026 |
| 2027 |
| ||||||
Contract Drilling Backlog (2) | $ | 1,406 |
| $ | 270 |
| $ | 789 |
| $ | 144 |
| $ | 106 |
| $ | 97 |
|
The following table reflects the percentage of rig days per year committed as of October 1, 2022.2023. The percentage of rig days committed is calculated as the ratio of total days committed under contracts, as well as scheduled shipyard, survey and mobilization days for all rigs in our fleet, to total available days (number of rigs, including cold-stacked rigs, multiplied by the number of days in a particular year).
|
| For the Years Ending December 31, |
| |||||||||||||
|
| 2022 (1) |
|
| 2023 |
|
| 2024 |
|
| 2025 |
| ||||
Percentage of Rig Days Committed (2) |
|
| 79 | % |
|
| 71 | % |
|
| 28 | % |
|
| 1 | % |
|
| For the Years Ending December 31, |
| |||||||||||||||||
|
| 2023 (1) |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
| |||||
Percentage of Rig Days Committed (2) |
|
| 77 | % |
|
| 54 | % |
|
| 11 | % |
|
| 8 | % |
|
| 8 | % |
Important Factors That May Impact Our Operating Results, Financial Condition or Cash Flows
COVID-19 Pandemic. The COVID-19 outbreak and efforts to mitigate the spread of the virus continue to adversely impact our business as a result of risks to the safety of our personnel, as well as travel restrictions that may continue to arise, challenging the ability to move personnel, equipment, supplies and service personnel to and from our drilling rigs. In response, we have adopted COVID-19 vaccination and testing requirements, as well as other health protocols designed to ensure the safety of our offshore personnel based on the regions in which our rigs are operating. In the current environment, we have been able to modify and/or eliminate many of our initial protocols implemented after the onset of the pandemic. We incurred incremental costs of approximately $0.4 million and $1.6 million related to the COVID-19 pandemic during the Successor quarters ended September 30, 2022 and June 30, 2022, respectively. We expect to incur similar types of costs during the remainder of 2022 but cannot predict the future financial impact of our response to the COVID-19 pandemic or its duration or potential effects in this fluid environment. As such, costs realized in the future may be more than projected, perhaps by a material amount.
25
Regulatory Surveys and Planned Downtime. We perform certain regulatory inspections, which we refer to as a special survey, that are due every five years for most of our rigs and an intermediate survey, which is performed every two-and-one-half years, for our North Sea rigs. Our operating income is negatively impacted when we perform these required regulatory surveys due to planned downtime during the inspection period. Our operating income is also reduced by planned downtime for upgrades, contract preparation and mobilization of rigs; however, in some cases, we may be compensated for all or a portion of this downtime. During the last quarterremainder of 2022,2023, we expect to incur approximately 15495 days of planned downtime, including approximately 6261 days for shipyard repairscapital modifications, contract preparation and enhancementsacceptance testing activities for the Ocean EndeavorCourage, and approximately 92 days in connection with the reactivation of the Ocean GreatWhite. During 2023, we expect to incur approximately 177 days of planned downtime, including approximately 10917 days for a maintenance project to meet regulatory requirementscontract preparation and mobilization activities for the Ocean ApexBlackHawk, and approximately 4517 days for the Ocean GreatWhite reactivation and contract preparation activities and approximately 23 days for the completionstandby, mobilization or demobilization of the Ocean Endeavor shipyard work that commenced in 2022.rigs between well sites. We can provide no assurance as to the exact timing and/or duration of downtime associated with regulatory inspections, repairs, contract preparation, rig mobilizations and other shipyard projects. See “ – Contract Drilling Backlog.”
29
Physical Damage and Marine Liability Insurance. We are self-insured for physical damage to rigs and equipment caused by named windstorms in the U.S. Gulf of Mexico, as defined by the relevant insurance policy. If a named windstorm in the U.S. Gulf of Mexico causes significant damage to our rigs or equipment, it could have a material adverse effect on our financial condition, results of operations, financial condition, and cash flows. Under our current insurance policy, we carry physical damage insurance for certain losses other than those caused by named windstorms in the U.S. Gulf of Mexico for which our deductible for physical damage is $10.0 million per occurrence. In addition, we currently carry loss-of-hire insurance on certain of our owned rigs to cover lost cash flow when a rig is damaged (other than when caused by named windstorms in the U.S. Gulf of Mexico) but have not purchased loss-of-hire insurance for our entire fleet..
In addition, we carry marine liability insurance covering certain legal liabilities, including coverage for certain personal injury claims, collisions, and wreck removals, and generally covering liabilities arising out of or relating to pollution and/or environmental risk. We believe that the policy limit for our marine liability insurance is within the range that is customary for companies of our size in the offshore drilling industry and is appropriate for our business. Under these marine liability policies, we generally self-insure $1.0 million to $5.0 million per occurrence, depending on jurisdiction, but up to $25.0 million for liabilities arising out of named windstorms in the U.S. Gulf of Mexico. Depending on the nature, severity, and frequency of claims that might arise during the policy year, if the aggregate level of claims exceeds certain thresholds, we may self-insure up to $100.0 million for each subsequent occurrence.
Critical Accounting Policies
Our significant accounting policies are discussed in Note 1 “General Information” of our notes to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
26
Results of Operations
We have elected to present a comparison of our results of operations for the current quarter with that of the immediately preceding quarter, as permitted under Item 303(c)(2)(ii) of Regulation S-K. We believe this comparison is more useful in identifying business trends and provides a more meaningful analysis of our business as our results are largely driven by market changes rather than seasonal business activity. We continue to present the required comparison of current year-to-date results with the same period of the prior year.
Our operating results for contract drilling services are dependent on three primary metrics or key performance indicators: revenue-earning (or R-E) days, rig utilization and average daily revenue. We believe that R-E days provide a comparative measurement of the activity level of our fleet, rig utilization is an indicator of our ability to secure work for and the operational efficiency of our fleet and average daily revenue provides a comparative measure for our revenue-earning performance. We utilize these performance indicators in the review of our business and operating results and believe these are useful metrics for investors to utilize in evaluating our performance. The tables presented below include these three key performance indicators and other comparative data relating to our revenues and operating expenses for the respective periods (in thousands, except days, daily amounts and percentages) for the Successor nine-month period ended September 30, 2022, three-month periods ended September 30, 20222023 and June 30, 20222023 and the period from April 24, 2021 throughnine-month periods ended September 30, 20212023 and the Predecessor period from January 1, 2021 through April 23, 2021.September 30, 2022.
30
Results for the Three-Month Periods Ended September 30, 20222023 and June 30, 20222023
|
| Successor |
|
| |||||
|
| Three Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| ||
|
| 2022 |
|
| 2022 |
|
| ||
REVENUE-EARNING DAYS (1) |
|
| 809 |
|
|
| 776 |
|
|
UTILIZATION (2) |
|
| 68 | % |
|
| 57 | % |
|
AVERAGE DAILY REVENUE (3) |
| $ | 234,800 |
|
| $ | 227,800 |
|
|
|
|
|
|
|
|
|
| ||
CONTRACT DRILLING REVENUE |
| $ | 189,861 |
|
| $ | 176,879 |
|
|
REVENUE RELATED TO REIMBURSABLE |
|
| 36,212 |
|
|
| 28,823 |
|
|
TOTAL REVENUES |
| $ | 226,073 |
|
| $ | 205,702 |
|
|
CONTRACT DRILLING EXPENSE, EXCLUDING |
| $ | 155,567 |
|
| $ | 142,150 |
|
|
REIMBURSABLE EXPENSES |
| $ | 35,765 |
|
| $ | 28,554 |
|
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
| ||
Contract drilling services, net |
| $ | 34,294 |
|
| $ | 34,729 |
|
|
Reimbursable expenses, net |
|
| 447 |
|
|
| 269 |
|
|
Depreciation |
|
| (26,069 | ) |
|
| (25,693 | ) |
|
General and administrative expense |
|
| (16,320 | ) |
|
| (19,753 | ) |
|
Gain on disposition of assets |
|
| 73 |
|
|
| 685 |
|
|
Total Operating Loss |
| $ | (7,575 | ) |
| $ | (9,763 | ) |
|
Other income (expense): |
|
|
|
|
|
|
| ||
Interest income |
|
| 11 |
|
|
| — |
|
|
Interest expense, net of amounts capitalized |
|
| (10,364 | ) |
|
| (10,103 | ) |
|
Foreign currency transaction gain |
|
| 237 |
|
|
| 1,607 |
|
|
Other, net |
|
| 172 |
|
|
| (47 | ) |
|
Loss before income tax benefit |
|
| (17,519 | ) |
|
| (18,306 | ) |
|
Income tax benefit (expense) |
|
| 23,029 |
|
|
| (3,623 | ) |
|
NET INCOME (LOSS) |
| $ | 5,510 |
|
| $ | (21,929 | ) |
|
27
|
| Three Months Ended |
| |||||
|
| September 30, |
|
| June 30, |
| ||
|
| 2023 |
|
| 2023 |
| ||
REVENUE-EARNING DAYS (1) |
|
| 732 |
|
|
| 887 |
|
UTILIZATION (2) |
|
| 57 | % |
|
| 70 | % |
AVERAGE DAILY REVENUE (3) |
| $ | 307,200 |
|
| $ | 298,700 |
|
|
|
|
|
|
|
| ||
CONTRACT DRILLING REVENUE |
| $ | 224,929 |
|
| $ | 264,990 |
|
REVENUE RELATED TO REIMBURSABLE |
|
| 20,029 |
|
|
| 16,573 |
|
TOTAL REVENUES |
| $ | 244,958 |
|
| $ | 281,563 |
|
CONTRACT DRILLING EXPENSE, EXCLUDING |
| $ | 181,954 |
|
| $ | 212,947 |
|
REIMBURSABLE EXPENSES |
| $ | 18,662 |
|
| $ | 15,579 |
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
| ||
Contract drilling services, net |
| $ | 42,975 |
|
| $ | 52,043 |
|
Reimbursable expenses, net |
|
| 1,367 |
|
|
| 994 |
|
Depreciation |
|
| (27,785 | ) |
|
| (27,906 | ) |
General and administrative expense |
|
| (16,649 | ) |
|
| (16,824 | ) |
Gain on disposition of assets |
|
| 955 |
|
|
| 1,933 |
|
Total Operating Income |
| $ | 863 |
|
| $ | 10,240 |
|
Other income (expense): |
|
|
|
|
|
| ||
Interest income |
|
| 161 |
|
|
| 5 |
|
Interest expense, net of amounts capitalized |
|
| (13,774 | ) |
|
| (12,755 | ) |
Foreign currency transaction gain (loss) |
|
| 184 |
|
|
| (1,968 | ) |
Loss on extinguishment of long-term debt |
|
| (6,529 | ) |
|
| — |
|
Other, net |
|
| (485 | ) |
|
| 136 |
|
Loss before income tax benefit |
|
| (19,580 | ) |
|
| (4,342 | ) |
Income tax (expense) benefit |
|
| (125,436 | ) |
|
| 243,125 |
|
NET (LOSS) INCOME |
| $ | (145,016 | ) |
| $ | 238,783 |
|
31
Three Months Ended September 30, 20222023 Compared to Three Months Ended June 30, 20222023
Contract Drilling RevenueRevenue. . Contract drilling revenue increased $13.0decreased $40.1 million during the three months ended September 30, 20222023 compared to the three months ended June 30, 2022,2023, primarily due to a 33-day increase155-day decrease in R-E days ($7.446.3 million), combined withpartially offset by the effectfavorable impact of higher average daily revenue earned ($5.66.2 million). The increaseResults for the third quarter of 2023 included $4.3 million in revenue associated with the termination of a second well option program for the Ocean Apex.
R-E days decreased during the third quarter of 2023, compared to the second quarter of 2023, primarily due to downtime associated with a shipyard project for the Ocean BlackHawk prior to the rig’s mobilization to the U.S. Gulf of Mexico (or GOM) for a one-year contract (86 days), the warm stacking of the Ocean Patriot between contracts (88 days) and an aggregate net decrease in R-E days reflectedfor other rigs in our fleet (22 days). The decrease in R-E days was partially offset by incremental operating days for the Ocean BlackHawk, Ocean Apexand Ocean Patriot (99 R-E (41 days), all of which operated under contractwas in a shipyard for most of the third quarter of 2022, compared to being warm stacked, in shipyard or mobilizing between contracts during the second quartera special survey and fewer downtime days for repairs (14 incremental R-E days), primarily for the Auriga. The third quarter 2022 increase in R-E days was partially offset by fewer operating days for the Ocean Onyx, which completed its contract in mid-July 2022regulatory and is warm stacked in Australia as of the day of this report (80 fewer days).
Average daily revenue earned during the third quarter of 2022 increased primarily due to a higher dayrate earned by the Ocean BlackHawk operating in Senegal, compared to a lower dayrate earned while contracted in the Gulf of Mexicoother upgrades during the second quarter of 2022. In addition, average daily revenue was favorably impacted by a higher dayrate earned by the Ocean Patriot as a result of a contract extension that commenced in the third quarter of 2022.2023.
Revenue Related to Reimbursable Expenses. During the third quarter of 2022,2023, we recognized gross reimbursable revenue and expenses of $36.2$20.0 million, including $23.4$2.1 million earned under the MMSA.MSA. Gross reimbursable revenue and expenses for the second quarter of 20222023 were $28.8$16.6 million, and included $11.6 millionof which none was earned under the MMSA.MSA.
Contract Drilling Expense, Excluding DepreciationDepreciation.. Contract drilling expense, excluding depreciation increased $13.4decreased $31.0 million during the three months ended September 30, 2022, compared to the three months ended June 30, 2022. The increase in contract drilling expense in the third quarter of 20222023, compared to the second quarter of 2023, and was primarily attributable to higherthe absence of mobilization costs associated with operationthe mobilization of the Ocean BlackHawk from Senegal to a shipyard in Senegal ($9.5 million), incremental reactivation and mobilizationthe Canary Islands in the second quarter, combined with the deferral of contract preparation costs associated with the rig being readied for the Ocean GreatWhite in connection with its upcomingnew contract in the GOM.
Loss on Extinguishment of Long-Term Debt. Concurrent with our issuance of $550 million aggregate principal amount of new debt in September 2023, we repaid all our previously outstanding debt and amended our revolving credit facility to reduce the borrowing capacity thereunder. We recognized a $6.5 million loss on extinguishment of debt, primarily related to the retirement of a portion of our then existing debt at a premium ($2.33.4 million) and otherthe write off of deferred issuance costs related to the retired debt and reduction in borrowing capacity ($1.63.1 million).
General and Administrative Expense. General and administrative expense for the third quarter of 2022 decreased $3.4 million compared to the second quarter of 2022, primarily due to the recognition of compensation expense in the second quarter of 2022 associated with the vesting of certain performance-based restricted stock awards granted in May 2021. Vesting of these awards was contingent upon the occurrence of certain events that were not deemed probable at the time of the award, and, consequently, no expense related to these awards was recognized until the second quarter of 2022 when certain of the market conditions were satisfied.
Income Tax BenefitBenefit. . We estimate our annual effective tax rate (or AETR) for continuing operations in recording our interim quarterly income tax provision, considering the various jurisdictions in which we operate. DiscreteWe exclude discrete tax adjustments are excluded from the computation of the AETR and recordedrecord such adjustments in the quarter in which they occur.
We recorded a net income tax benefitexpense of $23.0$125.4 million (131.45% effective tax rate) for the three months ended September 30, 2022.2023. For the three months ended June 30, 2022,2023, we recorded a net income tax expensebenefit of $3.6 million (negative 19.8% effective tax rate).$243.1 million. The higher effective tax rate for the third quarter ended September 30, 2023 is a result of 2022 reflects changes in our domestic and international jurisdictionalthe mix of estimated pre-tax income and loss across jurisdictions, including significant losses in jurisdictions with zero percent tax rates resulting in no tax benefit.
32
Results for the Nine-Month Periods Ended September 30, 2023 and September 30, 2022
|
|
|
|
| |||||
|
| Nine Months Ended |
|
| Nine Months Ended |
|
| ||
|
| September 30, 2023 |
|
| September 30, 2022 |
|
| ||
REVENUE-EARNING DAYS |
|
| 2,408 |
|
|
| 2,253 |
|
|
UTILIZATION |
|
| 63 | % |
|
| 65 | % |
|
AVERAGE DAILY REVENUE |
| $ | 292,500 |
|
| $ | 229,400 |
|
|
|
|
|
|
|
|
|
| ||
CONTRACT DRILLING REVENUE |
| $ | 704,302 |
|
| $ | 516,992 |
|
|
REVENUE RELATED TO REIMBURSABLE |
|
| 54,240 |
|
|
| 101,022 |
|
|
TOTAL REVENUES |
| $ | 758,542 |
|
| $ | 618,014 |
|
|
CONTRACT DRILLING EXPENSE, EXCLUDING |
| $ | 568,390 |
|
| $ | 442,619 |
|
|
REIMBURSABLE EXPENSES |
| $ | 51,454 |
|
| $ | 99,932 |
|
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
| ||
Contract drilling services, net |
| $ | 135,912 |
|
| $ | 74,373 |
|
|
Reimbursable expenses, net |
|
| 2,786 |
|
|
| 1,090 |
|
|
Depreciation |
| $ | (83,596 | ) |
|
| (78,714 | ) |
|
General and administrative expense |
|
| (53,058 | ) |
|
| (52,805 | ) |
|
Gain on disposition of assets |
|
| 4,102 |
|
|
| 4,802 |
|
|
Total Operating Income (Loss) |
| $ | 6,146 |
|
| $ | (51,254 | ) |
|
Other income (expense): |
|
|
|
|
|
|
| ||
Interest income |
|
| 173 |
|
|
| 12 |
|
|
Interest expense, net of amounts capitalized |
|
| (38,569 | ) |
|
| (28,792 | ) |
|
Foreign currency transaction loss |
|
| (3,057 | ) |
|
| (285 | ) |
|
Loss on extinguishment of long-term debt |
|
| (6,529 | ) |
|
| — |
|
|
Other, net |
|
| (502 | ) |
|
| 1,487 |
|
|
Loss before income tax benefit |
|
| (42,338 | ) |
|
| (78,832 | ) |
|
Income tax benefit |
|
| 143,334 |
|
|
| 28,059 |
|
|
NET INCOME (LOSS) |
| $ | 100,996 |
|
| $ | (50,773 | ) |
|
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Contract Drilling Revenue. Contract drilling revenue increased $187.3 million during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Comparing the periods, the increase in contract drilling revenue was the result of higher average daily revenue earned ($151.8 million), combined with a 155-day increase in R-E days ($35.5 million).
Average daily revenue for the nine months ended September 30, 2023 increased compared to the prior year period, and the fact that we have not recognized an income tax benefit for losses in certain jurisdictionsprimarily due to a valuation allowance, while recognizing income tax expense for jurisdictions with forecasted pre-tax income. Additionally,dayrates earned by the varianceOcean BlackHornet and West Auriga, which operated under new contracts or extensions during 2023 at higher dayrates than those earned in the effective tax rate reflects a $4.1 million benefit recognized insame period of 2022. Contract drilling revenue for the nine months ended September 30, 2023 also included revenue for the Ocean GreatWhite and West Vela, which commenced drilling operations after the third quarter of 2022, for remeasurement of unrecognized tax benefits due to expiring statutes of limitation and a $3.4as well as $16.5 million benefit recognized in the third quarter in respect to both current taxes and the release of a valuation allowance on lossesrevenue related to our U.S. operations.
28
Results for the Successor Nine-Month Period Ended September 30, 2022 and the Period from April 24, 2021 through September 30, 2021 and for the Predecessor Period from January 1, 2021 through April 23, 2021
|
| Successor |
|
|
| Predecessor |
| ||||||
|
| Nine Months Ended |
|
| Period from April 24, 2021 through |
|
|
| Period From January 1, 2021 through |
| |||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
|
| April, 23, 2021 |
| |||
REVENUE-EARNING DAYS |
|
| 2,253 |
|
|
| 1,372 |
|
|
|
| 724 |
|
UTILIZATION |
|
| 65 | % |
|
| 71 | % |
|
|
| 53 | % |
AVERAGE DAILY REVENUE |
| $ | 229,400 |
|
| $ | 205,000 |
|
|
| $ | 211,800 |
|
|
|
|
|
|
|
|
|
|
|
| |||
CONTRACT DRILLING REVENUE |
| $ | 516,992 |
|
| $ | 281,189 |
|
|
| $ | 153,364 |
|
REVENUE RELATED TO REIMBURSABLE |
|
| 101,022 |
|
|
| 47,599 |
|
|
|
| 16,015 |
|
TOTAL REVENUES |
| $ | 618,014 |
|
| $ | 328,788 |
|
|
| $ | 169,379 |
|
CONTRACT DRILLING EXPENSE, EXCLUDING |
| $ | 442,619 |
|
| $ | 225,892 |
|
|
| $ | 181,626 |
|
REIMBURSABLE EXPENSES |
| $ | 99,932 |
|
| $ | 46,645 |
|
|
| $ | 15,477 |
|
OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
| |||
Contract drilling services, net |
| $ | 74,373 |
|
| $ | 55,297 |
|
|
| $ | (28,262 | ) |
Reimbursable expenses, net |
|
| 1,090 |
|
|
| 954 |
|
|
|
| 538 |
|
Depreciation |
|
| (78,714 | ) |
|
| (43,885 | ) |
|
|
| (92,758 | ) |
General and administrative expense |
|
| (52,805 | ) |
|
| (37,193 | ) |
|
|
| (15,036 | ) |
Impairment of assets |
|
| — |
|
|
| — |
|
|
|
| (197,027 | ) |
Gain on disposition of assets |
|
| 4,802 |
|
|
| 943 |
|
|
|
| 5,486 |
|
Total Operating Loss |
| $ | (51,254 | ) |
| $ | (23,884 | ) |
|
| $ | (327,059 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
| |||
Interest income |
|
| 12 |
|
|
| 3 |
|
|
|
| 30 |
|
Interest expense, net of amounts capitalized |
|
| (28,792 | ) |
|
| (16,874 | ) |
|
|
| (34,827 | ) |
Foreign currency transaction (loss) gain |
|
| (285 | ) |
|
| 259 |
|
|
|
| (172 | ) |
Reorganization items, net |
|
| — |
|
|
| (7,454 | ) |
|
|
| (1,639,763 | ) |
Other, net |
|
| 1,487 |
|
|
| 10,692 |
|
|
|
| 398 |
|
Loss before income tax benefit (expense) |
|
| (78,832 | ) |
|
| (37,258 | ) |
|
|
| (2,001,393 | ) |
Income tax benefit (expense) |
|
| 28,059 |
|
|
| (15,217 | ) |
|
|
| 39,404 |
|
NET LOSS |
| $ | (50,773 | ) |
| $ | (52,475 | ) |
|
| $ | (1,961,989 | ) |
Nine Months Ended September30, 2022 (Successor) Compared to the Period from April 24, 2021 through September 30, 2021 (Successor) and the Period from January 1, 2021 through April 23, 2021 (Predecessor)
Contract Drilling Revenue. During the Successor nine-month period ended September 30, 2022,we earned contractearly termination of drilling revenue of $517.0 million attributable to 2,253 R-E days and average daily revenue of $229,400. Total utilization for the period was 65%, reflecting downtimecontracts for the Ocean Endeavor and Ocean Patriot for repairs and inspections (200 days), planned downtime related to contract preparation activities for the Ocean Apex and .Ocean BlackHawk (176 days) and non-productive time associated with four warm- or cold- stacked rigs (818 days).
The increase in average daily revenueR-E days for the Successor nine-month period ended September 30, 2022,first nine months of 2023, compared to the Successor period from April 24, 2021 to September 30, 2021, was primarily due to higher recognition of capital upgrade revenue related to managed pressure drilling equipment for the Ocean BlackLion and the impact of the Ocean Onyx, Ocean Patriot and Ocean BlackHawk operating at higher dayrates during the first nine months of 2022, compared to rates earned duringwas the Successor period in 2021. The Ocean BlackRhino completed pre-contract commencement work in June 2021 and began drilling operations in Senegal during the third quarterresult of 2021.
During the Successor period from April 24, 2021 to September 30, 2021, we earned contract drilling revenue of $281.2 million attributable to 1,372incremental R-E days and average daily revenue of $205,000. Total utilization for the period
29
was 71%, reflecting downtime for the Ocean BlackRhinoGreatWhite (183 days), and our two managed rigs (278 days). R-E days were partially reduced by downtime associated with the completion of contracts and subsequent cold stacking of the Ocean Courage Onyxfor contract preparation work (132 (192 fewer days) and the Ocean Endeavor, Ocean Patriot Monarchand Ocean Onyx for repairs, inspection and mobilization (65 (82 fewer days), as well as an aggregate reduction in addition to the non-productive time associated with warm- or cold- stackedR-E days for other rigs (320in our fleet (32 fewer days). The decline in average daily revenue reflects reduced amortization of deferred revenue due to the write off of such balances at the Effective Date in connection with fresh start accounting. Prior to fresh start accounting, such amounts were amortized into income over the respective contract terms.
During the Predecessor period from January 1, 2021 through April 23, 2021, we earned contract drillingRevenueRelated to Reimbursable Expenses. Gross reimbursable revenue of $153.4 million attributable to 724 R-E days and average daily revenue of $211,800. Total utilizationexpenses for the period was 53%. Sixfirst nine months of our then contracted rigs operated at nearly full utilization2023 were $54.2 million, including $8.5 million earned under the MSA. We recognized gross reimbursable revenue and expenses of $101.1 million for the period, while three rigs were preparing for upcoming contracts throughout mostfirst nine months of 2022, including $55.3 million earned under the period. The MSA.Ocean Onyx
commenced a new contract in February 2021 after its reactivation and contributed 61 R-E days to the period.
33
Contract Drilling Expense, Excluding DepreciationDepreciation. . During the Successor nine-month period ended September 30, 2022 (a 273-day period), contractContract drilling expense, excluding depreciation totaled $442.6increased $125.8 million primarily comprised of payroll and benefits cost ($199.7 million), repairs, maintenance and inspection ($126.9 million), equipment rentals ($41.1 million), shorebase cost, insurance and overhead ($60.0 million), moving cost ($11.3 million) and catering ($15.2 million), partially offset by a reduction in other costs ($11.6 million). Increased payroll and benefits costs are partially attributable to a rig retention bonus implemented for certain of our drilling rigs in early 2022.
During the Successor period from April 24, 2021 through September 30, 2021 (a 160-day period), contract drilling expense, excluding depreciation totaled $225.9 million, comprised primarily of payroll and employees cost ($100.2 million), repairs, maintenance and inspection ($64.5 million), equipment rentals ($17.3 million), shorebase cost, insurance and overhead ($28.4 million), catering ($7.6 million), moving cost ($2.9 million) and other ($5.0 million).
During the Predecessor period from January 1, 2021 through April 23, 2021 (a 113-day period), contract drilling expense, excluding depreciation totaled $181.6 million and was primarily comprised of payroll and employees cost ($73.5 million), repairs, maintenance and inspection ($39.6 million), equipment rentals ($24.4 million), shorebase cost and overhead ($20.8 million), moving cost ($12.8 million) and other ($10.5 million).
30
Depreciation Expense. Depreciation expense for the Successor nine-month period ended September 30, 2022 and the period from April 24, 2021 through September 30, 2021 and the Predecessor period from January 1, 2021 through April 23, 2021 was $78.7 million, $43.9 million and $92.8 million, respectively. The decline in depreciation expense since the Effective Date was primarily due to the reduction in depreciable value of our rigs and equipment as a result of the fair value remeasurement of rigs and equipment in connection with the application of fresh start accounting and asset impairments recognized in the fourth quarter of 2021.
General and Administrative Expense. General and administrative expense for the Successor nine-month period ended September 30, 2022 and the period from April 24, 2021 through September 30, 2021 and Predecessor period from January 1, 2021 through April 23, 2021 was $52.8 million, $37.2 million and $15.0 million, respectively. Expenses incurred during the Successor nine months ended September 30, 20222023 compared to the same period in 2022. Higher contract drilling expense for the first nine months of 2023 included payrollincremental costs related to the Ocean GreatWhite, which commenced its first drilling contract post-reactivation at the end of the first quarter, incremental costs associated with the Ocean Apex shipyard project that commenced in March 2023, higher personnel-related and benefits ($29.4 million), legal and professional fees ($16.5 million), office expenses ($6.0 million) and other ($0.8 million). For the Successor period from April 24, 2021 through September 30, 2021, general and administrative expense included payroll and benefits ($21.7 million), professional and legal fees ($11.8 million), office expenses ($3.4 million) and other ($0.3 million). Expenses incurred during the Predecessor period from January 1, 2021 through April 23, 2021 included payroll and benefits costs ($9.9 million), professional and legal fees ($3.6 million) and other ($1.5 million). Payroll and benefitsrepair costs for the Successor nine-month period ended September 30, 2022 included $5.4 million in incremental compensationour rigs offshore Senegal and contract drilling expense associated with certain performance-based restricted stock awards granted in 2021.
Impairment of Assets. Duringtwo rigs managed under the Predecessor period from January 1, 2021 through April 23, 2021, we recognized an impairment charge of $197.0 million to write down the carrying value of one of our rigs with indicators of impairment due to concerns at that time over future opportunitiesMSA. Contract drilling expense for the rig. See Note 3 “Impairment2023 period was favorably impacted by reduced expense for the Ocean Onyx and Ocean Monarch, which operated under contract for part of Assets” to our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report.2022 but are now cold-stacked.
Gain on Disposition of Assets. During the first nine months of 2023, we recognized an aggregate gain on disposition of assets of $4.1 million, primarily related to the sale of surplus equipment. During the first quarter of 2022, we sold the Ocean Valor for aggregate proceeds of approximately $6.6 million and recognized a net gain on the transaction of $4.2 million.
Interest Expense. Interest expense for the Successor nine-month period ended September 30, 2023 increased $9.8 million compared to the nine month period ended September 30, 2022, includedprimarily due to higher market interest cost relatedrates on outstanding indebtedness, combined with higher average outstanding borrowings compared to our exit financing ($19.2 million), imputed interest expense related to our equipment finance leases ($7.9 million), amortization of deferred arrangement fees associated with our exit credit facility ($1.5 million) and other ($0.2 million).the 2022 period. Interest expense for the Successor period from April 24, 2021 throughnine months ended September 30, 20212023 also included $1.3 million in accrued interest on exit financing ($11.0 million), imputed interest on equipment finance leases ($5.0 million) and amortization of deferred debt arrangement fees ($0.9 million) .related to our notes issuance in September 2023.
Upon filing for bankruptcy protectionLoss on April 26, 2020,Extinguishment of Long-Term Debt. Concurrent with our issuance of $550 million aggregate principal amount of new debt in September 2023, we ceased accruing interest expenseretired all our previously outstanding debt and amended our revolving credit facility to reduce the borrowing capacity thereunder. We recognized a $6.5 million loss on extinguishment of debt, primarily related to the retirement of a portion of our then outstanding long-term indebtednessexisting debt at a premium ($3.4 million) and borrowings outstanding under our previous credit facility. However, duethe write off of deferred issuance costs related to provisionsthe retired debt and reduction in our plan of reorganization, we resumed recognizing interest on our outstanding borrowings under the previous credit facility and accrued interest expense of $34.8 million for the Predecessor period from January 1, 2021 to April 23, 2021, inclusive of a $23.4 million catch-up adjustment for the period from April 26, 2020 to December 31, 2020.borrowing capacity ($3.1 million).
Income Tax Benefit. We recorded a net income tax benefit of $28.1$143.3 million (35.6% effective tax rate) for the nine months ended September 30, 2023, inclusive of a net $14.5 million additional tax expense with respect to prior years’ operations in Egypt upon final judgment by the Egyptian tax court. For the nine months ended September 30, 2022, as compared towe recorded a net income tax benefit of $15.2 million (negative 40.8% effective tax rate) for the Successor period from April 23, 2021 to September 30, 2021.$28.1 million. The higher effective tax rate for the nine months ended September 30, 2022 reflects changes in the domestic and international jurisdictional mix of our pre-tax income and losses. Additionally, the variance reflects2023 is a $5.4 million benefit recognized during the nine months ended September 30, 2022 for remeasurement of unrecognized tax benefits and other tax balances due to strengtheningresult of the U.S. dollar relative to foreign currencies and a $3.4 million benefit recognized in September 2022 in respect to taxation of our U.S. operations.
For the Predecessor period from January 1, 2021 to April 23, 2021, we recorded an income tax benefit of $39.4 million (1.9% effective tax rate), which reflects certain consequences of the Predecessor’s bankruptcy filing. The higher effective tax rate for the period for the nine months ended September 30, 2022 also reflects changes in the domestic and international jurisdictional mix of our pre-tax income and loss which are consequences,across jurisdictions, including significant losses in part, of realigning substantially all our assets and operations under a foreign subsidiaryjurisdictions with zero percent tax rates resulting in April 2021.no tax benefit.
31
Liquidity and Capital Resources
We have available aIn September 2023, we issued $550.0 million in aggregate principal amount of 8.5% senior secured second lien notes due 2030 (or the Second Lien Notes), which are scheduled to mature on October 1, 2030 (or the Notes Offering). Concurrent with the issuance of the Second Lien Notes, we entered into an amendment (or the Credit Agreement Amendment) to our then-existing $400.0 million exit revolving credit agreement, which amended the revolving credit facility (or the Exit Revolving Credit Agreement), which provides for aRCF) to, among other things, (i) reduce the aggregate commitment of the lenders thereunder from $400.0 million senior secured revolving credit facilityto $300.0 million, (ii) permit the Notes Offering (or, as amended, the Amended RCF) and also originally provided(iii) provide for a $100.0 million sublimit for the issuanceobligations in respect of letters of credit thereunderin an aggregate principal amount not to exceed $50.0 million . The Credit Agreement Amendment became effective concurrently with the consummation of the Notes Offering, which was conditioned on the Credit Agreement Amendment becoming effective.
We used a portion of the net proceeds from the Notes Offering to fully repay and terminate our $100.0 million senior secured exit term loan credit facility (or the Exit RCF). Effective September 30, 2022, as discussed below, the aggregate amount of the commitments of the Issuing Lenders (as definedTerm Loan Credit Facility), redeem in the Exit Revolving Credit Agreement) to issue letters of credit under the Exit RCF decreased to $75.0 million. Our total capacity for borrowings under the Exit RCF was not impacted by the resignation of the Issuing Lender and remains at $400 million. The Exit RCF is scheduled to mature on April 22, 2026.
On August 31, 2022, one of the Issuing Lenders infull our Exit RCF (or the Resigning Lender) notified us that it was resigning as an Issuing Lender as of September 30, 2022. The Resigning Lender had provided a commitment to issue up to $25.0 million in letters of credit under the Exit RCF. The Resigning Lender will continue to have all the rights and obligations of an Issuing Lender under the Exit RCF with respect to letters of credit issued by it prior to its resignation but will not be required to issue additional letters of credit or extend, renew or increase the outstanding letters of credit. As a result, the aggregate amount of the commitments of the Issuing Lenders to issue letters of credit under the Exit RCF was reduced from $100.0 million to $75.0 million.
At November 7, 2022, we had borrowings of $152.5 million outstanding under the Exit RCF and had utilized $37.3 million for the issuance of letters of credit. As of November 7, 2022, approximately $213.7 million was available for borrowings or the issuance of letters of credit under the Exit RCF. However, the availability of borrowings and letters of credit under the Exit RCF is subject to the satisfaction of certain conditions as specified in the Exit Revolving Credit Agreement, including restrictions on borrowings.
We also have approximately $39.7 million in the form of delayed draw note commitments that may be issued as additional 9.00%/11.00%/13.00% Senior Secured First Lien PIK Toggle Notes due 2027 (or First Lien Notes) and repay all amounts outstanding under the Exit RCF. We intend to use the remaining net proceeds for general corporate purposes.
See Note 6 “Long-Term Debt” to our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of our Second Lien Notes.
On October 24, 2023, Barclays Bank PLC (or Barclays), nonegave notice of its resignation as an LC Lender under the Amended RCF. Barclays’ resignation will become effective on November 23, 2023, at which time our capacity for the issuance of additional letters of credit under the Amended RCF will be reduced to zero. However, as allowed under the Amended RCF, we have capacity to obtain up to $50 million in letters of credit outside the credit facility.
34
At November 6, 2023, we had no borrowings outstanding under the Amended RCF, and a $1.9 million letter of credit had been issued asthereunder. As of November 7, 2022.6, 2023, approximately $298.1 million was available for borrowings under the Amended RCF subject to its terms and conditions; however, the availability of borrowings under the Amended RCF is subject to the satisfaction of certain conditions as specified in our revolving credit agreement, including restrictions on borrowings. We have up to $50.0 million in capacity to issue letters of credit outside the credit facility.
Historically, we have relied on our cash flows from operations and cash reserves to meet our liquidity needs, which primarily include funding of our working capital requirements and capital expenditures, as well as the servicing of our debt repayments and interest payments. As of November 7, 2022,6, 2023, all of our rigs, excluding managed rigs, are owned and operated, directly or indirectly, by Diamond Foreign Asset Company (or DFAC). Our management has determined that we will permanently reinvest foreign earnings, which restricts the ability to utilize cash flows of DFAC on a company-wide basis. To the extent possible, we expect to utilize the operating cash flows and cash reserves of DFAC and the operating cash flows available to and cash reserves of Diamond Offshore Drilling, Inc. to meet each respective entity's working capital requirements and capital commitments.
From time to time, based on market conditions and other factors, we may seek to repay, refinance or restructure all or a portion of our outstanding indebtedness or otherwise enter into transactions regarding our capital structure to obtain more favorable terms, enhance flexibility in conducting our business, increase liquidity or otherwise. We regularly evaluate capital markets to consider future opportunities for enhancements of our capital structure and may opportunistically pursue financing transactions to optimize our capital structure. Our ability to access the capital markets by issuing debt or equity securities will be dependent on our results of operations, our current financial condition, current credit ratings, current market conditions and other factors beyond our control, and there can be no assurance that we would be able to complete any such offering of securities.
As of October 1, 2022,2023, our contractual backlog was approximately $1.6$1.4 billion. At September 30, 2022,2023, we had cash available for current operations of $61.2$172.4 million, including $38.6$25.6 million that is subject to restrictions pursuant to the MMSA.MSA.
Sources and Uses of Cash
Historical Cash Flow from OperationsFlows and Cash Expenditures
For the Successornine-month period ended September 30, 2023, our operating activities generated cash of $20.2 million. Cash receipts from contract drilling services ($766.8 million) were partially offset by cash expenditures for contract drilling, shorebase support, and general and administrative costs ($729.8 million) and placement of cash collateral related to certain tax matters ($16.8 million).
Cash outlays for capital expenditures during the first nine months of 2023 aggregated $99.9 million, primarily related to shipyard projects and equipment upgrades for several rigs in our fleet.
As discussed above, in the third quarter of 2023, we issued $550.0 million of Second Lien Notes at par and used a portion of the proceeds to repay amounts outstanding under the Exit RCF, repay and terminate our Exit Term Loan Credit Facility and redeem in full the First Lien Notes ($381.2 million). Costs associated with the issuance of the Second Lien Notes and amendment of the Exit RCF were $15.1 million. During the first nine months of 2023, we also made payments in connection with finance lease obligations aggregating $14.8 million related to well control equipment on our owned drillships.
For the nine-month period ended September 30, 2022, our operating activities used cash of $21.9 million. Cash expenditures for contract drilling, shorebase support, and general and administrative costs ($590.4 million) and cash income taxes paid, net of refunds ($15.0 million), were partially offset by cash receipts from contract drilling services ($566.0 million) during the nine-month period. In addition, collateral deposits aggregating $17.5 million were exchanged for letters of credit drawn under the Exit RCF, positively impacting cash flow but with a neutral effect on total liquidity.
35
Cash outlays for capital expenditures during the first nine months of 2022 aggregated $42.7 million (including capital outlays for the Ocean Endeavor and Ocean Patriotshipyard work earlier in the period)work). We also paid $11.8 million in finance lease obligations related to well control equipment on our owned drillships during the period. During
32
the first nine months of 2022, assetAsset sales, including the sale of the Ocean Valor, generated cash proceeds of $5.9 million, and we borrowed $69.0 million was borrowed under the Exit RCF.
For the Successor period from April 24, 2021 through September 30, 2021, our operating activities used $41.0 million. Cash expenditures for contract drilling, shorebase support and general and administrative costs ($348.9 million) and payments to professionals in connection with our bankruptcy cases ($35.4 million) more than offset cash receipts for contract drilling services ($338.4 million) for the period and funds from the return of certain collateral deposits ($4.9 million). Cash outlays for capital expenditures and finance lease obligationsRCF during the period aggregated $37.8 million and $6.0 million, respectively, and we had incremental borrowingsfirst nine months of $20.0 million, net of repayments, under the Exit RCF.
For the Predecessor period from January 1, 2021 through April 23, 2021, our operating activities used $100.1 million. Cash expenditures for contract drilling, shorebase support and general and administrative costs ($243.9 million), payments to professionals in connection with our bankruptcy cases ($37.6 million), and net cash income taxes paid ($3.4 million) offset cash receipts for contract drilling services ($181.4 million) for the period. Cash outlays for capital expenditures aggregated $49.1 million for the period.
As set forth in our plan of reorganization, on the Effective Date, we settled $242.0 million outstanding under our previous credit facility in cash and issued $75.0 million of First Lien Notes.2022.
Capital Expenditures Rig Reactivation and Other Projects
We have historically invested a significant portion of our cash flows in the enhancement of our drilling fleet and our ongoing rig equipment replacement and capital maintenance programs. The amount of cash required to meet our capital commitments is determined by evaluating the need to upgrade our rigs to meet specific customer requirements and our rig equipment enhancement, maintenance and replacement programs. We make periodic assessments of our capital spending programs based on current and expected industry conditions and our cash flow forecast. As of the date of this report, we expect total cash capital expenditures for 20222023 to be approximately $75.0$130.0 million to $80.0 million pursuant$135.0 million.
Contractual Obligations and Other Commercial Commitments
As of September 30, 2023, with the exception of the following, there have been no material changes to our capital maintenance programs, including approximately $25.0 millioncontractual obligations or other commercial commitments as previously disclosed in current year capital spending associated with reactivationItem 7, “Management’s Discussion and Analysis of the Ocean GreatWhiteFinancial Condition and additional structural workResults of Operations – Liquidity and Capital Resources – Contractual Cash Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2022 (in thousands).Ocean Endeavor in the fourth quarter.
In total, we expect
|
|
|
|
| Twelve months ending September 30 |
| ||||||||||||||
Contractual Obligations |
| Total |
|
| 2024 |
|
| 2025-2026 |
|
| 2027-2028 |
|
| Thereafter |
| |||||
$550 Million Second Lien Notes (principal and interest) (1)(2) |
| $ | 877,250 |
|
| $ | 46,750 |
|
| $ | 93,500 |
|
| $ | 93,500 |
|
| $ | 643,500 |
|
Total obligations |
| $ | 877,250 |
|
| $ | 46,750 |
|
| $ | 93,500 |
|
| $ | 93,500 |
|
| $ | 643,500 |
|
Other Obligations
As of September 30, 2022,2023, the total net unrecognized tax benefits related to uncertain tax positions that could result in a future cash payment was $32.3$44.9 million. Due to the high degree of uncertainty regarding the timing of future cash outflows associated with the liabilities recognized in these balances, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. Included in the balance is $17.3 million related to prior years’ operations in Egypt.
Other Commercial Commitments - Letters of Credit
See Note 87 “Commitments and ContingenciesContingencies”” to our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report for a discussion of certain of our other commercial commitments.
36
Forward-Looking Statements
We or our representatives may, from time to time, either in this report, in periodic press releases or otherwise, make or incorporate by reference certain written or oral statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (or the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (or the Exchange Act). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain
33
or be identified by the words “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “believe,” “should,” “could,” “would,” “may,” “might,” “will,” “will be,” “will continue,” “will likely result,” “project,” “forecast,” “budget” and similar expressions. In addition, any statement concerning future financial performance (including, without limitation, future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by or against us, which may be provided by management, are also forward-looking statements as so defined. Statements made by us in this report that contain forward-looking statements may include, but are not limited to, information concerning our possible or assumed future results of operations and statements about the following subjects:
•
37
34
These types of statements are based on current expectations about future events and inherently are subject to a variety of assumptions, risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those expected, projected or expressed in forward-looking statements. These risks and uncertainties include, among others, those described or referenced in Item 1A, “Risk Factors” in Part II of this report and Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A.2022.
38
The risks and uncertainties referenced above are not exhaustive. Other sections of this report and our other filings with the Securities and Exchange Commission include additional factors that could adversely affect our business, results of operations and financial performance. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. Forward-looking statements included in this report speak only as of the date of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations or beliefs with regard to the statement or any change in events, conditions or circumstances on which any forward-looking statement is based. In addition, in certain places in this report, we may refer to reports published by third parties that purport to describe trends or developments in energy production or drilling and exploration activity. While we believe that these reports are reliable, we have not independently verified the information included in such reports. We specifically disclaim any responsibility for the accuracy and completeness of such information and undertake no obligation to update such information.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
The information included in this Item 3 constitutes “forward-looking statements” for purposes of the statutory safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Statements” in Item 2 of Part I of this report.
Interest Rate Risk. WeFrom time-to-time, we may have exposure to interest rate risk on our debt instruments arisingthat may arise from changes in the level or volatility of interest rates. As of September 30, 2022, our2023, we had no variable interest rate debt included $152.5 million of outstanding borrowings under the Exit RCF, $18.0 million for the issuance of letters of credit under the Exit RCF
35
and $100.0 million outstanding under our senior secured term loan agreement we entered into on the Effective Date. At this level of variable-rate debt, the impact of a 100-basis point increase in market interest rates would not have a material effect (estimated $2.7 million increase in interest expense on an annualized basis). Our First Lien Notes have been issued at fixed rates, and as such, interest expense would not be impacted by interest rate shifts.outstanding.
There were no other material changes in our market risk components for the nine months ended September 30, 2022.2023. See “Quantitative and Qualitative Disclosures About Market Risk” included in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A,2022 for further information.
ITEM 4. Controls and Procedures.
We maintain a system of disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the federal securities laws, including this report, is recorded, processed, summarized and reported on a timely basis. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us under the federal securities laws is accumulated and communicated to our management on a timely basis to allow decisions regarding required disclosure.
Our Chief Executive Officer (or CEO) and Chief Financial Officer (or CFO) participated in an evaluation by our management of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2022.2023. Based on their participation in that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2022.2023.
There were no changes in our internal control over financial reporting identified in connection with the foregoing evaluation that occurred during our third fiscal quarter of 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
Information related to certain legal proceedings is included in Note 87 “Commitments and Contingencies” to our unaudited condensed consolidated financial statements included in Item 1 of Part I of this report, which is incorporated herein by reference.
ITEM 1A. Risk Factors.
Our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A,2022 includes a detailed discussion of certain material risk factors facing the Company. The additional risk factors presented below describe additional risks and should be read in conjunction withincluded under Item 1A “Risk Factors” inof our Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A, which2022 are incorporated herein by reference. No material changes have been made to such risk factors as of September 30, 2023.
Risks Related to Our Business and Operations
Inflation may adversely affect our operating results and increase working capital investments required to operate our business.
Inflationary factors such as increases in labor costs, material costs and overhead costs may adversely affect our operating results. Inflationary pressures may also increase other costs to operate or reactivate our drilling rigs. Our contracts for our drilling rigs generally provide for the payment of an agreed dayrate per rig operating day. Although some contracts do provide for a limited escalation in dayrate due to increased operating costs we incur on the project, we may not be able to fully recover increased costs due to inflation from our customers. If we are unable to recoup such increased costs, our operating margins will decline. Continuing or worsening inflation could significantly increase our operating expenses and capital expenditures, which could in turn have a material adverse effect on our business, financial condition, results of operations or cash flows.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Items 2(a) and 2(b) are not applicable.
(c) During the three months ended September 30, 2022,2023, in connection with the vesting of shares of restricted stock units held by our Chief Executive Officer,officers and certain other employees, which were awarded under an equity incentive compensation plan, we acquired shares of our common stock in satisfaction of tax withholding obligations that were incurred in connection with such vesting. The date of acquisition, number of shares and average effective acquisition price per share were as follows:
Issuer Purchases of Equity Securities
Period | Total Number of Shares Acquired |
| Average Price Paid per Share |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||
July 1, 2022 through July 31, 2022 |
| 144,845 |
| $ | 6.09 |
| N/A | N/A |
August 1, 2022 through August 31, 2022 |
| 301,300 |
|
| 7.28 |
| N/A | N/A |
September 1, 2022 through September 30, 2022 |
| — |
|
| — |
| N/A | N/A |
Total |
| 446,145 |
| $ | 6.89 |
| N/A | N/A |
Period | Total Number of Shares Acquired |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
| Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||
July 1, 2023 through July 31, 2023 |
| 240,236 |
| $ |
| 14.93 |
|
| N/A |
| N/A |
August 1, 2023 through August 31, 2023 |
| — |
|
|
| — |
|
| N/A |
| N/A |
September 1, 2023 through September 30, 2023 |
| — |
|
|
| — |
|
| N/A |
| N/A |
Total |
| 240,236 |
| $ | 14.93 |
|
| N/A |
| N/A |
ITEM 5. Other Information.
Items 5(a) and 5(b) are not applicable.
37(c) During the quarter ended September 30, 2023, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, in each case as such terms are defined in Item 408 of Regulation S-K.
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ITEM 6. Exhibits.
Exhibit No. | Description of Exhibit | |
3.1 | ||
3.2 | ||
4.1 | ||
10.1 | ||
10.2 | ||
10.3** | ||
10.4 | ||
31.1* | Rule 13a-14(a) Certification of the Chief Executive | |
31.2* | Rule 13a-14(a) Certification of the Chief Financial Officer. | |
32.1* | Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer. | |
101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL* | Inline XBRL Taxonomy Calculation Linkbase Document. | |
101.LAB* | Inline XBRL Taxonomy Label Linkbase Document. | |
101.PRE* | Inline XBRL Presentation Linkbase Document. | |
101.DEF* | Inline XBRL Definition Linkbase Document. | |
104* | The cover page of our Quarterly Report on Form 10-Q for the quarter ended September 30, |
* Filed or furnished herewith.
38** Certain schedules and similar attachments have been omitted. The Company agrees to furnish a supplemental copy of any omitted schedule or attachment to the Securities and Exchange Commission upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DIAMOND OFFSHORE DRILLING, INC. | |||||
(Registrant) | |||||
Date November | By: | /s/ Dominic A. Savarino | |||
Dominic A. Savarino | |||||
Senior Vice President and Chief Financial Officer | |||||
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