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, ~~2022~~2023


☐	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	☐
~~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, 2022~~3, 2023 Common stock, $0.0001 par value per share ~~101,524,384~~102,322,002 ~~shares~~shares.

DIAMOND OFFSHORE DRILLING, INC.

TABLE OF CONTENTS FOR FORM 10-Q

QUARTER ENDED SEPTEMBER 30, ~~2022~~2023


			PAGE NO.

COVER PAGE			1

TABLE OF CONTENTS			2

PART I. FINANCIAL INFORMATION			3

	ITEM 1.	Financial Statements (Unaudited)	3
		Condensed Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Operations	4
		Condensed Consolidated Statements of Comprehensive (Loss) Income	6
		Condensed Consolidated Statements of Stockholders’ Equity	67
		Condensed Consolidated Statements of Cash Flows	89
		Notes to Unaudited Condensed Consolidated Financial Statements	910

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2226

	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	3539

	ITEM 4.	Controls and Procedures	3639

PART II. OTHER INFORMATION			3740

	ITEM 1.	Legal Proceedings	3740
			37
	ITEM 1A.	Risk Factors	40

	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3740

	ITEM 5.	Other Information	40
	ITEM 6.	Exhibits	3841

SIGNATURES			3942

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.

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.

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.

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.

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.

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.

~~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.~~

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 September 30,
	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 operating activities:
Net income (loss)										$	100,996		$	(50,773	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
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.

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 required~~Certain 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” refer~~conform to the ~~Company and its~~current 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.

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, ~~2022~~2023 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.

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 into~~We are participants in an arrangement with ~~Aquadrill LLC,~~ an offshore drilling company ~~for us to~~whereby we provide management and marketing services (or the ~~MMSA)~~MSA) for ~~three~~certain 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, the~~The managed ~~rig,~~rigs West Auriga ~~began a one-year contract~~and 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 ~~MMSA~~MSA for ~~the~~ ~~Auriga~~both 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	)

(1)

Contract assets and contract liabilities may reflect balances which have been netted together on a contract basis. Net current contract asset and liability balances are included in “Prepaid expenses and other current assets” and “Accrued liabilities,” respectively, and net noncurrent contract liability balances are included in “Other liabilities” in our unaudited Condensed Consolidated Balance Sheets.

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, ~~2022~~2023 (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	)

(1)

Represents the three-month period beginning October 1, ~~2022.~~2023.

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 ~~the~~certain 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, and~~accordingly, have ~~not included~~excluded estimated variable consideration related to wholly unsatisfied performance obligations or to distinct future time increments within our contracts, including dayrate revenue.

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, ~~2022~~2023 and December 31, ~~2021~~2022 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.

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

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 September 30,
	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			—

(1)

~~Represents unpaiddebt issuance costs related to our exit financing that were incurred and capitalized during the Predecessor period from January 1, 2021 through April 23, 2021.~~

~~(2)~~

Represents the cost of302,833 and 463,951 shares of common stock withheld to satisfy payroll tax obligations incurred as a result of the vesting of restricted stock inand restricted stock units during the ~~Successor~~ nine-month ~~period~~periods ended September 30, ~~2022. These costs for the Successor nine-month period ended~~2023 and September 30, 2022, ~~are~~respectively, which is presented as a deduction from stockholders’ equity in “Treasury stock” in our unaudited Condensed Consolidated Balance ~~Sheets at September 30, 2022.~~Sheets.

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 the~~The 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 had~~have 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, $~~8.3~~6.6 million in trade receivables were considered past due by 30 days or more, of which $~~7.5~~5.5 million have been fully reserved. The remaining $1.1 million were ~~fully reserved for in previous years~~less 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 $~~

~~0.8~~14

~~million were more than 90 days past due.~~

Pursuant to ~~FASB ASU~~Financial 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, ~~2022~~2023 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 $~~0.1~~0.2 million at both September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. Our total allowance for credit losses was $5.7 million and $5.6 million at ~~both~~ September 30, ~~2022~~2023 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:


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.

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 Fair Value		Three Months Ended (1)			Nine Months Ended (1)		Level 1			Level 2		Level 3		Assets (Liabilities) at Fair Value			Total Losses for Nine Months Ended (2)
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	)

(1)

Represents short-term investments in debt securities classified as available-for-sale. As the original maturities of these debt securities are three months or less, we have reported that our $109.9 million investment in these debt securities as Cash and cash equivalents in our unaudited Condensed Consolidated Balance Sheet at September 30, 2023.

(2)

Represents an ~~(increase) reduction~~increase in stock compensation expense due to the “marking-to-market” of liability-classified restricted stock units granted to our non-employee ~~directors in April 2021.~~directors.

Successor

December 31, 2021

Fair Value Measurements Using

Level 1

Level 2

Level 3

Assets at
Fair Value

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 Fair Value			Total Losses for Year Ended (1)
Recurring fair value measurements:
Liability-classified Director restricted stock units	$	(1,258	)	$	—	$	—	$	(1,258	)	$	(230	)

(1)

Represents an increase in stock compensation expense due to the ~~total book value as~~“marking-to-market” of ~~December 31, 2021 of two semisubmersible rigs, which were written down~~liability-classified restricted stock units granted to ~~estimated fair value.~~our non-employee directors.

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-Term~~6 “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:

•

Cash and cash equivalents and restricted cash – The carrying amounts approximate fair value because of the short maturity of these instruments.

•

Accounts receivable and accounts payable – The carrying amounts approximate fair value based on the nature of the instruments.

•

Exit RCF borrowings-– The carrying amount of borrowings under our Exit RCF (as defined below in Note ~~7 “Successor Long-Term~~6 “Long-Term Debt”) approximates fair value since the variable interest rates are tied to current market rates and the applicable margins represent market rates.

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, ~~2022~~2023 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. Successor~~6. 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~~

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 Successor~~our 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

~~The borrower under the Exit RCF and Exit Term Loan Credit Agreement (or, collectively, the Credit Facilities) is~~Second 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-issuers~~related 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.

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 First~~Second Lien Notes were valued at par and are ~~unconditionally guaranteed, on a joint and several basis, by~~presented 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 all~~stated maturity of the ~~assets~~notes 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 ~~and~~letters of credit thereunder (or the ~~equity interests in, each Credit Party, including all rigs owned by the Company as~~Exit 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 in~~resignation 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 ~~Borrower~~aggregate 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 covenants~~resignation 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. ~~The~~And 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 governing~~Intercreditor 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.

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 ability~~aggregate 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 ~~ability~~consummation 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 guarantee~~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 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 subject~~credit under the Amended RCF will be reduced to ~~a number of important limitations and exceptions.~~zero.

~~Additionally, these agreements contain~~Borrowings under the Amended RCF may be used to finance capital expenditures, for working capital and other ~~covenants, representations~~general 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 ~~warranties~~unpaid 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 ~~Revolving~~Term 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.

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-use~~sales-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 $~~13.7~~12.4 million liability at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, in “Other liabilities” in our unaudited Condensed

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.

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 $~~17.0~~16.1 million, of which $~~4.0~~6.2 million and $~~13.0~~9.9 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 $~~13.5~~18.3 million, of which $~~5.4~~3.7 million and $~~8.1~~14.6 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:

•

the severity and volume of personal injuries claimed;

•

the unpredictability of legal jurisdictions where the claims will ultimately be litigated;

•

inconsistent court decisions; and

•

the risks and lack of predictability inherent in personal injury litigation.

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 commitments~~Commitments under the contractual services agreements are estimated to be approximately $~~24.0~~ ~~million per year or an estimated $118.7~~27.0 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 liable~~As 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 approximately~~2023. An additional $~~18.0~~1.9 million ~~in certain tax, supersedeas, VAT and customs bonds that have been issued on our behalf.~~

~~The~~was collateralized by a letter of credit ~~collateralizing these bonds was~~ issued under ~~the Exit~~our Amended RCF, ~~and~~which 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 allows~~account for income taxes in interim periods in accordance with FASB Accounting Standards Codification Topic No. 740, Income Taxes, which requires us to ~~claim a reduced~~estimate 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 ~~withholding~~benefit 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 for~~effective 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 provisions~~result of the ~~existing United Kingdom-Senegal Tax Treaty, effective for periods beginning on or after January 1, 2023. We are currently analyzing~~mix 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 Republic~~amount 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.

~~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 September 30,
	Three Months Ended September 30,					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 September 30,
	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 ~~7,530,233~~7.5 million stock warrants outstanding (or Warrants) to purchase shares of our common stock that were exercisable for one share of common stock per ~~Warrant~~warrant 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.

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 Contract Drilling Revenues		Revenues Related to Reimbursable Expenses		Total		Total Contract Drilling Revenues		Revenues Related to Reimbursable Expenses		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

Successor

Nine Months Ended September 30, 2022

Total
Contract
Drilling
Revenues

Revenues
Related to
Reimbursable
Expenses

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 Contract Drilling Revenues		Revenues Related to Reimbursable Expenses		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
Contract
Drilling
Revenues

Revenues
Related to
Reimbursable
Expenses

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
Contract
Drilling
Revenues

Revenues
Related to
Reimbursable
Expenses

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 Contract Drilling Revenues		Revenues Related to Reimbursable Expenses		Total		Total Contract Drilling Revenues		Revenues Related to Reimbursable Expenses		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 Contract Drilling Revenues		Revenues Related to Reimbursable Expenses		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

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 impact~~Commodity prices rose substantially during the ~~demand for offshore drilling services~~third quarter of 2023, as the focus on energy security and ~~recent~~ OPEC+ actions ~~interact~~interacted with ~~tightening commodity supply.~~strong oil demand. Brent crude oil prices ~~averaged~~increased approximately ~~$96~~29% 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 slightly~~2023 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 anticipate~~industry 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.

~~Demand~~The 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 quarter~~first 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 number~~lead times from contract award to commencement of ~~tendering opportunities and forecasts from certain industry analysts indicate that spending~~service for ~~offshore drilling services is likely to continue to increase~~floater contracts signed so far in 2023, as ~~compared~~operators become more willing to ~~2022. These~~commit to longer periods for deepwater drilling capacity. According to industry analysts, ~~predict that the total offshore greenfield project commitments will be approximately $138 billion~~lead times and duration for drillship contracts signed in 2023 ~~compared~~year to ~~$72 billion~~date 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. Much~~the average lead time and duration of ~~this~~contracts booked once these tenders are concluded.

The strong demand ~~growth is projected~~for deepwater drilling rigs continues to ~~be driven by growth in South America~~support increasing rates and ~~the United States, where we currently have operations. Additional activity is expected~~utilization for ultra-deepwater drilling rigs, with current dayrates in the ~~North Sea sector as energy security concerns~~mid $400,000 per day range, and ~~supportive regulatory action~~marketed 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 ~~encourage~~adversely affect utilization and dayrates. While there is a possibility for additional ~~spending by our potential customers. As dayrates continue~~stranded rigs to ~~improve, however, it may become economic for drillers to reactivate~~enter the market, the remaining inventory of idle rig capacity ~~or deliver newbuilds, limiting market upside or potentially placing downward pressure on utilization~~has decreased significantly and ~~dayrates.~~

~~Despite~~ the ~~upward trends~~owners 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 returning~~additional 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.

~~Customer~~

In addition to market factors, customer capital allocation decisions will continue to affect demand for our services. ~~Investment~~Customer investment mixes over time, coupled with energy demand and regulatory measures, could ~~lead to reduced~~adversely impact demand for offshore drilling services in the long term. Notwithstanding this possibility, global energy demand continues to ~~grow while~~be strong and energy supply growth remains ~~constrained, and we~~constrained. 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 ~~2022~~2023 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, ~~2022~~2023 (the date reported in our Annual Report on Form 10-K for the year ended December 31, ~~2021)~~2022), and October 1, ~~2021~~2022 (the date reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2021)~~2022) (in millions).

October 1,
2022 (1)

January 1,
2022 (1)

October 1,
2021 (2)

Contract Drilling Backlog

$
1,596

$
1,191

$
1,034


	October 1, 2023 (1)		January 1, 2023 (1)		October 1, 2022 (1) (2)
Contract Drilling Backlog	$	1,406	$	1,788	$	1,596

(1)

Includes contract backlog of ~~$300.8~~$156.3 million, $307.7 million and ~~$116.0~~$300.8 million at October 1, ~~2022~~2023, January 1, 2023 and ~~January~~October 1, 2022, respectively, attributable to customer drilling contracts secured for rigs managed, but not owned, by us. We entered into the drilling contracts directly with the customer and will receive and recognize revenue under the terms of the contract. Pursuant to the terms of the charter agreement with the rig owner, we will realize a gross margin equivalent to our management and marketing fee.

(2)

~~Contract drilling~~Previously reported contract backlog ~~as of~~at October 1, ~~2021 excluded future commitment amounts totaling approximately $43.0~~2022 included $73.4 million ~~payable by a customer in~~attributable to the ~~form~~term of a ~~guarantee of gross margin~~contract for the Ocean Patriot for which the customer executed its right to ~~be earned on future contracts or by direct payment, pursuant to terms of an existing~~terminate the drilling contract.

2428

The following table reflects the amount of revenue related to our contract drilling backlog by year as of October 1, ~~2022~~2023 (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

(1)

Represents the three-month period beginning October 1, ~~2022.~~2023.

(2)

Includes contract backlog of ~~$48.1 million, $228.1~~$71.7 million and ~~$24.6~~$84.6 million in ~~2022,~~the remainder of 2023 and in 2024, respectively, attributable to customer drilling contracts secured for two rigs managed under an arrangement with an offshore drilling company (or the ~~MMSA. We have entered into the drilling contracts directly with the customer and will receive and recognize revenue under the terms~~MSA) whereby we provide management services for certain of ~~the contract. Pursuant to the terms of the charter agreement with the rig owner, we will realize a gross margin equivalent to our management and marketing fee.~~its rigs.

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	%

(1)

Represents the three-month period beginning October 1, ~~2022.~~2023.

(2)

As of October 1, ~~2022,~~2023, includes approximately ~~154 and 177~~95 rig days currently known and scheduled for ~~reactivation,~~shipyard projects, including capital upgrades, surveys and contract preparation ~~mobilization of rigs, surveys and extended repair and maintenance projects in~~activities for the remainder of ~~2022 and in 2023, respectively.~~2023.

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.

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 quarter~~remainder of ~~2022,~~2023, we expect to incur approximately ~~154~~95 days of planned downtime, including approximately 6261 days for ~~shipyard repairs~~capital modifications, contract preparation and ~~enhancements~~acceptance testing activities for the Ocean ~~Endeavor~~Courage, ~~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 109~~17 days for ~~a maintenance project to meet regulatory requirements~~contract preparation and mobilization activities for the Ocean ~~Apex~~BlackHawk, and approximately 4517 days for ~~the~~ ~~Ocean GreatWhite~~ ~~reactivation and contract preparation activities and approximately 23 days for the completion~~standby, 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.”

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.

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, ~~2022~~2023 and June 30, ~~2022~~2023 and the ~~period from April 24, 2021 through~~nine-month periods ended September 30, ~~2021~~2023 and ~~the Predecessor period from January 1, 2021 through April 23, 2021.~~September 30, 2022.

Results for the Three-Month Periods Ended September 30, ~~2022~~2023 and June 30, ~~2022~~2023

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
EXPENSES

36,212

28,823

TOTAL REVENUES

$
226,073

$
205,702

CONTRACT DRILLING EXPENSE, EXCLUDING
DEPRECIATION

$
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
)


	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 EXPENSES		20,029			16,573
TOTAL REVENUES	$	244,958		$	281,563
CONTRACT DRILLING EXPENSE, EXCLUDING DEPRECIATION	$	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

(1)

An R-E day is defined as a 24-hour period during which a rig earns a dayrate after commencement of operations and excludes mobilization, demobilization and contract preparation days.

(2)

Utilization is calculated as the ratio of total R-E days divided by the total calendar days in the period for all rigs in our fleet (including managed and cold-stacked rigs).

(3)

Average daily revenue is defined as total contract drilling revenue for all of the rigs in our fleet (including managed rigs) per R-E day.

Three Months Ended September 30, ~~2022~~2023 Compared to Three Months Ended June 30, ~~2022~~2023

Contract Drilling ~~Revenue~~Revenue. . Contract drilling revenue ~~increased $13.0~~decreased $40.1 million during the three months ended September 30, ~~2022~~2023 compared to the three months ended June 30, ~~2022,~~2023, primarily due to a ~~33-day increase~~155-day decrease in R-E days ($~~7.4~~46.3 million), ~~combined with~~partially offset by the ~~effect~~favorable impact of higher average daily revenue earned ($~~5.6~~6.2 million). ~~The increase~~Results 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 ~~reflected~~for 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~~ Apex~~and~~ ~~Ocean Patriot~~ ~~(99 R-E~~ (41 days), ~~all of~~ which ~~operated under contract~~was 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 quarter~~a 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 2022~~regulatory 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 Mexico~~other 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 ~~2022~~2023 were ~~$28.8~~$16.6 million, ~~and included $11.6 million~~of which none was earned under the ~~MMSA.~~MSA.

Contract Drilling Expense, Excluding ~~Depreciation~~Depreciation.. Contract drilling expense, excluding depreciation ~~increased $13.4~~decreased $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 ~~2022~~2023, compared to the second quarter of 2023, and was primarily attributable to ~~higher~~the absence of mobilization costs associated with ~~operation~~the mobilization of the Ocean BlackHawk from Senegal to a shipyard in ~~Senegal ($9.5 million), incremental reactivation and mobilization~~the 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 ~~upcoming~~new 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 $6.5 million loss on extinguishment of debt, primarily related to the retirement of a portion of our then existing debt at a premium ($~~2.3~~3.4 million) and ~~other~~the write off of deferred issuance costs related to the retired debt and reduction in borrowing capacity ($~~1.6~~3.1 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 ~~Benefit~~Benefit. . 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. ~~Discrete~~We exclude discrete tax adjustments ~~are excluded~~ from the computation of the AETR and ~~recorded~~record such adjustments in the quarter in which they occur.

We recorded a net income tax ~~benefit~~expense 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 ~~expense~~benefit 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 jurisdictional~~the 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.

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 EXPENSES		54,240			101,022
TOTAL REVENUES	$	758,542		$	618,014
CONTRACT DRILLING EXPENSE, EXCLUDING DEPRECIATION	$	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 jurisdictions~~primarily due to ~~a valuation allowance, while recognizing income tax expense for jurisdictions with forecasted pre-tax income. Additionally,~~dayrates earned by the ~~variance~~Ocean 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 in~~same 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 $3.4~~as 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 losses~~revenue related to ~~our U.S. operations.~~

~~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
EXPENSES

101,022

47,599

16,015

TOTAL REVENUES

$
618,014

$
328,788

$
169,379

CONTRACT DRILLING EXPENSE, EXCLUDING
DEPRECIATION

$
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 contract~~early 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 downtime~~contracts 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 revenue~~R-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 during~~was 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 quarter~~result 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 1,372~~incremental R-E days ~~and average daily revenue of $205,000. Total utilization for the period~~

~~was 71%, reflecting downtime~~ for the Ocean ~~BlackRhino~~GreatWhite (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~~ Onyx~~for contract preparation work (132~~ (192 fewer days) and the Ocean ~~Endeavor, Ocean Patriot~~ Monarch~~and~~ ~~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- stacked~~R-E days for other rigs ~~(320~~in 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 drilling~~RevenueRelated to Reimbursable Expenses. Gross reimbursable revenue ~~of $153.4 million attributable to 724 R-E days~~ and ~~average daily revenue of $211,800. Total utilization~~expenses for the ~~period was 53%. Six~~first nine months of ~~our then contracted rigs operated at nearly full utilization~~2023 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 most~~first 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.~~

Contract Drilling Expense, Excluding ~~Depreciation~~Depreciation. ~~. During the Successor nine-month period ended September 30, 2022 (a 273-day period), contract~~Contract drilling expense, excluding depreciation ~~totaled $442.6~~increased $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).

~~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, ~~2022~~2023 compared to the same period in 2022. Higher contract drilling expense for the first nine months of 2023 included ~~payroll~~incremental 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 compensation~~our rigs offshore Senegal and contract drilling expense associated with ~~certain performance-based restricted stock awards granted in 2021.~~

~~Impairment of Assets.~~ ~~During~~two 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 “Impairment~~2023 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, ~~included~~primarily due to higher market interest ~~cost related~~rates 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 through~~nine months ended September 30, ~~2021~~2023 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 protection~~Loss 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 expense~~retired 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 indebtedness~~existing debt at a premium ($3.4 million) and ~~borrowings outstanding under our previous credit facility. However, due~~the write off of deferred issuance costs related to ~~provisions~~the 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 to~~we 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 reflects~~2023 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 strengthening~~result 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 subsidiary~~jurisdictions with zero percent tax rates resulting in ~~April 2021.~~no tax benefit.

Liquidity and Capital Resources

~~We have available a~~In 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 a~~RCF) to, among other things, (i) reduce the aggregate commitment of the lenders thereunder from $400.0 million ~~senior secured revolving credit facility~~to $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 issuance~~obligations in respect of letters of credit ~~thereunder~~in 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 defined~~Term 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 in~~full 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), ~~none~~gave 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.

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 Operations~~Flows and Cash Expenditures

For the ~~Successor~~nine-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.

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~~

~~the first nine months of 2022, asset~~Asset 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 borrowings~~first 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 ~~2022~~2023 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 million~~contractual obligations or other commercial commitments as previously disclosed in ~~current year capital spending associated with reactivation~~Item 7, “Management’s Discussion and Analysis of ~~the~~ ~~Ocean GreatWhite~~Financial Condition and ~~additional structural work~~Results 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

(1)

We issued $550.0 million aggregate principal amount of 8.5% Senior Secured Second Lien Notes due 2030 on September 21, 2023. Proceeds from the issuance were used to ~~incur approximately $35.0 million~~repay and terminate our Exit Term Loan Credit Facility, redeem in full the First Lien Notes and repay all borrowings under our Exit RCF, including accrued and unpaid interest thereon. We have no further obligations with respect to ~~$40.0 million in connection with reactivation~~these previously reported items, other than borrowings from time to time and ~~contract preparation activities for~~letters of credit issued under the Amended RCF.

(2)~~Ocean GreatWhite, including both capital~~

Interest on the Second Lien Notes accrues at 8.5% per annum and ~~non-capital work scopes. Approximately $18.0 million to $20.0 million~~is payable April 1 and October 1 of total work scopes is attributable to the reactivation portion of the project (including approximately $13 million in capital spending in the remainder of 2022 reported above), and approximately $17.0 million to $20.0 million is attributable to pre-commencement operating expenses, emissions reduction equipment, mobilization of the rig and customer-requested equipment and enhancements. In order to meet an accelerated commencement window, a significant portion of the preparation activities are scheduled to occur in the fourth quarter of 2022.

each year, commencing April 1, 2024.

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 ~~Contingencies~~Contingencies”” 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.

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

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:

•

the effects of our former bankruptcy proceedings on our operations, including our relationships with employees, regulatory authorities, customers, suppliers, banks, insurance companies and other third parties, and agreements;

•

market conditions and the effect of such conditions on our future results of operations;

•

offshore exploration activity, future investment in hydrocarbons, customer capital allocation and commitments and customer spending programs and future projects;

•

sources and uses of and requirements for financial resources and sources of liquidity;

•

~~customer spending programs~~environmental social and ~~future capital investments~~governance trends, practices and ~~customer spending commitments;~~related matters;

•

business plans or financial condition of our customers, including with respect to or as a result of the COVID-19 pandemic;

•

duration and impacts of the COVID-19 pandemic, including new variants of the virus, lockdowns, re-openings and any other related actions taken by businesses and governments on the offshore drilling industry and on our business, operations, supply chain and personnel, financial condition, results of operations, cash flows and liquidity;

•

expectations regarding our plans and ~~strategies, including plans, effects and other matters relating to the COVID-19 pandemic and any new variants;~~strategies;

•

contractual obligations and future contract negotiations;

•

the transition to renewable energy sources and other alternative forms of energy;

•

future energy demand and future demand for offshore drilling services;

•

interest rate and foreign exchange risk and the transition away from LIBOR;

•

operations outside the United States;

•

geopolitical events and risks including Russia’s invasion of Ukraine and related ~~sanctions;~~sanctions, conflict in the Middle East and related disruptions;

•

business strategy;

•

growth opportunities;

•

competitive position including, without limitation, competitive rigs entering the market;

•

expected financial position and liquidity;

•

cash flows and contract backlog;

•

idling drilling rigs or reactivating stacked ~~rigs, including the reactivation of the~~ ~~Ocean GreatWhite~~;or stranded rigs;

•

outcomes of litigation and legal proceedings;

•

financing plans;

•

any repayment, refinancing or restructuring of our outstanding indebtedness or other transaction regarding our capital structure or any offering of securities or other capital markets transaction;

•

market outlook;

•

~~commodity prices;~~inflation;

•

future economic trends, including interest rates and recessionary economic conditions;

•

future commodity prices, dayrates or ~~developments with respect to inflation or interest rates;~~utilization;

•

tax planning;

•

cybersecurity;

•

unionization efforts;

•

changes in tax laws and policies or adverse outcomes resulting from examination of our tax returns;

•

debt levels and the impact of changes in the credit ~~markets;~~markets, including interest rates;

•

budgets for capital and other expenditures;

•

contractual obligations related to our ~~Well Control Equipment~~well control equipment services agreement and potential exercise of the purchase option at the end of the original lease term;

•

the ~~MMSA~~MSA with an offshore drilling company and future management and marketing services thereunder;

•

timing and duration of required regulatory inspections for our drilling rigs and other planned downtime;

•

process and timing for acquiring regulatory permits and approvals for our drilling operations;

•

timing and cost of completion of capital projects;

•

delivery dates and drilling contracts related to capital projects;

•

plans and objectives of management;

•

sale or scrapping of retired rigs;

•

asset impairments and impairment evaluations;

•

assets held for sale;

•

our internal controls and internal control over financial reporting;

•

performance of contracts;

•

compliance with applicable laws; and

•

availability, limits and adequacy of insurance or indemnification.

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.

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 ~~arising~~that may arise from changes in the level or volatility of interest rates. As of September 30, ~~2022, our~~2023, 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~~

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 ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3639

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 with~~included under Item 1A ~~“Risk Factors” in~~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, which~~2022 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.

ITEM 6. Exhibits.


Exhibit No.		Description of Exhibit

3.1		~~Third~~Fourth Amended and Restated Certificate of Incorporation of Diamond Offshore Drilling, Inc. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on ~~April 29, 2021)~~May 10, 2023).

3.2		~~Second~~Third Amended and Restated Bylaws of Diamond Offshore Drilling, Inc. (incorporated by reference to Exhibit ~~3.2~~3.1 to our Current Report on Form 8-K filed on ~~April 29, 2021)~~February 10, 2023).

4.1		Indenture, dated September 21, 2023, by and among Diamond Offshore Drilling, Inc., Diamond Foreign Asset Company, Diamond Finance, LLC, the other Guarantors party thereto, and HSBC Bank USA, National Association, as trustee and as collateral agent, relating to the 8.500% Senior Secured Second Lien Notes due 2030 (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on September 22, 2023).

10.1		Amended and Restated Collateral Agency and Intercreditor Agreement, dated September 21, 2023, by and among Diamond Foreign Asset Company, Diamond Offshore Drilling, Inc., other grantors from time to time party thereto and HSBC Bank USA, National Association, as trustee and as collateral agent (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 22, 2023).

10.2		Purchase Agreement, dated as of September 12, 2023, between Diamond Foreign Asset Company, Diamond Finance, LLC, certain guarantors named therein and Goldman Sachs & Co. LLC, as representative of the initial purchasers (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 13, 2023).

10.3**		Amendment to Credit Agreement, dated September 12, 2023, by and among Diamond Foreign Asset Company, Diamond Offshore Drilling, Inc., HSBC Bank USA, National Association, as administrative agent and as collateral agent, and the lenders and issuing lenders from time to time party thereto (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on September 13, 2023).

10.4		Agency Assignment Agreement and Master Assignment of Liens, dated as of August 10, 2023, by and among HSBC Bank USA, National Association, as successor administrative agent and collateral agent, Wells Fargo Bank, National Association, as resigning administrative agent and collateral agent, Diamond Offshore Drilling, Inc., Diamond Foreign Asset Company, the other loan parties named therein, the Revolving Credit Agreement lenders party thereto, and the Term Loan Agreement lenders party thereto (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 11, 2023).

31.1*		Rule 13a-14(a) Certification of the Chief Executive ~~Officer~~Officer..

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, ~~2022,~~2023, formatted in Inline XBRL (included with the Exhibit 101 attachments).

* 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.

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 ~~8, 2022~~7, 2023	By:	/s/ Dominic A. Savarino
		Dominic A. Savarino
		Senior Vice President and Chief Financial Officer

3942


	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


	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	)


	Successor
	December 31, 2021
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Assets at Fair Value
Nonrecurring fair value measurements:
Impaired assets (1)	$	—	$	—	$	77,900	$	77,900


	Successor
	Period from April 24, 2021 through September 30, 2021
	Total Contract Drilling Revenues		Revenues Related to Reimbursable Expenses		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


	October 1, 2022 (1)		January 1, 2022 (1)		October 1, 2021 (2)
Contract Drilling Backlog	$	1,596	$	1,191	$	1,034


	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 EXPENSES		36,212			28,823
TOTAL REVENUES	$	226,073		$	205,702
CONTRACT DRILLING EXPENSE, EXCLUDING DEPRECIATION	$	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	)